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.
Lost chances by those who attempt to time the market is a common mistake among those who trade their own accounts. How many traders have lost investing opportunities by choosing to wait for the Conglomerates stocks to correct or reach attractive entry levels? Only for them to continue to move higher and achieve new all-time highs: Danaher Corporation (NYSE:DHR), ITT Inc. (ITT), General Electric Company (NYSE:GE), Griffon Corporation (GFF), Carlisle Companies Incorporated (CSL)
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.
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.
Abandoning the objective to time the tops and bottoms conclusively gives you the flexibility to profit, and extends your chance to benefit from the equity markets over the long-term whether your specific market timing calls are right or wrong.
Rule 2: Don't sell during small crashes - ride the storm out, or better yet, take advantage of the opportunity.
Warren Buffett has made his fortune based off 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 major distinction between a financial crash and a mild market reset. If you own shares of a company that is well - established and has strong fundamentals, they are probably going to rebound to their pre - crash prices eventually, thereby rendering holding on a wise decision. 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 only human that many succumb to greed and try and game the system 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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Danaher Corporation (DHR): Free Stock Analysis Report
Carlisle Companies Incorporated (CSL): Free Stock Analysis Report
General Electric Company (GE): Free Stock Analysis Report
ITT Inc. (ITT): Free Stock Analysis Report
Griffon Corporation (GFF): Free Stock Analysis Report
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Zacks Investment Research