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Timing the Market, Is it Possible? - June 22, 2020

Is the ability to time the markets more of a data-driven science or a 'gut - feeling' art?

Indeed, even among the individuals who don't seek to be the ideal market timer, many feel they can call a top and act in accordance. It is these tendencies that make investors sit on the sidelines and hang tight for a better chance to put money into the market.

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 Oils-Energy stocks to correct, only see the latter achieve new highs, move higher and drive the buyer markets to record levels: Azure Power Global Ltd. (AZRE), Antero Resources Corporation (AR), Alliance Resource Partners, L.P. (ARLP), Abraxas Petroleum Corporation (AXAS), HIGHPOINT RESOURCES CORP (HPR)

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.

Successful market timing requires three key ingredients: 1) A reliable signal to tell you when to get in and out of stocks (or bonds, gold or other types of investments). 2) The ability to interpret the signal correctly. 3) The discipline to act 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 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 an incredible piece of his fortune because of this basic standard. 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. 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 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. 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.

Chasing alpha, outsized, short - term returns through market timing and other high - risk bets is acceptable only within a small part of your investable resources, however for your long - term retirement assets a 'risk-adjusted' investment discipline is what largely bodes well.

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Azure Power Global Ltd. (AZRE): Free Stock Analysis Report
 
Alliance Resource Partners, L.P. (ARLP): Free Stock Analysis Report
 
Abraxas Petroleum Corporation (AXAS): Free Stock Analysis Report
 
Antero Resources Corporation (AR): Free Stock Analysis Report
 
HIGHPOINT RESOURCES CORP (HPR): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
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