Thoughts On Market Timing


A while ago I wrote about an HBS paper that showed entrepreneurial success is driven by two distinct skills of the founder: market timing skill and managerial skill.  Today I was interviewed on background by an author who’s writing a book on entrepreneurship and we discussed this topic in some detail.  The interviewer asked the question that begs to be asked, i.e. “what is market timing skill?”

I wish I knew the answer to this.  In any case, here’s what I said (and I paraphrase):

If you are captain of a tall ship, your managerial skills include your ability to ensure the sails are right, the crew is well selected, trained and orderly, executing the routine of the day, the ability to bail water in rough seas and the like.  Basically everything looking inward.

On the other hand, as captain, your market timing skills include your planning of the journey, the route you will take and when, how you react to the clouds on the horizon, the direction of the wind, birds off in the distance that may signal land and more.  It’s essentially everything looking outward.

I know, it’s not much of an answer.  More of a “the answer might be somewhere over here” response.  The real trick is to identify specifically what are these market timing skills and how can you learn and practice them.

I’ve gotten market timing wrong both ways (too early for electric passenger cars and arguably too late for hedge funds).  The common mistake, I suppose, is seeing the world (or market) as you would like it to be as opposed to how it really is.  It’s not enough to merely understand the mechanics of a market and hope that you get lucky and things go your way.  You also must know the key drivers and the likely trends influencing those drivers.  I’ve come to believe that these macro issues are far more valuable (and valued) than the simple ability to execute.  Who cares if you’re good at bailing water if you’re heading into the perfect storm?

I think this is reflected in (and partially caused by) the “entrepreneurs must be optimists” stigma.  Over the past 2 years I have seen hundreds of business plans.  Exactly zero talked about how to exploit a global downturn in the economy.  Everyone was out trying to raise VC or venture debt and not really thinking about what would happen when the music stopped. I have to give myself a little bit of credit on this one in that I thought (and even said a few times) that last year (and this year) would be a bad time to raise money meaning it’s a good time to finance with sales.  Anyway, I’d love to hear your thoughts on market timing skill (or even whether such a thing exists).