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Timing the Market, Is it Possible? - December 23, 2019

Zacks Equity Research

Being that unique investor who has the power to constantly time the market and continually make a profit is the dream for most traders and investors.

Even among those who don't aspire to be the perfect market timer, many think they can call a top and act accordingly. It's at these times when investors choose to sit on the sidelines and wait for a 'perceived' better opportunity to invest in the market.

Giving up too soon at the first sign of inconvenience often leads to missed opportunities among numerous individuals who try to trade on their own retirement. For example, many investors have forfeited immense chances waiting for the Construction stocks to correct, only see the latter achieve new highs, move higher and drive the buyer markets to record levels: AECOM (ACM), Armstrong Flooring, Inc. (AFI), Anhui Conch Cement Co. (AHCHY), AAON, Inc. (AAON), Arcosa, Inc. (ACA)

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

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: Never attempt and time tops and bottoms.

Forget tracking for market tops or bottoms to expand your odds for success with a longer timeline and give yourself the flexibility to eventually profit, regardless of whether your calls are spot-on or way off-base.

Rule 2: Try not to sell amid little crashes - instead exploit the opportunity by buying.

Warren Buffett has made his fortune based of this straightforward guideline. He benefits by focusing on the long - term and buying high quality stocks at a discount during large market corrections to profit down the road.

There is a key distinction between a small correction and a market crash. 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 one step further and often goes on a buying spree when markets turn, essentially buying additional shares of his top stock picks at a big discount and listening to his own advice, 'Be fearful when others are greedy and greedy when others are fearful.'

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

It's only human that many succumb to greed and try and game the system by timing the market. But consider this: Nobel Laureate William Sharpe found in 1975 that a market timer would have to be accurate 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.

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AECOM (ACM) : Free Stock Analysis Report
 
AAON, Inc. (AAON) : Free Stock Analysis Report
 
Armstrong Flooring, Inc. (AFI) : Free Stock Analysis Report
 
Anhui Conch Cement Co. (AHCHY) : Free Stock Analysis Report
 
Arcosa, Inc. (ACA) : Free Stock Analysis Report
 
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