The Best Time to Invest in the Stock Market

Today I'd like everyone to welcome Alexander Green Investment Director of The Oxford Club. Alexander has some pretty interesting insights on the best time to invest, or not invest, in the market - after all, he's got 25 years of experience with this stuff! So please take time and read the article, comment below, and to get more of Alexander Green visit The Oxford Club.


There are lots of theories about how to predict future stock market performance. Most of them are the sheerest nonsense. There is, in fact, only one indicator that virtually guarantees you will be on the right side of the market.

But first, let's look at the most popular source of misconceived market predictions: Data Mining...

Data-Mining Investing Strategies... Don't Expect Reliable Answers

Every year, investors pour billions of dollars into data-mining investing strategies. They come with impressive-sounding features like "proprietary trading tools" or "McMillan Oscillators." But the money might just as well be invested on a coin toss because the reasoning behind it is completely baseless.

What dating-mining strategists typically do is "back-test," or simulate what would have happened if you'd used a particular technique in the past (typically without incurring any fees, trading costs or taxes).

It's not hard to look back and see what the market did under certain circumstances. For example, what has the S&P 500 historically done when the Federal Reserve starts raising interest rates...

* Early in an expansion?
* During the late summer?
* When the U.S. President is a Democrat?
* In an election year?
* After a team from the old National Football League wins the Super Bowl?

In truth, it doesn't matter, regardless of what parameters you use. You can look at GDP growth, inflation levels, stock market valuations, long-term interest rates, the price of gold, or the value of the Swiss franc to the dollar.

As irresistible as data-mined numbers sound for making predictions, the whole shebang is based on a faulty premise...

Don't Fall Into the Data-Mining Trap

The first thing you learn in Statistics 101 is that a positive (or negative) correlation does not infer causality.

In other words, even if stocks have rallied every second Thursday in May for the past 50 years, it doesn't mean they will rally this year on the second Thursday in May. Data-miners regularly turn up meaningless correlations and claim they have discovered how to divine the stock market.

If history could determine what the stock market is going to do next, the world's richest investors would be historians, data-processors and librarians. And that's not the case.

The hypothetical results of data-mining always crumple when they collide with real-world investing.

There is only one sure-fire market timing strategy. It's only available occasionally. Plus, it takes guts and a genuine contrarian spirit...

The Best Time to Invest in the Stock Market

The best time to invest is when you see extreme valuations coincide with extreme sentiment.

For example, if unbridled optimism reigns supreme - as it did during the tech-stock bubble ten years ago and at the top of the real estate craze four years ago - and prices are sky-high, you can bet your last dollar that prices will soon come tumbling down.

By the same token, if abject pessimism is the order of the day - as it was during the financial crisis one year ago - in concert with rock-bottom valuations, you can bet that a rally isn't too far distant.

Indeed, the Dow is 62% higher today than it was a year ago.

That's why you might want to invest a few dollars today in one of the world's cheapest and most unloved markets: Japan.

What's the difference between data-mining and seeking out extremes in sentiment and valuation?

Two things, really. The latter strategy doesn't require a rabbit's foot - and it works.

Good investing,

Alexander Green
The Oxford Club

21 thoughts on “The Best Time to Invest in the Stock Market

  1. The remarks of active M/C members are usually more useful to me than the blogs of invited guests. Lots of hard-won market savvy is on display here. It's useful and is much appreciated by yours truly.

    My own observation: technical analysis is not merely a review of patterns that worked in the past. Technical analysis is grounded in market sentiment. Charts take on various configurations time and time again because prices tell you not only whether a stock is going up or down but - over a period of time - how traders are thinking and responding to events. A head and shoulders formation does not lead to a specific result because it is a head and shoulders but because it is the distinctive track of current market sentiment or "psychology" - if that's a proper term.

    Look. If you know that there's geese migrate every spring and fall, and you use that as a guide on when to grab a shotgun and go hunting, that is not "data mining" or "assuming causality" -- That is just plain damn common sense.

    Good trading.

