TITLE: Market Timing and Learning
AUTHOR: Eugene Wallingford
DATE: November 28, 2006  1:28 PM
DESC: 
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BODY:
I am a
<A HREF="http://www.cs.uni.edu/~wallingf/blog/archives/monthly/2006-11.html#e2006-11-16T17_28_33.htm">
   dinosaur</A>
who still keeps track of our family finances by hand.
(But not for long; one of my Christmas break projects
is to convert to Quicken.)  While going through some
brokerage statements over the long Thanksgiving weekend,
an analogy between investing the stock market and
learning occurred to me.  Let me know what you think.

"Market timing" is the attempt to invest money in a stock
or a market when it is near its lowest price and then to
cash out when the price is near its peak.  With a perfect
model, I could invest when the price is at its minimum and
divest when the price is at its maximum, with a maximal
profit as my perfect prize.  Market timing is a risky
endeavor that almost always fails.  Why?  Because no one
has a very good idea about how to recognize maximum and
minimum prices.  That may not seem so bad; even with prices
only near their minimum and maximum, an investor could do
quite well.  But the risk is much worse than that,

Many investing gurus are keen to point out that most of the
gain in the stock market over the last 80 years or more have
occurred on relatively few days.  In the past I have seen a
list of the ten days with the largest gains in the history
of the New York Stock Exchange and the Dow-Jones Industrial
Average  Any investor who was out of the market on these days
missed out on a significant percentage of the market's gain
over the last century.  I can't seem to find such a list on
the web just now, but I did find
<A HREF="http://www.fool.com/School/BuyandHold6.htm">
   this page</A>
that tells a similar tale:

<BLOCKQUOTE><EM>
Consider, for instance, the returns on small company stocks between
1925 and 1992.  If you had been invested in small company stocks
over this period, your average annual return would have been 12.1%.
If you sat out the single best month during that 67 year period, you
would have only made 11.2% a year.  If you missed out on the best
five months, well, forget it... you would have only notched gains
of 8.5%.  Finally, if you had missed the best ten months -- something
all sorts of market timers managed to do in 1995 -- you would have
only retained 6.3% annual gains, almost half of what you could have
made had you been fully invested.
</EM></BLOCKQUOTE>

I think that learning works the same way.  Once before, I
related this phenomenon to 
<A HREF="http://www.cs.uni.edu/~wallingf/blog/archives/monthly/2005-08.html#e2005-08-22T19_55_10.htm">
   negative splits in running</A>:
the gains a learner makes may be relative small early in a
course and relatively larger later in the semester, as the
material steeps in her mind and is processed both consciously
and subconsciously.  I first experienced this is a course as
an undergraduate when I plodded along for eight weeks before
I somehow "got it".

As near as I can tell, the day on which one gets it is often
unpredictable.  Sure, some courses and some kinds of material
can be learned steadily through a methodical process.  But
most of the best kind of learning involves a shift in how we
see problems or how we see understand solutions, and this
kind of learning usually seems to bear an a-ha! moment.

If I think of my effort studying a new topic or learning a
new technique as an investment of mental energy, then I don't
want to find myself in the position to "time the market" --
trying to guess the right day or few right days to be thinking
hard about the material or practicing the skill.  The a-ha!
moment will come when I least expect, and if I am "out of the
market" that day -- waiting until next weekend to start my
programming assignment, or skipping a day of study to work
on something else, or doing the work but merely going through
the motions -- then I will miss the chance to make the big
stride to the next level of understanding.  And like the
investing sort of market timing, the risk is pernicious.
Not only won't I end up with the big gain; I may end up with
nothing at all to show for my study, just a time spent and
no understanding of anything of consequence.  Learning is
cumulative, and unless we give it a chance to accrue and to
reinforce itself, we don't accumulate anything.

Sadly, today's students often operate under conditions that
require a random sort of market timing.  Many of them work
far too many hours to allow them to work each day on each
of their courses, at least not in a full-engaged way.  Some
of them take too many classes, in an effort to graduate "on
time" or as soon as possible.  (The rush is sometimes driven
by financial considerations, but sometimes by misplaced
ambition.)  Many students come to college these days with
many other interests, curricular or extracurricular, that
interfere with their classwork.  The result is hit-or-miss
study, too many days without thinking about a particular
course, and little understanding.

I think that this analogy applies to teaching, too.  Unless
I stay engaged with my course and my students throughout
the semester, then I will likely be unprepared when
<A HREF="http://www.cs.uni.edu/~wallingf/blog/archives/monthly/2006-11.html#e2006-11-14T16_32_15.htm">
   opportunity's knock</A>.
Indeed, opportunity probably knocks at all only because we
stay engaged and make the conditions possible for a visit.
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