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Successful Market Timing

Successful Market Timing

| September 25, 2020

Market strategy is the strategy of making buying and selling decisions of investments (usually stocks or stock funds) by attempting to predict the market movements. The prediction could be based on outlook of market or economic conditions.

There are varying degrees of market timing. In the most extreme situations, a person would alternate between being either fully invested or being totally out of the market.

So, the sixty-four thousand dollar question is, is it possible to be successful at market timing. My personal opinion is, it’s possible to be correct occasionally. However, I haven’t seen a model that can consistently predict market behavior. Even market experts who design elaborate models based upon various financial/economic criteria (such as interest rates, market momentum, consumer sentiment, etc.) often miss the mark.

Really, if you think about it, who could have predicted Covid-19, or 9/11, or what if tomorrow North Korea invaded South Korea?

To be successful you have to be right twice - when to exit and when to reenter. The reenter part is especially tricky as often times there are false recoveries.

See the attached Blackrock graph “Strategies for Volatile Markets” for a dramatic effect of just missing the 5 best market performing days out of a 20-year period.

I think a much better strategy would be to design an investment portfolio based upon your goals and circumstances and sticking with it. This means not giving into the emotions of fear or greed, either of which can play havoc with your investment success.