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The advise "Don't time the market" alludes to not operate on it merely because you think something is going to go up or down in short-term.

Let's suppose a small investor has a savings plan by which he invests a fixed amount each month. If that investor decides to stop buying a fund/stock/bond (not selling it, just not buying) because its PE ratio is "very high" (say, historical maximums), even if that means not buying it for a long time, is that "timing the market"?

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  • It is not "timing the market" because you are looking at quantitative analysis of only this single stock and ignoring the rest of the market. It could be described as "timing one stock".
    – Ben Voigt
    Mar 12, 2021 at 17:27
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    @BenVoigt This isn't really true. You are not 'timing one stock' if you pull your money out because it's overvalued. Because that implies you are going to get back in at some point. An investor who pulls his money out of a stock due to it being overvalued should not care to ever get back in that stock if it never becomes undervalued again.
    – Martin Dawson
    Mar 12, 2021 at 18:47
  • The advice "don't time the market" is trumped by "Buy low, sell high". It is an admonishment a) to discourage rank amateurs from trying to guess the market, and b) a CYA for brokers so they don't get sued when the market randomly tanks the day after they put a new customer into it. BLSH still applies: if CNN is showing brokers jumping out of windows, "buy low".
    – Harper - Reinstate Monica
    Mar 13, 2021 at 2:01

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It depends what you do with the money instead. If you use it to buy other stocks with a low P/E ratio this would be value investing which is considered a good thing in current investment theory.

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The other answer by @manziel said this:

It depends what you do with the money instead

This is absolutely not true.

Timing the market is purely taking money out of the stock market because you believe you can get in at a lower price due a crash coming. This is usually due to some belief by an investor who is a novice.

If everything in the stock market is overpriced and you take your money out and you leave it in cash you are not timing the market, you are simply not investing because prices are too high. For example, let's take it to the extreme, if all stock prices stay overvalued indefinitely you should be willing to never put money in a stock again due to it being overvalued. That is not timing the market.

There's a huge difference.

For example warren buffet does the latter. He will not invest in any stock if they are all overvalued. He's not timing the market by doing this.

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  • "If everything in the stock market is overpriced" Merely making this statement requires timing the market. "if all stock prices stay overvalued indefinitely" This is a contradiction. The definition of overvalued is that the future value compares unfavorably to present-day pricing. If the future price remains high forever, then it never was overvalued.
    – Ben Voigt
    Mar 12, 2021 at 19:04
  • @BenVoigt It's not a contradiction at all. Intrinsic value is not equal to the stock price. All stocks can be overpriced and theoretically could remain overpriced for any amount of time compared to it's cash flows. The intrinsic value never has to catch up. Re-read my answer.
    – Martin Dawson
    Mar 12, 2021 at 19:21
  • There have been lots of people waiting for crashes that failed to materialize for years. Before the 2020 crash, there was a decade long bull market. What if you sold in 2015 because the S&P 500 was at an all time high? You miss out and half a year later you are back in. Every time you buy or sell consciously you are timing the market. Why sell Foobar Corp today if I can get 2% just by waiting for the next day?
    – Manziel
    Mar 12, 2021 at 23:06
  • @MartinDawson: You are forgetting that "intrinsic value" is not a fact but an opinion. When you say "The intrinsic value never has to catch up" what you actually mean is that your method of estimating intrinsic value has been erroneous all along.
    – Ben Voigt
    Mar 12, 2021 at 23:11
  • @BenVoigt That's still not timing the market or timing a stock even if your method of intrinsic valuation is erroneous. However it seems that this question is more opinionated than fact so let's probably just leave it at that as we both disagree.
    – Martin Dawson
    Mar 13, 2021 at 8:53

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