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Timing the market – a fool’s play?

Some advisers and investors say timing the market is a fool’s game and every investor should avoid it, because it is impossible to do it successfully and whoever tries it he would lose his investments. These investors and advisers either misinterpret timing or do not understand it at all. Obviously, timing the market doesn’t mean buying low and selling high, fishing for the bottom when stocks seem cheap and waiting for them skyrocketing. If this is the timing, then yes, investors will lose their money.

Timing the market by waiting for stocks dipping, decreasing in price to buy them and then waiting for them to grow again is not the best approach and all advocates are right saying it. What I understand as timing the market is waiting for the right time to buy stocks and waiting for the right time to sell the stocks.

Timing the market – buying stocks

When I say that timing the market when buying stocks means for me waiting for the right time to buy stocks, I obviously do not mean waiting for the stock itself, its best price or whatsoever. I mean waiting for the right conditions to buy. Waiting for the stock and its best price may cause that the investor ends up waiting forever.

Time buying stocks – wait for the market

When I started investing again in 2006 I believed I knew everything about investing and I didn’t expected I would ever experience the market like this one. S&P is down 40% or more and there is no bright future outlook out there. This is the right time for timing the market. It is frustrating seeing investment money sitting on the account in cash, but waiting for the right time when it will be secure buying new positions again is the best approach today. There are investors in the market who are bargain hunters, long term investors and they are probably buying now. However, it is not my game and I do not play it. The market is not ready yet and I do not want to lock my money in insecure positions.
My friends are asking me whether I consider the stocks cheap enough to start buying or not. Honestly they seem darn cheep right now. Quick look at financial stocks, energy stocks, real-estate stocks, all they are cheap as they were five or more years ago. Sometimes I feel tempted to start buying. Lets take a look at Apple (AAPL). It is down from its $200 or so high to $107! Isn’t that stock cheap? Maybe. However my answer was no. I don’t recommend buying, because the stock market doesn’t show strength and nobody knows whether it would go further down and even our Apple can continue its downtrend. What if Apple stays at this price level? How can we recognize whether it will return back and make new highs or stays at this level for many coming years? The economy or market may remain at this level for many years. In 1929 it took 4 years after the crash to get the US back to prosperity. Buying stocks now would cause locking investor’s money into a stock which even cheap it still can continue in its downtrend for some long period. Who wants to have available funds in such stock? Isn’t it better to wait for the market to show the willingness rising again? After the entire market confirms its rally, it would be the right time to start buying those cheap stocks even though at that time they may become more expensive than they are today – they still may be cheap enough.
Today the market is still in correction. It probably reached its bottom, but who knows how long it stays there? Timing the market in this manner it is not fool’s play but wisdom every investor should learn.

Timing the market – selling stocks

When some investors looked at their 401k plans these days they could suffer some bitter surprise. I am one of them as well. My 401k plan is down some 24% (which is still pretty good result), but my investing portfolio is down 14% only (thanks to my own indiscipline and impatience). If I have followed the rules I am writing about I could get better results. What is my point? I do not consider long term investing – buy and hold to be a holy grail of investing. There are Nobel price authors who documented that for example S&P over long haul provided the very best results than any other approaches ever, however I do not want to invest my money and then wait 30+ years to get 20%+ profit. Thanks to the 2008 crisis some portfolios are down at the same level as they were some 10 years ago. No profit after 10 years of investing money locked in stocks in long haul? Not for me.
I believe that investors should manage a portion of their portfolio so they create a money machine which will work for them until their last moment of their life. I want such a machine! This small account shall be my “Colorado University of Investing”.

What timing the market in regards of selling means for me? When the market goes down and changes to a bear market, I sell all stocks which do not perform well or touch the stop loss. This is the best way to protect invested money.

Timing the market, when experienced investor knows what she is doing, is the best way how to protect her account against losses and achieve same or better results. So don’t be fool and time your trading.

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