Technology

The Keys to Successfully Timing the Markets - November 08, 2019

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.

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.

Giving up too soon at the first sign of inconvenience often leads to missed opportunities among numerous individuals who try to trade on their own retirement. For example, many investors have forfeited immense chances waiting for the Auto-Tires-Trucks stocks to correct, only see the latter achieve new highs, move higher and drive the buyer markets to record levels: American Axle & Manufacturing Holdings, Inc. (AXL), Brilliance China Automotive Holdings Ltd. Unsponsored ADR (BCAUY), Aisin Seiki Co. Ltd. Unsponsored ADR (ASEKY), Auto Trader Group (ATDRY), Gentherm Inc (THRM)

Anxiety and eagerness regularly lead investors into psychological traps because most investors take cues from past market moves and trends instead of attempting to anticipate potential market moves.

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: Why trying to time the tops and bottoms of the market is a dead end.

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: 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 his fortune based off this simple rule. 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 the companies you own are established and successful, they are likely to return to their pre - crash price before long, making holding on the wisest 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 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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American Axle & Manufacturing Holdings, Inc. (AXL): Free Stock Analysis Report

Gentherm Inc (THRM): Free Stock Analysis Report

Auto Trader Group (ATDRY): Free Stock Analysis Report

Aisin Seiki Co. Ltd. Unsponsored ADR (ASEKY): Free Stock Analysis Report

Brilliance China Automotive Holdings Ltd. Unsponsored ADR (BCAUY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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