Q: What do market timing and stock picking have in common with Las Vegas?

A: You might win – but odds are most likely stacked against you. And if you attempt to win at both every year, it’s nearly guaranteed you will end up losing overall.

One difference between the two is that with marketing timing and stock picking, you are betting big chunks of your net worth. And you’re not even getting free drinks. It also bears remembering that what happens in the market doesn’t just stay in the markets. Those events are hitting you where it counts: your future.

The trouble with market timing is that in order to win, you must correctly predict market cycles. How do you know when to sell an asset class? You don’t have a crystal ball, so you can’t possibly know the correct answer. Do you sell now? Next week? Next month?

Let’s say you do end up correctly guessing when to sell. You’re still only halfway there because you now have to figure out when to get back in. For example, if the market drops 600 points in a day, is that when you will dive back in? Or will you wait for a full month of terrible returns? And if you do, and then buy back in and the market continues to fall, will you bail again?

If you do happen to successfully time both sides of the market – which, again, is a rare occurrence indeed – it’s not necessarily a given that you will have made any money. After all, if your gains are relatively modest, then the cost of trading in and out of the market may eat up most of your profits.

Time in the Market vs. Timing the Market

Take for example a story of three friends: Laurie, Angela and Karen are old college friends who began investing in 1987, each with $100,000.

Karen has invested her $100,000 in four installments, each one timed at the top of a bull market. She waits until the market is “good” before investing and she never sells.

Angela is great at recognizing the bottom of a bear market, and has also invested her $100,000 in four installments – each one made right at a market bottom.