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The Truth About Market Timing - June 17, 2020

Zacks Equity Research
·3 mins read

Have you ever dreamed of being that one in a million investor who has the talent to perfectly time the markets?

Indeed, even among the individuals who don't seek to be the ideal market timer, many feel they can call a top and act in accordance. It is these tendencies that make investors sit on the sidelines and hang tight for a better chance to put money into 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 Medical stocks listed below to correct, only to see them reach new highs, climb higher and drive the bull market to record levels: TransEnterix, Inc. (TRXC), Cantel Medical Corp. (CMD), Champions Oncology, Inc. (CSBR), BioSpecifics Technologies Corp (BSTC), RadNet, Inc. (RDNT)

Fear and greed often lead investors into behavioral traps since most investors are followers who react, rather than anticipate market moves.

Fruitful market timing requires three key parts: 1) A solid sign to guide you when to get in and out of stocks (or securities, gold or different kinds of investments). 2) The capacity to act on the sign accurately. 3) The control to follow up on it.

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

Warren Buffett has made an incredible piece of his fortune because of this basic standard. He warns not to sell during small crashes, and weather the storm by focusing on the long term.

There is a noteworthy distinction between a complete market meltdown and a common 10% market correction. 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 idea further by frequently going on purchasing binges when the markets turn, basically purchasing extra shares of his top stock picks at a major markdown and doubling - down on his very own recommendations.

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

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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TransEnterix, Inc. (TRXC) : Free Stock Analysis Report
 
RadNet, Inc. (RDNT) : Free Stock Analysis Report
 
BioSpecifics Technologies Corp (BSTC) : Free Stock Analysis Report
 
Champions Oncology, Inc. (CSBR) : Free Stock Analysis Report
 
Cantel Medical Corp. (CMD) : Free Stock Analysis Report
 
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