Common Sense on Mutual Funds, Updated 10th Anniversary Edition

by John C. Bogle

The first is market timing—the attempt to shift assets from stocks to bonds or cash in hopes of escaping a stock market dip, then to shift the assets from bonds or cash back to stocks in an attempt to ride the next stock market wave. For most practitioners, market timing is apt to bring the opposite result: they are in the market for the dips, but out of the market for the rallies. The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently. Yet market timing appears to be increasingly embraced by mutual fund investors and the professional managers of fund portfolios alike. The second short-term strategy is the rapid turnover of long-term investment portfolios. It too is evident in the actions of both mutual fund investors and fund managers. It is a costly practice, predicated, much like market timing, on the belief that investors can invest in a particularly attractive stock or mutual fund, watch it grow, and then eject the investment from their portfolio as it crests. As with market timing, the record provides no evidence that rapid turnover enhances the returns earned by fund investors or by fund managers.

Too much activity doesnt work ie market timing etc.