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Is the ability to time the markets more of a data-driven science or a 'gut - feeling' art?
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 Transportation stocks to correct or reach attractive entry levels? Only for them to continue to move higher and achieve new all-time highs: Matson, Inc. (MATX - Free Report) , Air FranceKLM SA (AFLYY - Free Report) , Air Lease Corporation (AL - Free Report) , Allegiant Travel Company (ALGT - Free Report) , Alaska Air Group, Inc. (ALK - Free Report)
Investment emotional triggers (fear and greed) can lead to costly mental mistakes by investors who typically fall into the trap of being a market follower instead of a market leader.
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 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: Why trying to time the tops and bottoms of the market is a dead end.
Abandoning the goal to time the tops and bottoms precisely gives you the flexibility to profit, thereby increasing your chances to lock in built-up profits even if your calls aren't exactly right.
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 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 major distinction between a financial crash and a mild market reset. 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 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, 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.
If you'd like to learn how to 'super-charge' your retirement assets, get our free report:
Image: Bigstock
The Truth About Market Timing - July 24, 2020
Is the ability to time the markets more of a data-driven science or a 'gut - feeling' art?
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 Transportation stocks to correct or reach attractive entry levels? Only for them to continue to move higher and achieve new all-time highs: Matson, Inc. (MATX - Free Report) , Air FranceKLM SA (AFLYY - Free Report) , Air Lease Corporation (AL - Free Report) , Allegiant Travel Company (ALGT - Free Report) , Alaska Air Group, Inc. (ALK - Free Report)
Investment emotional triggers (fear and greed) can lead to costly mental mistakes by investors who typically fall into the trap of being a market follower instead of a market leader.
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 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: Why trying to time the tops and bottoms of the market is a dead end.
Abandoning the goal to time the tops and bottoms precisely gives you the flexibility to profit, thereby increasing your chances to lock in built-up profits even if your calls aren't exactly right.
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 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 major distinction between a financial crash and a mild market reset. 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 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, 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.
If you'd like to learn how to 'super-charge' your retirement assets, get our free report:
Will You Retire as a Multi-Millionaire? 7 Things You Can Do Now.