Market timing and roulette wheels

Nobel laureate William F. Sharpe and others have alerted investors to the p otential pitfalls of market timing. We also conclude from the study reporte d here that market timing is generally a difficult game. But the difficulty varies substantially over time - which has some intriguing implications fo r performance evaluation. Using a new measure of investment performance tha t we call the "roulette wheel" measure, we analyzed monthly, quarterly and annual market-timing strategies in the 1926-99 period for six major U.S. as set classes. in 1995-99 period, buying and holding large-capitalization sto cks would have outperformed about 99.8 percent of the more than 1 million p ossible quarterly switching sequences between large-cap stocks and U.S. T-b ills. In 1994, however, if 1,000 portfolio managers had made monthly random choices between large-cap stocks and T-bills, about 591 of them would prob ably have been beaten a buy-and-hold strategy. If 650 of the 1,000 had beat en a buy-and-hold strategy, should all 650 have earned a bonus?