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The Truth About Market Timing - August 16, 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?

Indeed, even among those investors who don't try to consistently time the markets, many think they can still call a top and act opportunistically. It's at these times when an investor who speculates often sits on the sidelines and looks for better opportunities to put money into 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 Business Services stocks to correct, only see the latter achieve new highs, move higher and drive the buyer markets to record levels: Aqua Metals, Inc. (AQMS), AstroNova, Inc. (ALOT), Insperity, Inc. (NSP), Bioptix, Inc. (RIOT), The Hackett Group, Inc. (HCKT)

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 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: Attempting to time tops and bottoms is lose-lose situation.

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: 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 a great part of his fortune due to this simple rule. 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 key distinction between a small correction and a market crash. If you own shares of a company that is well - established and has strong fundamentals, they are probably going to rebound to their pre - crash prices eventually, thereby rendering holding on a wise 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.

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. 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.

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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Aqua Metals, Inc. (AQMS) : Free Stock Analysis Report
 
AstroNova, Inc. (ALOT) : Free Stock Analysis Report
 
The Hackett Group, Inc. (HCKT) : Free Stock Analysis Report
 
Insperity, Inc. (NSP) : Free Stock Analysis Report
 
Bioptix, Inc. (RIOT) : Free Stock Analysis Report
 
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