Hetty Green and the timeless appeal of market timing

I have long had a crush on Hetty Green. Not a romantic one: Green lived a century ago, and not even my imagination is that deluded.

Rather the type of infatuation that kids have for their favourite Harry Potter character or that billionaire tech bros have for Ayn Rand.

Kind of fun to think about, but a fantasy. Like a Patronus charm, or a government that moves fast and breaks things – regulations, democracies, good taste – without causing lots of collateral damage.

Hetty Green: Proto degenerate trader (Image: Wikipedia)

With Hetty Green the impossible dream on offer is the mastery of market timing. Of selling your assets when euphoria is at a peak, and then buying back cheap when others are in despair.

It sounds so easy on paper.

Buy low sell high!

And two-way market timing is steroids to your hypothetical returns on a spreadsheet too.

But in practice most people who try market timing might as well be waving a wand over a toad.

The gilded age of market timing

Hetty Green though was the first lady of market timing.

Quite literally.

Because if you’ve heard of Hetty Green (1834-1916) then you’ll also know what the papers called her:

The Witch of Wall Street.

Which honestly isn’t doing my crush any harm.

I mean, while it’s certainly sexist – hailing from a time when any woman making decisions on Wall Street seemed a phantasm – the Witch of Wall Street epithet is also kind of, well, wicked.

But the bigger point is that any female investors were rare back then. So one looming so large in the public’s imagination in the age of Robber Barons was unprecedented.

Be still my beating heart!

Fortunately my goth (/emo) phase pre-dated my investing, so I didn’t know as I mainlined The Cure anything about widow Henrietta’s all-black garb and her sombre hats festooned in black ostrich feathers.

And I certainly wouldn’t have understood how original her contrarian thinking was.

I’ll have what he’s not having

You see Green’s mystique wasn’t simply down to a wardrobe Robert Smith or Billie Eilish would die for.

It was also thanks to how ‘the richest woman in America’ got that way.

Which – supposedly – was by appearing in Wall Street in the midst of market crashes like some gusseted Grim Reaper, hoovering up stock certificates from desperate and over-extended speculators, and then floating back out of town to return to her lair to wait for the next bear market.

A deeper reading of her life shows this to be nonsense – Green kept a permanent desk at a New York bank from where she conducted her extended financial affairs –  but the image still packs a punch.

And the gist of it is true.

Many decades before Warren Buffett was being greedy when others were fearful, Green reportedly said:

“There is no great secret in fortune making. All you do is buy cheap and sell dear, act with thrift and shrewdness, and be persistent”.

And the historical records agree that Green did regularly buy when there was blood on the streets, to quote Nathan Rothschild, another battlefield-raven of an investor.

Magical thinking and market timing

For example Hetty scored a big early win by loading up on ‘greenbacks’ – a novel form of US government debt created by Abraham Lincoln to fund the Civil War effort.

When other investors dumped the paper for gold, Green was a buyer at 40-50 cents on the dollar. She profited mightily when it became clear that the US government would stand behind its obligations.

Her life story is full of such counter-cyclical trading.

But what is less understood about Green – and which I’ll touch on below – is that this legendary market timer actually rarely sold.

Green certainly bought when other investors were on their uppers. But she bought-to-hold.

And here we have a key insight into market timing, and how not to do it.

In, out, shaken all about

Because one of the massive problems with market timing, at least if understood as trying to get out at a top – or even when you fear you’re only halfway to the bottom – is someday you must get back in again.

And evidence and common sense suggests that while you might be skilled or lucky once, to expect to beat the market twice in a row with great timing smacks of hubris.

But buying cheap in a crash and then tucking it away?

While not short of its own problems – such as lousy returns on the cash set aside while you wait for a crash, perhaps for years – such a strategy is at least closer to investing than trading.

Which, again, is not to say you’ll do better than a passive investor who just pound-cost averages in more money regardless.

