Q and A on Market Timing versus Buy and Hold Investing

I've listened to some of your author interviews via podcast, and have really appreciated the great info, and picked up some of the books. Two questions:

QUESTION: I'm reading John Bogle’s book, "Common Sense Investing,” based on your interview, which really advocates a buy-and-hold index philosophy. His approach makes sense, but I can see from the graphs that if you sold at peaks (before the ten year lows), you would end up even better (some periods take ten years before they return to their previous peak value!). How do you reconcile this "market timing" vs. "buy and hold"? How do you feel about indexing vs. managed mutual funds?

ANSWER: Most financial writers will make blanket statements such as using index funds is a better strategy than using managed mutual funds. The truth of the matter is there are times when indexing works and there are times when managed funds are best. I would suggest that over the past three years, managed mutual funds were the better choice. However, in the late 90's, index funds were tough to beat. In fact, indexing with the S&P could be very tough as we go through this credit crisis (which still has a long way to play out). The S&P 500 is greatly influenced by financial stocks. One other thing you have to be careful of is the financial writer or talk show host who has the answer and claims that it is the only way to go about doing something. Remember, there is no holy grail when it comes to investing. Those are good questions - I wish everyone would think through what they hear and challenge it.

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