Back to top

Image: Bigstock

The Keys to Successfully Timing the Markets - August 25, 2020

Read MoreHide Full Article

Being that unique investor who has the power to constantly time the market and continually make a profit is the dream for most traders and investors.

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 Auto-Tires-Trucks stocks listed below to correct, only to see them reach new highs, climb higher and drive the bull market to record levels: Allison Transmission Holdings, Inc. (ALSN - Free Report) , Autoliv, Inc. (ALV - Free Report) , Adient PLC (ADNT - Free Report) , Autobytel Inc. (AUTO - Free Report) , Polaris Inc. (PII - Free Report)

Dread and exuberance regularly propel investors into merely 'reacting' to market volatility, rather than envisioning market trends.

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: Never attempt and time tops and bottoms.

Forget tracking for market tops or bottoms to expand your odds for success with a longer timeline and give yourself the flexibility to eventually profit, regardless of whether your calls are spot-on or way off-base.

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 cautions not to sell during little crashes, and encourages enduring them by concentrating on the long haul.

There is a major distinction between a financial crash and a mild market reset. The theory is that if you like and bought a stock at a previous valuation prior to the correction, you should love the opportunity to this same at a steep discount since the underlying fundamentals are most likely still intact. 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.

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.

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.

Published in