There is no better feeling for an investor than trusting your gut or doing your research and timing the markets correctly, right?
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.
Individual investors who focus their efforts on timing the market typically miss chances. For example, many investors have overlooked chances to benefit from buying the Business Services stocks at the first opportunity, by attempting to buy them during a pullback only to see these stocks accomplish new unsurpassed highs: ABM Industries Incorporated (ABM), Accenture PLC (ACN), Alliance Data Systems Corporation (ADS), Advanced Disposal Services Inc. (ADSW), Adecco SA (AHEXY)
Dread and exuberance regularly propel investors into merely ‘reacting’ to market volatility, rather than envisioning market trends.
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.
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: Never try 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: 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 an incredible piece of his fortune because of this basic standard. He cautions not to sell during little crashes, and encourages enduring them by concentrating on the long haul.
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 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.
A Risk Adjusted Trading Strategy Should be Followed for Your Retirement Assets
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.
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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