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How to Time the Markets Like an Investing Pro - August 11, 2020

Zacks Equity Research

There is no better feeling for an investor than trusting your gut or doing your research and timing the markets correctly, right?

In fact, even among long-term investors who don't attempt to time the markets, being able to call the top of the market is a skill that many think they possess. This misguided confidence is often driving investors to sit on the sidelines and wait it out for better market opportunities.

Individual investors who focus their efforts on timing the market typically miss chances. For example, many investors have overlooked chances to benefit from buying the Construction stocks at the first opportunity, by attempting to buy them during a pullback only to see these stocks accomplish new unsurpassed highs: Apergy Corporation (CHX), Atlantia SpA (ATASY), Alfa Laval AB Unsponsored ADR (ALFVY), Altair Engineering Inc. (ALTR), Great Lakes Dredge Dock Corporation (GLDD)

Dread and exuberance regularly propel investors into merely 'reacting' to market volatility, rather than envisioning market trends.

Fruitful market timing requires three key parts: 1) A solid sign to guide you when to get in and out of stocks (or securities, gold or different kinds of investments). 2) The capacity to act on the sign accurately. 3) The control to follow up on it.

Many investors think of market timing success as a win or lose proposition. But there is a less notable, rather straightforward, successful market timing approach that has been utilized effectively time after time by astute investors like Warren Buffet.

Rule 1: Why trying to time the tops and bottoms of the market is a dead end.

Abandoning the goal to time the tops and bottoms precisely gives you the flexibility to profit, thereby increasing your chances to lock in built-up profits even if your calls aren't exactly right.

Rule 2: Don't sell during small crashes - ride the storm out, or better yet, take advantage of the opportunity.

Warren Buffett has made his fortune based of this straightforward guideline. He warns not to sell during small crashes, and weather the storm by focusing on the long term.

There is a noteworthy distinction between a complete market meltdown and a common 10% market correction. The theory is that if you like and bought a stock at a previous valuation prior to the correction, you should love the opportunity to this same at a steep discount since the underlying fundamentals are most likely still intact. Warren Buffett takes this idea further by frequently going on purchasing binges when the markets turn, basically purchasing extra shares of his top stock picks at a major markdown and doubling - down on his very own recommendations.

A Risk Adjusted Trading Strategy Should be Followed for Your Retirement Assets

It's just human that many surrender to emotions and attempt and game the framework by timing the market. But, think about this: Nobel Laureate William Sharpe found in 1975 that a market timer would need to be precise 74% of the time to beat a passive portfolio. Indeed, even a slight outperformance most likely wouldn't justify the efforts - and given that even the specialists for the most part come up short at it, market timing shouldn't be your exclusive methodology for investing, particularly when it comes to building your retirement nest egg.

Actively trading for alpha, outsized, short - term gains through market timing and other high - risk trading strategies is fine with a small portion of your investable assets, but for your longer - term retirement assets, a "risk -adjusted focused" investment solution generally makes more sense.

If you'd like to learn how to 'super-charge' your retirement assets, get our free report:

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Apergy Corporation (CHX) : Free Stock Analysis Report
 
Altair Engineering Inc. (ALTR) : Free Stock Analysis Report
 
Great Lakes Dredge Dock Corporation (GLDD) : Free Stock Analysis Report
 
Atlantia SpA (ATASY) : Free Stock Analysis Report
 
Alfa Laval AB Unsponsored ADR (ALFVY) : Free Stock Analysis Report
 
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