Market Timing is Wishful Thinking

12/05/2021

Market timing is an investment approach where the investor tries to "time" or predict the time of the market. In market timing, investors make their investments based on an expectation that the market will move in the direction necessary to make the expected profit, rather than based on information about the stock or company. Many investors think they can "time" the market, but in fact very few are successful at it. A big part of the reason for this lack of success is that investing in market timing is highly subjective. Therefore, it is difficult to remove emotional problems from investment decisions.

There are some common market timing axioms that have some basis in reality. "Buy in November and sell in April" is perhaps the most common. It has been observed that stock prices tend to trend downward during the summer months and this axiom refers to that trend. Another market axiom is that stock prices are on the rise during the presidential election years and downward in the years after the presidential election. There are many more market timing axioms, and while many have some grounding in reality, they are also too vague for an investor to achieve consistent success by following his advice.

Most market timing investors use technical analysis to make their investment decisions. There are many different types of technical analysis tools available, the most popular of which are charting tools. Market timing investors believe that investment behaviour is predictable and that by looking at past patterns, future patterns can be profitably predicted.

This is the holy grail of the market timing investor, to profit from correctly forecasting market direction based on observations of past events. Much research has been done on models to reliably provide market timing data, but to date there is little agreement on their effectiveness

In our view market timing is just "wishful thinking".


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