Fools R Us

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By Mark Hulbert, MarketWatch

ANNANDALE, Va. (MarketWatch) -- Pencils ready?

Here's this week's investment pop quiz.

The first question: How many stock market timers, of the several hundred monitored by the Hulbert Financial Digest, called the bottom of the bear market a year ago?

And a follow-up: Of those that did, how many also called the top of the bull market in March 2000 -- or, for that matter, the major market turning points in October 2002 and October 2007?

I have an ulterior motive in asking these questions, by the way. I've noticed that many of the analyses of this week's anniversaries are guilty of rewriting history, making the last year and the last decade seem more predetermined and obvious than they were in advance.

For example, one common theme this week has been to marvel at the folly of those who, 10 years ago, actually believed the hype about the Internet. Need I point out that, to one degree or another, those fools were all of us?

It's one thing to say now, with the benefit of hindsight, that the stock market in March 2000 was wildly inflated and ready to plunge. It's quite another to have predicted it at the time.

The same goes for the end of the bear market one year ago.

I designed my pop quiz to illustrate just how much Monday-morning quarterbacking is going on. It turns out that none of the markets timers I monitor were able to call the last decade's market's major turning points.

To be sure, there is no exact definition of what "calling" a market top or bottom involves. In the case of the March 2009 bear market bottom, for example, does "calling" it mean the adviser's portfolio needs to have moved from being all cash to 100% invested in stocks on the exact day of the bottom?

If my analysis had relied on a definition as demanding as this, then it wouldn't be surprising that no timers called recent market turning points.

But my analysis actually relied on a far more relaxed definition: Instead of moving 100% from cash to stocks in the case of a bottom, or 100% the other way in the case of a top, I allowed exposure changes of just ten percentage points to qualify.

Furthermore, rather than requiring the change in exposure to occur on the exact day of the market's top or bottom, I looked at a month-long trading window that began before the market's juncture and extending a couple of weeks thereafter.

Even with these relaxed criteria, however, none of the market timers that the Hulbert Financial Digest has tracked over the last decade were able to call the market tops and bottoms since March 2000.

These results add up to perhaps the most important investment lesson of all that can be drawn from this week's market anniversaries: Predicting turns in the market is incredibly difficult to do consistently well.

That means that, if your investment strategy going forward is dependent on your anticipating major market turning points, your chances of success are extremely low.

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.