  2. Tom, I agree with your advice. Fyi, I have also been subjected to their agressive marketing tactics decades ago.

    Nicole, the 24 measuring standards include the most important indices from the NYSE, Nasdaq and AMEX from and others including the breadth indicators for all 3 market represented by the movement of daily highs and lows and daily advancing and declining stocks. I trace them on a daily basis after the market closes in a color coded list that gives me a clear picture of which way the market is heading on a day to day basis. I don't have to do the calcs as they're already done (Point & Figure) with notations for each one. I just tabulate them in order to assess the larger picture of the trend in the market. It may sound a bit complicated but the updating takes only about 15 minutes after the closing of the markets. I am a go-getter type person and I had to resort to this after many years of losses and disappointment with advisory and brokerage firms. Now I use only discount brokers Scottrade and Schwab. Good luck.

  3. The Oxford Club is a direct mail company that lures naive suckers with loads and loads of BS. They have been written up in the Wall Street journal for their unethical and misleading methods.
    Its all about selling this or that "road to riches" investment reports letters etc. Stay away from them.

  4. Interesting article.

    The better approach is a combination of both.

    After the dotcom bubble burst and my portfolio effectively went from riches to rags, I was forced to think deeper on this question of success in the stock market.

    Fortunately, my early difficult life and engineering education (on scholarship) makes me thrive when such big challenges are thrown at me. The time had come for me to face the whole ball of wax. I like doing my own work as to personal growth in areas in a range of subjects from the stock market, to unified theory, spirituality, psychology, philosophy and spirituality. I come alive when I delve into them.

    As to success in the stock market, knowing the important data and history is very important as the cycles- secular and smaller cycles of bear and bull. I'm not talking here of the insignificant stats.

    First, understanding the stock markets involves not only on technical level but also the psychology of the times as explained in the article above by Alexander Green.

    Second, a good knowledge and application in risk, money management, discipline, and knowing when to buy and sell (based on one's own particular realistic objectives) happens to be critical.

    Accordingly, in 2003, I came up with my own Indicator (LMP- Larger Market Picture) incorporating daily data from the market using 24 most important measuring standards to form my own opinion of the pulse of the market. Yes, hearing others' views can be interesting and even helpful, but investing requires a consideration and the factoring in of personal characteristics such as temperament, expectations, risk tolerance, circumstances, etc., that are unique to each person.

    Therefore, knowing where I am in the market and taking responsibility for my own becomes important. Selecting the right stocks knowing when to buy and sell comes next. Then, keeping stocks in my portfolio that are making me more and more money and getting out of those that are not making money is my way of making money in the stock market. There is no perfection in investing in the stock market and the next best thing is to be armed with knowledge- both technical and fundamental - to come ahead of this challenging game.

    Fundamental analysis and technical analysis methodologies are not mutually exclusive. Indeed, I believe that one without the other is like trying to swim with one arm while letting the other arm hand by your side. I find Michael Turner's "10 Essential Rules For Beating The Market" helpful in this matter. Good trading, John

    1. Hi John

      can you tell me about your 24 most important measuring standards in gauging the LMP- Larger Market Picture?


  5. Investing based on reversals from extremities is great, as long as you have enough capital to sustain the times when the extremities continue to be in play. In other words, trading contrarian is great when you're right but expensive while the trend stays in tact.

  6. It's hard to take seriously a man who doesn't know how to use the word "infer". (An inference is something a person makes -- it is not something produced or created by statements of fact, as "...a positive (or negative) correlation does not infer cauasality." )

    This is obviously meant as a short, high-level-of-generality piece. It's correct, in my opinion, as far as it goes, but it isn't very helpful because it's short on specifics. For example, there's no mention of what indicators and readings on them to use to determine points of maximum valuation and sentiment.

    Worse, it doesn't offer a clue as to what to do after the markets have backed off either extreme. Should one still be in the market after the Dow has risen 62%? When should one sell off and when should one re-enter the market?

    To debunk "data mining" is all well and good -- point well taken. Now what?

  7. Interesting article and probably true, and I was impressed enough to follow your link to the Oxford Club. I think you undermine your credibility with your pitch - everyone can pick fantastically rising stocks - if you recommend enough stocks, *some* of them will go up 289%; select those for your pitch and you're laughing.

