In the long-run, does consistent market timing really matter to be a successful investor?
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.
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), RadNet, Inc. (RDNT), Cantel Medical Corp. (CMD), BioSpecifics Technologies Corp (BSTC), Champions Oncology, Inc. (
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Fear and greed often lead investors into behavioral traps since most investors are followers who react, rather than anticipate 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: Why trying to time the tops and bottoms of the market is a dead end.
Surrendering the objective to time the tops and bottoms gives you the adaptability to benefit and increase your odds to secure profits over the long-term, even if your calls aren't always right.
Rule 2: Don't sell during small crashes - ride the storm out, or better yet, take advantage of the opportunity.
Warren Buffett has made a great part of his fortune due to this simple rule. He warns not to sell during small crashes, and weather the storm by focusing on the long term.
There is a key distinction between a small correction and a market crash. 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 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.
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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