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How to Time the Markets Like an Investing Pro - September 05, 2019

Zacks Equity Research

In the long-run, does consistent market timing really matter to be a successful investor?

Indeed, even among the individuals who don't seek to be the ideal market timer, many feel they can call a top and act in accordance. It is these tendencies that make investors sit on the sidelines and hang tight for a better chance to put money into the market.

Giving up too soon at the first sign of inconvenience often leads to missed opportunities among numerous individuals who try to trade on their own retirement. For example, many investors have forfeited immense chances waiting for the Aerospace stocks to correct, only see the latter achieve new highs, move higher and drive the buyer markets to record levels: Air Industries Group (AIRI), AAR Corp. (AIR), The Boeing Company (BA), AeroVironment, Inc. (AVAV), Astronics Corporation (ATRO)

Dread and exuberance regularly propel investors into merely 'reacting' to market volatility, rather than envisioning market trends.

Accomplished market timing requires three key components: 1) A dependable sign of when to get in and out of stocks. 2) The capacity to act upon signals quickly and accurately. 3) Have the stomach to act on market signals, no matter how counterintuitive the move may be.

Many investors believe that market timing is a short-term investment strategy. There is a less known, more effective, longer-term market timing approach that has been used successfully by astute investors like Warren Buffet.

Rule 1: Attempting to time tops and bottoms is lose-lose situation.

Surrendering the objective to time the tops and bottoms gives you the adaptability to benefit and increase your odds to secure profits over the long-term, even if your calls aren't always right.

Rule 2: Make an effort not to sell in the midst of little crashes. Muster the courage to trust your gut and buy best in class stocks at a discount.

Warren Buffett has made his fortune based of this straightforward guideline. He cautions not to sell amid little crashes and to instead endure the temporary hardship and profit by concentrating on the long haul.

There is a key distinction between a small correction and a market crash. No matter what happens in the stock market, chances are that the stocks you own will eventually come back to their pre - crash value; hanging on to your original positions, or opportunistically averaging down, during market downs can be the shrew distraction to take. Warren Buffett takes this thought one step further by often buying outsized positions in value stocks he likes across the board when markets turn, essentially leveraging his bottoms-up analysis and stock picking acumen.

When It Comes to Trading Your Retirement, A Risk Adjusted Trading Strategy Should be Followed

It's only human that many succumb to greed and try and game the system by timing the market. But, think about this: Nobel Laureate William Sharpe found in 1975 that a market timer would need to be precise 74% of the time to beat a passive portfolio. Indeed, even a slight outperformance most likely wouldn't justify the efforts - and given that even the specialists for the most part come up short at it, market timing shouldn't be your exclusive methodology for investing, particularly when it comes to building your retirement nest egg.

Actively trading for alpha, outsized, short - term gains through market timing and other high - risk trading strategies is fine with a small portion of your investable assets, but for your longer - term retirement assets, a risk -adjusted focused investment solution generally makes more sense.

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Air Industries Group (AIRI) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
Astronics Corporation (ATRO) : Free Stock Analysis Report
 
AeroVironment, Inc. (AVAV) : Free Stock Analysis Report
 
AAR Corp. (AIR) : Free Stock Analysis Report
 
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