Market Timing

Hey Carl, I just recently discovered your blog a few weeks ago and even added it to my RSS Feed list. I really enjoy your blog because you speak very practically and conceptually. With my first comment post on your site I would like to ask a question. As a 20 year old attending school, working a decent job, and still living at home (essentially no expenses) where should I start?

I've never invested before and after reading through your blog I am very interested. If you could point me to a good place to start (i.e. good way to start investing) I would greatly appreciate it. Keep it up!

Thanks a ton for the feedback! Without knowing your situation all I
can offer is some simple rules of thumb based on the little I know:

1- Built a "slush fund": 3-6 months of living expenses in a money
market account (ING Direct or Zions Internet Money Market are good
places to start)

2- Start Investing for the long-term:
2a. Open an account at a good custodian (Vanguard, Fidelity, ING Direct)
2b. Use a broad based index fund (Russell 3000 or the S&P 500)
2c. Add to it every month, using an automatic investment from you bank account

I think that it is safe to say that there might be a few ways to do
better than that, but the ways to do worse are infinite.

At some point it would be wise to find a good, independent, financial
planner and get advice that is tailored to you. Many of the good ones
would be happy to spend some time with you and point you in the right
direction to get started. If you need someone in your area let me know
and I might be able to give you a name or two.

As to skill vs. luck: One of my favorite examples is from John Bogle's "Little Book of Common Sense Investing" in which he shows that it would require several decades of superior performance by a fund manager before we could be statistically confident that he/she is outperforming due to skill.

Of course, rarely do we see anybody running a fund for 40+ years. :)

That is a great point. In terms of determining luck from skill you
would need a much larger "sample" then a 10 year (or even 40 year)
track record before you could say with any degree of confidence that a
market timing strategies success is due to skill.

So even if you could find a timing strategy that had been successful
over 40 years (hint: don't bother looking because there aren't ANY),
you would still not be able to be sure it wasn't luck.