Is it Hard to Time the Market in a Recession?

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.

Feedback?

What do you think of my plan? Can anyone be successful with this investment strategy?

23 Responses to Is it Hard to Time the Market in a Recession?

  1. I would approach the situation similar. Buy when things are low and ride out the wave. Things always bounce back and if you have the time to wait, do so. Us younger people are in a much better position right now compared to older people who are relying on their investments as income. With inflation things are tight and their investments aren’t keeping up. I think they need a plan more than us younger folks so. Like you mentioned, we have time.

    • Corey says:

      Yes, I agree that we seem to have the advantage right now. Although, I wish I had five more years to be in a place to take advantage of the low rates on mortgages. Oh well, you can’t win them all.

  2. When I first started reading about timing the market, I thought you were talking about day trading and saying anyone could do it. That is some seriously risky stuff and was relieved to continue reading and you started talking about the long haul.

    Good stuff and good luck!

    • Corey says:

      Thanks Freddie. I have to admit, I intentionally framed it that way to get some attention. Day trading is risky stuff. Too risky for my blood. I prefer the long haul type of stuff.

  3. Best time to bulk up investing is during market downturns. Just make sure your time horizon for the funds are 5+ years out. Downturns are the long term investors best friend!

  4. I quite agree with your approach.
    The trick is to not be affected by the day-to-day ups and downs.

  5. Aaron Hung says:

    I’ll admit, I get very nervous with market fluctuations but I keep telling myself that this is for the long term, the market will be where you want it to be in the long term.

  6. Evan says:

    I think the next logical question is whether you are really “market timing” if you don’t have an end time that you stop buying? If you don’t then you are just buying and holding (not bad just different term).

  7. Financial Manager says:

    To me, timing the market is equivalent to gambling. Our wealth management team tries to invest in securities over the long term. Trying to get in and out of the market all the time can be pretty risky.

  8. I am always looking to buy into dips. I have a few stocks that I continue to buy on a down day or if the market is down overall. I think that’s the best way to get in at good prices.

  9. I enjoying buying into dips too, but timing the market as a whole can be very hard. You can look at huge extremes, but we haven’t seen any of those yet (although Gold is getting close).

  10. Oh I so believe in your theory. I did buy a couple of stocks last month post decline. since i am a long term holder I don’t think I will repent on these buys unless a meteor strikes.

  11. I do the same (actually a buddy at work and I bought in today even). Most people buy when the market is having a rally, and I use to do the same… Over time, I’ve learned to sell into the rallies and buy on the dips.

    The stock market is fickle that way 😉

  12. I should mention that my 401k basically does “dollar cost averaging” for me too. So I don’t mind dips because I buy more shares of mutual funds for the same amount of money.

  13. Jackie says:

    I think it’s ALWAYS hard to time the market, during a recession or otherwise. What seems like a big enough fall one day (or a big enough jump) may turn out otherwise the next.

  14. Dana says:

    I think it is easy to time the market in recession. Its tell us that the market is in down trend until the recession is over. So, it is the time to sell our stocks or short it.

  15. […] Corey presents Is it Hard to Time the Market in a Recession? posted at 20′s Finances, saying, “With the stock market in a major slump, many people are cutting their losses. If you are investing for the future, now is the time to buy.” […]

  16. ProfitsOn says:

    Hi all,

    Good post! These numbers might be helpful. Of course, past performance does not guarantee future results.

    Over the last 100 years, the Dow Jones Industrial has topped roughly every 35 years (1929/1965/2000).

    Tops have been followed by long period of consolidations that lasted for 14/17 years top to bottom.

    Within these lateral movements, tops were touched every 3/4 years, while bottoms were hit every 3/5 years.

    Movements extended roughly 50% from bottom to top and from top to bottom.

    Bottom to top moves run for about 2/3 years, while top to bottom continued for 1-3 years.

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