Yes, You Can Time the Market. Find out How - December 05, 2019
There is no better feeling for an investor than trusting your gut or doing your research and timing the markets correctly, right?
Indeed, even among those investors who don't try to consistently time the markets, many think they can still call a top and act opportunistically. It's at these times when an investor who speculates often sits on the sidelines and looks for better opportunities to put money into 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 Business Services stocks listed below to correct, only to see them reach new highs, climb higher and drive the bull market to record levels: AstroNova, Inc. (ALOT), Aqua Metals, Inc. (AQMS), EVOQUA WATR TEC (AQUA), The Hackett Group, Inc. (HCKT), Bioptix, Inc. (RIOT)
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.
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 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 try 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: 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 a great part of his fortune due to this simple rule. He cautions not to sell amid little crashes and to instead endure the temporary hardship and profit by concentrating on the long haul.
There is a key distinction between a small correction and a market crash. 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 thought one step further by often buying outsized positions in value stocks he likes across the board when markets turn, essentially leveraging his bottoms-up analysis and stock picking acumen.
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. Indeed, even a slight outperformance most likely wouldn't justify the efforts - and given that even the specialists for the most part come up short at it, market timing shouldn't be your exclusive methodology for investing, particularly when it comes to building your retirement nest egg.
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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AstroNova, Inc. (ALOT): Free Stock Analysis Report
The Hackett Group, Inc. (HCKT): Free Stock Analysis Report
Aqua Metals, Inc. (AQMS): Free Stock Analysis Report
Bioptix, Inc. (RIOT): Free Stock Analysis Report
EVOQUA WATR TEC (AQUA): 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.