Indeed in a superb post for the ages, blogger Nick Maggiulli once showed how even God – presumed here to be a perfect market-timer – would usually fail to beat an investor who simply socks away more money on a schedule.

How come?

Well, waiting for a buyable dip as the market races upwards has an opportunity cost. Your cash usually isn’t compounding at anything like the same rate of return as shares.

Worse, any crash that eventually does come often won’t make up the difference – assuming you even have perfect knowledge of the best moment to buy such a dip.

Which – spoiler alert – you don’t.

Against that, the Dow Jones Industrial Average was in the low 100s in 1916, the year Hetty Green died.

It touched 45,000 in December 2024.

Which is to say the US stock market at least has always eventually recovered – and thus has always eventually bailed out a buy-and-hold investor.

Avoiding crashes with your market timing efforts might feel good in the moment. But missing out on big long-term gains will kill you.

Mistiming en masse

I won’t say there’s nobody taking their whole portfolios in and out of equities on a rinse-and-repeat path to riches.

But if there is then they are hiding their talents – and the resultant fortunes – under many bushels.

Certainly there’s not many. I can’t recall ever reading research suggesting market timing delivered any excess returns for so-called retail investors write large. (That’s commoners like you and me).

On the contrary, Googling reveals plenty of research suggesting bad timing costs us dearly.

Investing even has special phrases like the ‘behaviour gap’ to flag how private investors make return-sapping decisions by trying to time when they invest their money where.

You can’t even pay a professional to do it

But yes, some small number of individuals may have the gift of market timing.

As I said above, you’ll soon find out if that’s you if you try.

Enjoy your imminent riches!

Indeed you might think anyone so blessed would quickly become a professional investor in order to truly profit from their rare skill.

Alas – evidence of wonderful market timing by professional investors is notably absent, too.

As a group, most go-anywhere hedge funds have chalked up mediocre returns for years. Their managers blamed everything from irrational markets to low rates to index fund distortions for their woes. But if they really could market time then they’d have stayed 100% in US large cap stocks, feasting on the gains.

More likely they long ago judged such companies had become too popular and paid the price.

Another case in point are tactical-allocation funds. Their whole raison d’être is to judiciously get in and out of different asset classes at the right time.

But Morningstar recently reported that:

When compared against the average fund in the moderate-allocation category, tactical asset-allocation funds have lagged by more than 2 percentage points per year, on average, over the past five years.

They’ve trailed by roughly twice that amount when compared against a simple portfolio composed of 60% stocks and 40% bonds and rebalanced annually.

These funds are very well-resourced outfits where pay and bonuses depend on getting such calls right. Yet they can’t do it well enough to beat a 60/40 portfolio.

So do you feel lucky, punter?

I read this week the chairman of Ruffer – a multi-asset allocation fund – trying to spin poor performance of late as some sort of rallying cry.

To paraphrase: equity markets are too high, and we know because we got out two years ago and since then we’ve lagged badly and this always happens to us.

Um guys… that’s not a feature, it’s a bug.

Tips for would-be market timers

I like Ruffer by the way, and I read their reports because I like to hear what they have to say.

But the point is market timing is much, much harder than it looks.

My best market timing advice to readers would be don’t do it. Our house guidance is to invest passively into index funds and ignore the noise for good reason.

Both evidence and observation suggests to me most people will do worse in trying to strategically juggle their asset allocations around, whether they’re doing it by maths, intuition, or chicken entrails.

Market timing can also be a gateway to other bad behaviours. Stuff like over-trading, or focusing on short-term wins versus the long-term gains that really drive returns.

All that said, Monevator is a broad church and I’m a naughty active investor myself who absolutely does shift my allocation around depending on my mood swings reading of the economy and the markets.

And while I have many faults, I’m not too much of a hypocrite.

What’s more there are clearly some successful funds – and a few legendary investors – who do employ timing to some degree.

Famed US fund manager Stanley Druckenmiller hasn’t had a single down year in decades. He obviously didn’t achieve that by sitting on his hands and reading Jack Bogle.

