The story this morning that one of the chief critics of market timing also profited from it puts a neat point on how tricky this issue is. During the middle of 2003, according to the WSJ, Stanford professor Eric Zitzewitz was advising Eliot Spitzer’s office while starting up a timing-trade operation. According to the story, he allegedly made $500,000 on $19.5 million in capital (10% annualized) during a three-month period this summer.
Most are focusing on the essential contradiction of having someone criticize the industry while (legally) profiting from it. I’m more mischievously sanguine, and am tickled that Zitzewitz did more than most finance professors and got his hands dirty in the market. More interesting, however, is how (relatively) poorly he did. Zitzewitz turned in only 10% annualized returns, as opposed to the 35%-70% annually he forecast from the strategy. Perhaps some critics are right: market timing is a money-losing strategy that just happens to be over-loved by the high-IQ set.