What is “market timing”?
Market timing is an investing strategy in which the investor tries to identify the best times to be in the market and when to get out. Relying heavily on forecasts and market analysis, market timing is often utilized by brokers, financial analysts, and mutual fund portfolio managers to attempt to reap the greatest rewards for their clients. Proponents of market timing say that successfully forecasting the ebbs and flows of the market can result in higher returns than other strategies. Their specific tactics for pursuing success can range from what some have termed “pure timers” to “dynamic asset allocators.” Pure timing requires the investor to determine when to move 100% in or 100% out of one of the three asset classes — stocks, bonds, and money markets. Investment in a money market fund is neither insured nor guaranteed by the U.S. government, and there can be no guarantee that the fund will maintain a stable $1 share price. The fund’s yield will vary. Perhaps the riskiest of mar
Market timing includes (a) frequent buying and selling of shares of the same mutual fund or (b) buying or selling mutual fund shares in order to exploit inefficiencies in mutual fund pricing. Market timing, while not illegal per se, can harm other mutual fund accountholders because it can dilute the value of their shares if the market timer is exploiting pricing inefficiencies, or disrupt the management of the mutual fund’s investment portfolio and can cause the targeted mutual fund to incur costs borne by other accountholders to accommodate frequent buying and selling of shares by the market timer.
Put simply, timing the market refers to the activity of predicting the future direction of the stock market using technical analysis or other forms of forward looking data analysis. There is an overwhelming majority, Jack Bogle included, who believe in the efficient market hypothesis which suggests that it is impossible to beat the market over a longer period of time. However, a growing number of technical analysts and even fundamental analysts have developed market timing strategies which have outperformed the market, year after year. Warren Buffett is your greatest example of this. He has beaten the S&P 500 in 20 of the past 24 years. Don’t get me wrong, timing the stock market is no easy task and you don’t hear about many who consistently beat the market. For those of you who are not trading as full time professionals, the efficient market hypothesis will almost definitely hold true. However, the fact of the matter is that it is possible to beat the market over a longer period of ti
Market timing is an investment approach in which the investor attempts to “time” or predict the direction of the market. In market timing, investors make their investments based on an expectation of the market moving in the direction required to make the profit expected, rather than on information about the stock or the company. Many investors think they can “time” the market, but in fact few are successful at it. A big part of the reason for this lack of success is that market timing investment is very subjective. Therefore, it is difficult to remove emotional issues from the investment decisions. There are some common market timing axioms that do have some basis in reality. “Buy in November and sell in April” is perhaps the most common. It has been observed that stock prices frequently trend downwards during the summer months, and this axiom makes reference to that trend. Another market timing axiom is that stock prices trend upwards during years in which there are presidential elect
