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

Zacks Equity Research

In the long-run, does consistent market timing really matter to be a successful investor?

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 Oils-Energy stocks to correct or reach attractive entry levels? Only for them to continue to move higher and achieve new all-time highs: Hess Corporation (HES), Nabors Industries Ltd. (NBR), Panhandle Royalty Company (PHX), Antero Midstrm (AM), Ameresco, Inc. (AMRC)

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

Productive market timing requires three key parts: 1) A dependable sign for when to get in and out of stocks. 2) The ability to follow up on the sign rapidly and precisely. 3) The ability to be completely unemotional and trust in the signal no matter the current market environment.

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: Never try and time tops and bottoms.

Abandoning the objective to time the tops and bottoms conclusively gives you the flexibility to profit, and extends your chance to benefit from the equity markets over the long-term whether your specific market timing calls are right or wrong.

Rule 2: Don't sell during minor crashes - instead, have the patience to weather the storm, or even better, milk the opportunity to buy low.

Warren Buffett has made an incredible piece of his fortune because of this basic standard. 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 noteworthy distinction between a complete market meltdown and a common 10% market 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 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.'

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

It's just human that many surrender to emotions and attempt and game the framework 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.

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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Hess Corporation (HES) : Free Stock Analysis Report
 
Antero Midstrm (AM) : Free Stock Analysis Report
 
Nabors Industries Ltd. (NBR) : Free Stock Analysis Report
 
Ameresco, Inc. (AMRC) : Free Stock Analysis Report
 
Panhandle Royalty Company (PHX) : Free Stock Analysis Report
 
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