So if someone wants to try market timing, why not?

Again, a hugely attractive trait of investing is that it is scored.

Provided you’re keeping meticulous records, the markets will soon let you know if your timing experiments are costing you (very likely) or adding value (at least until they don’t…).

Ideally run the experiment when you’re young and any painful lessons won’t do much damage – and while there’s still time for a lucrative career switch to The City should you discover you do have edge.

I did it my way

Here’s a few personal hints about market timing from my decades as a wannabe Hetty Green:

Have a plan in advance. Suddenly shifting from passive investing to becoming a market timer in the midst of a crash isn’t being strategic. It’s panicking.

Don’t go all-in or all-out of equities. Some market strategies advocate for it. I say be humble. Warren Buffett is a legend for letting his cash pile-up when markets are richly-valued. But Buffett doesn’t sell all his shares. And neither you or I are Warren Buffett.

Focus on the egregious anomalies. The CAPE ratio is 20% above its long-run average? Who cares. It could stay that way for a decade – or forever. But Japan in the 1980s, Dotcom stocks in 1999, or – whisper it – inflation-linked bonds in the near-zero interest rate era? Crazy. You could have at least halved your stake and been soberly prudent in doing so.

Always remember you have to get back in. Don’t wait for a perfect checklist of signals that the bear market has bottomed. You should be buying long before that. I’m always legging in and out of positions when I’m (for my sins) trying to curb the worst damage of a falling market. It’s almost a strategy of rearranging deckchairs on the Titanic – saving a percentage point here and there. Sounds crap, until you recall that on the Titanic there weren’t enough lifeboats, and the markets are hardly any kinder.

Watch momentum. I’m not a trend follower, but there is evidence that big breaks in momentum can signal turning points in market direction. Obviously it’s not easy or everyone would be doing it, but you should at least read up on the basics about 200-day moving averages and the like if you’re dabbling.

Clinging to quality versus the dash for trash. I did a bit of useful reshuffling during the Global Financial Crisis. I sold my bank holdings early, and kept buying other equities as the market fell and bottomed out. But when the rally came, my portfolio was initially left behind. Why? Because I’d loaded up on safer higher-quality stocks. Yet what recovers first in a new bull market is often whatever junky stocks didn’t go bust in the downturn but were priced like they would. Once more with feeling: this game is not easy!

I could continue but my co-blogger The Accumulator will put out a contract out on me. So that’s enough off-messaging for one day.

Market timing: unnecessary and insufficient

Of course in a long career every professional will get market timing calls right now and then.

If they’re able to then get lots of publicity for it, doing so might make their name as a market sage for life. The financial media isn’t known for rigorous accounting or counterfactual thinking.

But we’re about taking charge of our futures here on Monevator, and this is your own money at stake.

Your financial freedom, your early retirement, or your kids’ future.

And guess what? You don’t need to make a name for yourself as the person who called a crash right once and then filled their funds with client money for years on the back of it.

Rather, you need decent returns compounded over multiple decades to reach your financial goals.

Market timing mayhem is more likely to be a pitfall than a boost on such a journey.

To give one example: selling out in a bear market and then failing to buy back in before the market redoubles will permanently impair your portfolio – or even worse your appetite for any investment at all.

The most damaged traders are the once-burned market timers who subsequently sit in cash forever.

It’s not easy being Green

Again: most people will do best with a sensible financial plan that doesn’t rely on luck or genius.

Read our passive investing guide and have at it.

But if you must try market timing, I’d aim to be more like Hetty Green and less like your favourite social media huckster or YouTube trading guru.

Look to be an active buyer of risk assets when markets are down, say, but aim to then hold indefinitely.

Shift towards value or momentum at the margin. But don’t move in and out of markets wholesale.

And get some funereal black for your wardrobe.

Because even with this more modest approach to market timing there’s a strong chance you’re going to need it.