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Timing the Market, Is it Possible? - December 19, 2019

Zacks Equity Research

Being that unique investor who has the power to consistently time the market and always make a profit is the dream for most people who trade their own accounts.

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.

Lost chances by those who attempt to time the market is a common mistake among those who trade their own accounts. How many traders have lost investing opportunities by choosing to wait for the Consumer Discretionary stocks to correct or reach attractive entry levels? Only for them to continue to move higher and achieve new all-time highs: Sleep Number Corporation (SNBR), Adidas AG (ADDYY), Afya Limited (AFYA), PlayAGS, Inc. (AGS), Choice Hotels International, Inc. (CHH)

Anxiety and eagerness regularly lead investors into psychological traps because most investors take cues from past market moves and trends instead of attempting to anticipate potential market moves.

Accomplished market timing requires three key components: 1) A dependable sign of when to get in and out of stocks. 2) The capacity to act upon signals quickly and accurately. 3) Have the stomach to act on market signals, no matter how counterintuitive the move may be.

Many investors believe that market timing is a short-term investment strategy. There is a less known, more effective, longer-term market timing approach that has been used successfully 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: Make an effort not to sell in the midst of little crashes. Muster the courage to trust your gut and buy best in class stocks at a discount.

Warren Buffett has made an incredible piece of his fortune because of this basic standard. He warns not to sell during small crashes, and weather the storm by focusing on the long term.

There is a big difference between a stock market crash and small correction. If the companies you own are established and successful, they are likely to return to their pre - crash price before long, making holding on the wisest decision. 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.

When It Comes to Trading Your Retirement, A Risk Adjusted Trading Strategy Should be Followed

It's only human that many succumb to greed and try and game the system 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. Even a slight outperformance probably wouldn't be worth the energy - and given that even the experts generally fail at it, market timing shouldn't be your exclusive investing strategy of choice, especially using assets earmarked for your retirement.

Chasing alpha, outsized, short - term returns through market timing and other high - risk bets is acceptable only within a small part of your investable resources, however for your long - term retirement assets a 'risk-adjusted' investment discipline is what largely bodes well.

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Sleep Number Corporation (SNBR) : Free Stock Analysis Report
 
Choice Hotels International, Inc. (CHH) : Free Stock Analysis Report
 
Adidas AG (ADDYY) : Free Stock Analysis Report
 
PlayAGS, Inc. (AGS) : Free Stock Analysis Report
 
Afya Limited (AFYA) : Free Stock Analysis Report
 
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