Market Timing

 

Analyze why some investors make huge profits in the markets while most don’t. It all comes down to timing. How else can Marty Schwartz turn $3000 into $80 million, and David Ryan consistently generate annual returns of 1300%, and William O’Neil turn $5000 into $200,000 in one year.

A well informed investor can beat the pants off mutual funds and the indexes because of tremendous flexibility and manoeuvrability.

I consider myself the ultimate pragmatists. I want to protect myself and the people who follow my advice. I want to avoid loss. Only one thing moves stocks; supply and demand. Earnings don’t move stocks, investors do. Plain and simple. You must rely on the probability of success when investing. If a stock is going to climb, let someone else buy it at the bottom. Many investors prefer to buy beaten down stocks only to find them continuously out of favour. Make sure a stock acts well relative to the market before you buy it. Buying on strength gives you an edge. You pay a premium but you increase your probability of being correct.

Value in a portfolio is built not by taking short term gains. After all, most long term positions are merely short term positions that went wrong. A dollar invested in the Dow Jones Industrial Average in 1926 is worth $720 today, while that same buck bought at the lows and sold at the highs is worth $690 million. But forget that. Sure, an elusive somebody will buy at the low and sell at the high, but it won’t be us. That’s not our objective. Many investors buy stock to continuously find them out of favour. You want to see if a stock acts well relative to the market before you buy it. Buying on strength gives you an edge, immediately increasing your probability of success. Stock markets move in trends shaped by the changing attitudes of investors to a variety of economic, monetary, political, and psychological forces. It is imperative that investors seek to identify changes in such trends at an early stage and to maintain that posture until a reversal of the trend is indicated.

When you buy a stock is far more important than what stock you buy. Oh sure, widely quoted statistics show returns fall by a few percentage points if an investor misses out on the best days of the market, while those who missed the best days and the worst days show better returns than someone in the market throughout this period.

More than any other factor, what moves stock prices higher is the liquidity situation for the company’s shares. What moves any market is a disruption in the normal supply and demand equation. Stocks go up because there is more demand than supply at current prices, so a solid understanding of mass psychology is far more important than good economics. Understand that if a flipped coin shows 5 heads in a row, most investors feel a tail on the next toss is probable. That’s what you’re up against.