Experts agree that it is very difficult to time the market and to make a profit. There are few talented individuals on the face of this planet that can do it well. I was talking to my father-in-law, who happens to be a CPA, and he confirmed this difficulty when we were talking briefly about the market’s current condition. This got me thinking, is it really that difficult to time the market when the market is horrible? In order for me to make this clear, let me start from the beginning.
What is Timing the Market?
For all those new to investing, you may be wondering what I am even talking about. Timing the market, in essence, means to judge (or try to judge) whether the market will go up or down and then invest accordingly, whether that is buying or selling. Many financial advisers suggest against taking such an approach, especially because the market is also determined by people’s expectations. In other words, it is very difficult to anticipate a huge change in the market and have it be an original idea.
Anything is possible
I want to suggest that you can be very successful in timing the market. Not just the experts, but the everyday person like you or me. Not only that, but I think it is quite easy. Before you think I am crazy for suggesting such a strategy, let me clarify what I mean. It is pretty much common knowledge that the market is not doing well right now. With the latest downgrade of borrowing status of the U.S. government to overseas instability, people are uncertain about the market. I know from first-hand experience. I personally have seen a significant drop in my stock investments over the past 2-3 months (somewhere around 15%). Usually when markets fall because such uncertainty, this initiates a domino effect of selling. People are worried that they will lose money, so they will sell before it drops further. This may make a lot of sense for people just about to retire. If you don’t have the time to wait for it to bounce back, than perhaps this is a good reason to get out. However, if you have a long time before you need the money, it is better hold out until the market recovers.
And recover it will! Despite the current uncertainty, historically the market has always recovered from significant falls. It seems to me that the best path is not to shy away from a falling market, but to invest (especially after a huge drop in prices). That way, regardless of whether it takes years to recover, you will make a huge profit once it does recover. It is for this reason that I think anyone can be successful with timing the market when the market is doing poorly. Simply wait for a big enough fall and then invest and leave it there. If it keeps falling, perhaps considering investing more. If you sell your shares after a fall, you losing a battle that you could win if you stay in just a little while longer. Once the market recovers, you can sell your shares and make a profit. The trick to making this successful is not to worry about the day-to-day and commit to the long haul. If you are looking to make a quick buck, you most likely won’t succeed with what I am proposing.
What do you think of my plan? Can anyone be successful with this investment strategy?