What is Timing the Market?
Timing means trying to anticipate the market direction through shifts between stocks and cash/bonds. With market timing, the focus is on the direction of the overall market. The focus with investing is on the merits of the individual businesses. Investing in the market means buying parts of different businesses. Over the last 85 years, the S&P has generated positive returns approximately 75% of the time. So, by trying to time markets you try to avoid the 25% of the time the markets decline. The problem that market timers face is how to identify when these down markets occur. Many different measures of market valuation have been developed. Unfortunately, none of them have been able to consistently generate accurate buy and sell signals. The academic research in this area supports the view that market timing does not add any value. Below, we summarize some of the research that has been done in this area: * Morningstar, the mutual fund newsletter company, identified market-timing funds th
Timing the market is a strategy to buy and sell investments at a preferred price. This includes stocks, bonds, commodities, mutual funds, index funds and real estate. Every financial market experiences fluctuations in their trading range based on news factors such as financial reports, news reports that directly impact the company or product, stock and bond payouts, supply and demand, and the economic health of the industry and nation. By studying these indicators and the cycles of your particular vehicle of investment, you can predict the market direction. This will enable higher returns as you buy and sell at premium prices. The goal in timing the market is to buy as the price bottoms out and begins to gain momentum and to sell just before the price peaks. Several market strategies are available to help predict where your investment instrument is in the cycle. The Price/Earnings ratio (P/E), the dividend yield, the price-to-book ratio, the prime rate and the federal funds rate are a
