Market timing is a great strategy if you know what the market is going to do and when.
The problem is most people (if not everyone) do not know when the next market downfall or bull run is going to happen.
Nevertheless, there is another option.
What if you just waited to start investing? What if you held onto cash and waited for the market to drop of 15% (or 10%, or 20%) and then you jumped in right when the market was at its lowest point.
We’ll dive into that analysis and see if it works, but first, a primer on stock market timing and why it’s so enticing.
Why Market Timing Never Works
What Is Stock Market Timing?
Market timing is exactly what it sounds like. An investment strategy that involves putting money into and pulling money out of the market at certain times to maximize your investment.
You’re buying during the lows and selling during the highs.
Usually, advanced market timers rely on timing signals or a formula or algorithm to help determine when the market is down and when it is up.
In hindsight, when using these market signals it’s easy to see the many peaks and valleys of the stock market and imagine buying and selling at the exact right times.
Though, it’s much harder to predict in the present moment.
Does anyone really know when the market is going to go up or down? I doubt it.