    Just as you say that the richest investors would be data mining experts if it worked, similarly if you were that good at picking stocks you wouldn't need to be selling a hyped up newsletter.

    Far better to show the average performance over all of your stock recommendations. If that beat the S&P then I'd be interested. But no one ever does.

  8. One thing to keep in mind......limit your losses by purchasing lower priced....technically sound.....companies

    that are either recovering from the great bear market, rather than expensive stock companies that have not

    improved over the long run.......say a limit of $400-500 worth of one stock rather than 10,000 - 15,000

    worth of higher priced know your losses can not exceed total investment.....

    so which would you be more comfortable far as losses go? $400 or $10,000 in case the mkt

    tanked...... either stock company has no upper limits so do the math and due diligence before investing

    hard earned dollars.....

  9. Since there seems to be an equal amount of optimism and pessimism in today's market, does that mean we shouldn't invest now, but wait until one or the other extremes come about? There would be some long waits in between, even if you agree with the premise which is likely true.

  10. Your very methodology of "The best time to invest is when you see extreme valuations coincide with extreme sentiment" is something that can be quantified (market sentiment a little tough but still possible) and yes, even back tested.

    You're knocking historical data and market precedents but when you say "extreme valuations"... you have to have something to reference the valuations against in order for them to be "extreme".

  11. What an excellent post. It sure beats the one you had on a few months ago about timing Noah's flood to the New Testament or somesuch poppycock.

  12. Great piece. Just a pity though that the Nikkei does not want foreign investors. If it did it would not make people pay to look around its site. It makes one think: if one cannot even browse around the site, what other hidden obstructions are there to trading on the Nikkei? Language, heavy courtage, residence requirements, what? An article on navigating around the unknown world of trading Nikkei would be helpful.

  13. I've heard that many times since 1990 and it has never happened. The Nikkei is still worth less than one third what is was worth more than 20 years ago. Japan is heavily in debt and the population is aging rapidly and the Japanese are not very fond of immigrants needed to replace the lack of worker. Do your homework before investing in that one. I'm not saying you can't make money, just don't jump in on someone else's recommendation.

  14. Yes Alexander is right in his own way
    But in this world who knows what will happen tomorrow or after few years. did any body imagine the star of yester years General Motors will have to face the bankruptcy.
    Players make studies based on the data made available (even though may be corrupted- window dressed up)

    But the most horrifying thing is that even the 20+ years earning discounted in advance & built into the price of today is ridiculous & people are lured into buy at that price.
    All in the hope+ greed what ever you may call it

    Otherwise any script should not bear a price more than its real worth plus the earning premium for the year that you will get after the dividend is being paid ( Bonus is boggy)it is shear sub-division of the worth - Main thing for that is only earning potential on which the hope is built & sentiments improves or decline.

    By Technical studies it not claimed to hit the targets for sure or the turning point but the high probabilities. ULTIMATELY SENTIMENTS & MONEY IS THE POWER THAT CAN DRIVE THE WORTH LESS STOCKS TO GREAT HEIGHTS & BURN DOWN GEMS TO ASHES.

    If the Technical were perfect then for last months 6 months it being hauled but market still going up ( nothing except few time it breathed easy then went on


  15. To summarize Mr. Green: (1) Don't do any data mining, (2) Don't do any back testing. Why? Because the past doesn't guarantee the future. Fair enough. Then (1) Do invest when you see extreme valuations coincide with extreme sentiment. Why? Because it's worked in the past! Nonsense and absurdity can come cloaked in highfalutin names like "The Oxford Club".

  16. This was an awesome article. It was plain, simple, and quick to a point.

    Exactly what I have been thinking we need to get back to in this country (for more things than trading).

    The guys who are out here peddling these "systems" wouldn't be selling them if they were working, they would be to busy in the market making money.

    I have tried a lot of things in my life.The one true lesson I have noticed that works constantly is KISS (Keep It Simple Stupid).

    Great article in my opinion.

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