Basics of Investing

Posts Tagged ‘market timing’

The simple fact is no one can know 100% for sure when it is the proper time to get out of a stock. Those highly invested in Technology at the turn of the century were clearly devastated by their decision, and this is precisely why you should diversify.

Of course you know it’s good strategy to buy low and sell high. All the professionals know how to and even have cutting-edge software to help them know when to take advantage of the market trends and do so optimally, as well you should too. I just hope you can see that in the long run, it’s not as important a factor as one might think, simply because the scale is expanded so much more over time. Day traders have to look out for the $0.01 changes during a daytime trading session, but if you are investing in the long term, you only need worry only about $1 losses, not 1 penny… So do the technical analysis, and if you see the time is right, take advantage when you can… Just don’t sweat it in the long run, even if the market behaved unexpectedly… Over 30 years, it HAD to have come way up and by the end you won’t even remember the little bit of stress you had today.

I can’t stress this point enough, really… Too many people lose sleep at night over such a silly thing. Sure, the indicators are there, but the message they convey to you is not some huge landslide that will set you up for life. It’s only an indication of change, not of fortune. It makes me laugh all the time when I see such a mess made about market timing. For instance, here’s some popular books out right now that seem to make a huge deal over the importance of market timing:

New Market Timing Techniques by Thomas R. DeMark

New Look at Technical Analysis by Bob McCullough

The New Science of Technical Analysis by Thomas R. DeMark

Streetsmart Guide to Timing the Stock Market by Colin Alexander

Go ahead and look at them, you won’t hurt my feelings. Buy one if you like, there’s bound to be some good advice in there somewhere. However, many universities such as Harvard and Oxford have done numerous studies into market timing, and none have ever shown that the bother is worthwhile. Certainly not on the micro scale, and that’s what makes day trading so risky. Take away the invariance of the moment-to-moment uncertainty and you are left with a market trend of 17% growth per year on average. Why doesn’t everyone see this? Are we really all so greedy as not to see these simple facts?