Today, I plan to share the investment insights Benjamin Graham, Warren Buffet’s mentor, gleane...
Do You Have What It Takes to Be a Market Timer?
01/18/2010 10:32 am EST
Market timing works, and it works well for people who actually practice it as a discipline. In theory, every investor is capable of following the disciplines of timing. But not everybody has the right emotional makeup to do timing right. In real life, many people who try are ultimately unsuccessful.
Timing puts investors on the front lines, face to face with the realities of the market, every business day. To be a successful timer, you have to buy and sell without flinching, even when you don’t feel like it. You have to follow your discipline even when you think the signal may be in error.
You’ve got to do it even when you don’t understand why your timing system is telling you to act.
Timing can get you in real trouble if you try it for a while, become discouraged, and then abandon your plan in favor of something you find more palatable.
If you let your feelings guide you, you’re likely to bail out of a timing strategy at the very worst time, when your investments are down.
Can you adopt a strategy and stick to it for the long term? Can you follow the system regardless of how you feel about it and regardless of what’s going on around you? Can you resist the temptations to act on impulse? Can you ignore the many "hot tips" you may come upon every week?
Imperfection is one of the media’s biggest criticisms of timing. When you are underperforming and experiencing losing trades, that media criticism may shake your confidence.
The media often says market timing requires you to be right twice, when you buy and when you sell, in contrast to a buy-and-hold approach, in which you have to be right only once when you buy. Most of the time, you can count on your system to get you into or out of the market too soon or too late to catch the tops and bottoms.
If getting out at the very top and getting back in at the very bottom are your goals, timing is guaranteed to let you down. And if that failure will drive you nuts, think twice before embarking on a timing strategy, because what you will perceive as timing mistakes will erode or destroy your willingness to follow the discipline.
Your goal should not be to achieve perfection. It should be to put the probabilities on your side. And a good timing strategy will do that.
Ignoring the Media
Almost unanimously, the press seems to have a blind spot when it comes to timing.
They say timers are misguided, and this view is widely echoed by the mutual fund and brokerage industries.
Can you pull out of the market when everybody else is either getting in or already making money? Can you get back in when your friends, colleagues, the media, and possibly your own gut are telling you it’s a dumb idea?
Some people stew and fret and delay making decisions, even when they are convinced they should do something. They are unlikely to be successful timers.
Successful timing requires quick action to move into and out of the markets. One of the most obvious truths about timing (and one of the most widely overlooked) is that by the time your friends, your colleagues, your gut, and the experts all agree on what you should do, it’s already far too late for you to extract the maximum opportunity from it.
Market timing works, and those who are able to stick to long-term, successful market timing strategies reduce their risks in the markets and enhance their returns.
We know this as a fact after more than 20 years timing the markets. Although there are times when even the very best timing strategies are not profitable, we must remember that timing is not about winning on every trade.
Timing is about winning over the long haul, and about reducing risk and protecting capital during dangerous market conditions. It is about winning over the years.
By Frank Kollar of FibTimer.com
Related Articles on STRATEGIES
I spend a lot of time talking about block trades. These are the huge trades that show up on your opt...
I have been tracking a set-up for the SPDR Gold Trust ETF (GLD), which I analyze as a proxy for the ...
AllianzGI Equity & Convertible Income Fund (NIE), which yields 6.8%, invests in convertible equi...