Stock Market Timing – How Does it Work?

Most investors dream about having the skills and intuition to be able to predict the rise and fall of the market with a precision that would not only make them rich, but give them the ability to make a fortune any time they choose to make one. In plain words, investors want to be able to time the market.

But history shows us that even though a few people have made huge fortunes as the result of one large market gain (the largest one-day gain in stock market history – 936 points – occurred on October 13, 2008), there have been hundreds, if not thousands more people who have lost their entourage fortunes in the same manner. The stock market crash of 1929 is one famous example. The ongoing market declines we've been seeing since 2008 are more recent examples.

But still, the idea of ​​being able to accurately time the market and profit from it lives in the dreams of many investors. It looks like there should be a reliable way to tell when the market is at it's lowest, buy the right stocks, then sell them when the market is at its peak.

So just how possible is it to time the market? Sorry to tell you that it's just not as easy as you probably hope it will be. Although some investors swear by being able to profitably use various market "indicators" (from the length of hemlines – really! – to highly technical and complex mathematical formulas), all of these "indicators' have proven to be unreliable over time.

The "indicators" make the news for the one or two times that they seem to work, but people quickly forget all of the other major of times that they do not work at all.

Investors who have been the most successful over the long run (mean several decades), like Warren Buffet with his Berkshire Fund and Pete Lynch (who successfully managed the Fidelity Magellan Fund for a number of years), are advocates of taking a long term approach to stock market investing. They adamantly advise against buying and selling stocks based on the theories of "timing the market".

To the contrary, they advise people to choose stock portfolios based on analyzing a companies management talent and balance sheet. They recommend buying undervalued stocks, based on that research. Further, they advocate holding the stock as a long term strategy to outlast the highs and lows inherent in the stock market. The bottom line is: buy smart and sell smart, based on solid research, not on "market timing".

Source by Bernz Jayma P.

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