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Source Basis

Investment Foundations

Mission 11 · Lesson 11.1 — Set a Market-Timing Policy

Aswath Damodaran, Investment Philosophies (Sessions 30, 32, 33 and 34 of 38)

How this lesson uses themShow

Source-authentic claims follow Damodaran Sessions 30 (the payoff and the cost of market timing), 32 (mean reversion and macro fundamentals), 33 (valuing the market) and 34 (whether timing works). The break-even bar is Sharpe's 1975 seven-in-ten and the Chua, Woodward and To 70–80% figure, both from Session 30. The newsletter evidence is Campbell and Harvey (1996), 237 newsletters over 1980–1992. Session 32 has no official caption track, so its narration was not reviewed and every Session 32 claim here rests on canonical slides alone; the two macro tables state year counts but no start or end date, and are labelled accordingly. Damodaran's caveat on his own tactical-fund comparison — that it covers one period — is carried. The 5–10% speculative sleeve mentioned only in Session 34 narration is deliberately not offered, at any size, because it is conditional on a hit rate the same course shows is very hard to reach. The Missing-Time Timeline path is illustrative and original OPS pedagogy: it is not historical data, not any real index, and not a forecast. Nothing here is investment advice, no live market data is used, and no personal tax liability is calculated. Full audit: docs/source-audits/mission-11-timing.md.

Mission 11Investment Foundations · Set a market-timing policy

Set a Market-Timing Policy

You have an allocation and an architecture. This mission decides whether you will ever move away from them on purpose — and if so, how far, for how long, and what brings you back. Deciding not to time the market is a policy too, and it counts.

Your mission

Price what being out of the market costs in both directions, test two of the most repeated market rules against their own record, then write either a no-timing policy or a tilt bounded by a limit, an expiry and a stop — and hold it against a headline you did not plan for.

Start the timeline ↓

30 minutesSix guided stagesOne saved timing policy

Guided timing lab

0 of 6 stages complete

OPS Guide

You already chose weights in Mission 5 for reasons you wrote down. Timing means moving away from them on purpose. Everything in this mission is measured against that line.

See what your policy weights are, then price a move away from them.

Stage 1 of 6 · Deviation

Timing is a deviation, not a separate game

In Mission 5 you set strategic weights from your horizon, your cash needs and how much loss you could carry. Market timing is not a separate activity from that. It is a decision to hold different weights than the ones your own reasons produced, because you believe something about what happens next.

The bar

Sharpe put the break-even at telling a good year from a bad one seven times out of ten. Chua, Woodward and To put it at 70–80%. Below that, timing loses money even before you pay to trade.

Damodaran, Investment Philosophies Session 30. Sharpe 1975; Chua, Woodward and To, Monte Carlo simulation on the Canadian market.