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The Market Timing Secrets No One Talks About - February 06, 2020
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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: Gentherm Inc (THRM - Free Report) , Auto Trader Group (ATDRY - Free Report) , American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) , Brilliance China Automotive Holdings Ltd. Unsponsored ADR , Aisin Seiki Co. Ltd. Unsponsored ADR (ASEKY - 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.
Productive market timing requires three key parts: 1) A dependable sign for when to get in and out of stocks. 2) The ability to follow up on the sign rapidly and precisely. 3) The ability to be completely unemotional and trust in the signal no matter the current market environment.
Market timing is commonly perceived as the ability to guess the exact market top or bottom and make moves accordingly. However, there is a less common, rather straightforward market timing strategy that has been utilized effectively by insightful financial specialists like Warren Buffet for a considerable length of time.
Rule 1: Never try and time tops and bottoms.
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: Don't sell during minor crashes - instead, have the patience to weather the storm, or even better, milk the opportunity to buy low.
Warren Buffett has made his fortune based off this simple rule. 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. No matter what happens in the stock market, chances are that the stocks you own will eventually come back to their pre - crash value; hanging on to your original positions, or opportunistically averaging down, during market downs can be the shrew distraction to take. 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.'
A Risk Adjusted Trading Strategy Should be Followed for Your Retirement Assets
It's only human that many succumb to greed and try and game the system 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.
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.
If you'd like to learn how to 'super-charge' your retirement assets, get our free report:
Image: Bigstock
The Market Timing Secrets No One Talks About - February 06, 2020
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: Gentherm Inc (THRM - Free Report) , Auto Trader Group (ATDRY - Free Report) , American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) , Brilliance China Automotive Holdings Ltd. Unsponsored ADR , Aisin Seiki Co. Ltd. Unsponsored ADR (ASEKY - 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.
Productive market timing requires three key parts: 1) A dependable sign for when to get in and out of stocks. 2) The ability to follow up on the sign rapidly and precisely. 3) The ability to be completely unemotional and trust in the signal no matter the current market environment.
Market timing is commonly perceived as the ability to guess the exact market top or bottom and make moves accordingly. However, there is a less common, rather straightforward market timing strategy that has been utilized effectively by insightful financial specialists like Warren Buffet for a considerable length of time.
Rule 1: Never try and time tops and bottoms.
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: Don't sell during minor crashes - instead, have the patience to weather the storm, or even better, milk the opportunity to buy low.
Warren Buffett has made his fortune based off this simple rule. 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. No matter what happens in the stock market, chances are that the stocks you own will eventually come back to their pre - crash value; hanging on to your original positions, or opportunistically averaging down, during market downs can be the shrew distraction to take. 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.'
A Risk Adjusted Trading Strategy Should be Followed for Your Retirement Assets
It's only human that many succumb to greed and try and game the system 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.
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.
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.