Market Timing

I’m not a huge fan of market timing. I’ve written articles about this in the past. At the time of that post (December 23), the Dow was at 16,294; it closed at 15,440 today. If you can’t do the math I’ll give you a hint: December 23rd was not a great month to invest your life-savings…at least in the short-term.

However, this is in retrospect. We have no idea whether 2014 will be a year of correction and if 15,440 will be the high for 2014 or the low.

All we can do is understand that if our investing time-frame is long enough, stocks are the thing to be in.

What I am going to do, once I have some free cash, is begin to invest in a few of the companies that are on my watchlist and that I thought were well-valued even when they were 5-6% more expensive. It feels that all my favorite things are on sale!

There was an excellent article yesterday on Get Rich Slowly that I wanted to highlight that illustrated why it is “impossible” to market time:

What is market timing, and should you do it?


The oldest investing advice in the book is “buy low and sell high.” Market timing is an attempt to do just that: Sell when the market is high; buy when it’s low. Obvious, right?

Obvious, though, is not the same as easy, because market timing, in essence, entails predicting whether the market will keep going the way it’s going, or make a turn, up or down, which is easier said than done.

Let’s say you wake up one morning, and this is the picture you see of a stock you’ve owned for about five years. (The chart is real, drawn from Yahoo Finance, but the name of the stock, and the dates, have purposely been blanked out, because most people’s first instinct will be to draw on historical knowledge to guess the outcome.)

20140205-220832.jpg

Sell… or hold?

The stock has doubled in value in the five years you’ve held it. Hey, double is high, right? So should you sell today?

Continue to the site to keep reading.

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge