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Timing the Market, Is it Possible? - September 18, 2019

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?

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 Consumer Discretionary stocks to correct, only see the latter achieve new highs, move higher and drive the buyer markets to record levels: Century Casinos, Inc. (CNTY), American Woodmark Corporation (AMWD), AMC Networks Inc. (AMCX), AMC Entertainment Holdings, Inc. (AMC), Select Comfort Corporation (SNBR)

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.

Successful market timing requires three key ingredients: 1) A reliable signal to tell you when to get in and out of stocks (or bonds, gold or other types of investments). 2) The ability to interpret the signal correctly. 3) The discipline to act on it.

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.

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 small crashes - ride the storm out, or better yet, take advantage of the opportunity.

Warren Buffett has made an incredible piece of his fortune because of this basic standard. He cautions not to sell amid little crashes and to instead endure the temporary hardship and profit by concentrating on the long haul.

There is a major distinction between a financial crash and a mild market reset. No matter what happens in the stock market, chances are that the stocks you own will eventually come back to their pre - crash value; hanging on to your original positions, or opportunistically averaging down, during market downs can be the shrew distraction to take. Warren Buffett takes this thought a notch higher and frequently goes on a buying binge when markets turn, purchasing additional shares of his favorite stocks at a major markdown and tuning in to his own recommendation of being greedy when others are scared, and being scared when others are greedy.

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, 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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Century Casinos, Inc. (CNTY) : Free Stock Analysis Report
 
AMC Networks Inc. (AMCX) : Free Stock Analysis Report
 
American Woodmark Corporation (AMWD) : Free Stock Analysis Report
 
AMC Entertainment Holdings, Inc. (AMC) : Free Stock Analysis Report
 
Select Comfort Corporation (SNBR) : Free Stock Analysis Report
 
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