In the long-run, does consistent market timing really matter to be a successful investor?
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.
Missed investing opportunities by exiting at the first sign of trouble is a common pattern among many self-directed investors. Case in point: How many investors have missed huge opportunities waiting for the Finance stocks listed below to correct, only to see them reach new highs, climb higher and drive the bull market to record levels: AllianceBernstein Holding L.P. (AB), Ameris Bancorp (ABCB), Arbor Realty Trust (ABR), Allegiance Bancshares, Inc. (ABTX), Atlantic Capital Bancshares, Inc. (ACBI)
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.
The popular image of market timing is that it calls for making drastic, all-or-nothing moves at the precise, exact market top or bottom. There is a less well-known, rather simple market timing approach that has been used successfully by savvy investors like Warren Buffet for decades.
Rule 1: Attempting to time tops and bottoms is lose-lose situation.
Surrendering the objective to time the tops and bottoms gives you the adaptability to benefit and increase your odds to secure profits over the long-term, even if your calls aren't always right.
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 his fortune based off this simple rule. He cautions not to sell during little crashes, and encourages enduring them by concentrating on the long haul.
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 thought one step further by often buying outsized positions in value stocks he likes across the board when markets turn, essentially leveraging his bottoms-up analysis and stock picking acumen.
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, 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.
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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AllianceBernstein Holding L.P. (AB) : Free Stock Analysis Report
Atlantic Capital Bancshares, Inc. (ACBI) : Free Stock Analysis Report
Allegiance Bancshares, Inc. (ABTX) : Free Stock Analysis Report
Ameris Bancorp (ABCB) : Free Stock Analysis Report
Arbor Realty Trust (ABR) : Free Stock Analysis Report
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