Stock market timing strategies can be long or short term. The strategies are different for single stocks than they are for mutual funds, of course. With single stocks you base your strategy on your knowledge of an individual company. What are the fundamentals of the company; earnings, sales, assets, technology and management. The context of the over all market for the service or product that the company produces is also relevant to knowing when to buy and when to sell.
It is simple to see the point of stock market timing strategies. As Warren Buffet will tell you over and over again, all you need to do is buy low and sell high. The tough part, of course knowing when. It is not possible to always be right, but it is possible to be right enough often enough to stay in the game.
In opposition to stock market timing strategies is buy and hold. The thinking behind buy and hold is that overtime, stock markets will rise. If one can weather out blips and bubbles, one will make money in the market. That is fine as far as it goes, but even in a traditional investment scheme, one has to be able to recognize when one is sitting on a bubble. The 2000 to 2001 collapse of the tech sector demonstrated this to many. More recently, the housing bubble crushed many. In short, if it looks like a bubble, buy and hold is not successful.
That is not to say that a stock market timing strategy isn't without its own risks. In general, stock market timing strategies are best used in speculative small cap ventures. And even then, you only get in the game when a stock is rising. This is counter to buy low element.
To illustrate, let us take the example of mining stocks. Small mining companies are available at pennies per stock. If a company hits a good find, the stock will increase in value for up to a week. Getting in and out early pays big, safe dividends.
But keep in mind that these types of investments are almost total losses if the only thing drive the valuation upward is air. For this reason, you should only risk this type of in and out when a change in a company's fundamentals is shaping up. For a wireless technology company this could be something as simple as the adoption of an industry standard that is compatible with the company's technology.
Regarding mutual funds: buy and hold with an eye on sector economics is the best way to go. Do not, however, allow yourself to become complacent. Mutual fund holdings must be monitored every month. Too many investor go into denial when a sector falters and tell themselves what they are doing is buy and hold, when what they are really doing is sticking their head in the sand. It is just human nature to avoid bad news.
The debate comparing stock market timing strategies as opposed to buy and hold strategies will never be finalized as context is key to which scheme will give the best return. It is the wise investor who does not allow the market to pass them by. This is the benefit of using stock market timing strategies. - 32373
It is simple to see the point of stock market timing strategies. As Warren Buffet will tell you over and over again, all you need to do is buy low and sell high. The tough part, of course knowing when. It is not possible to always be right, but it is possible to be right enough often enough to stay in the game.
In opposition to stock market timing strategies is buy and hold. The thinking behind buy and hold is that overtime, stock markets will rise. If one can weather out blips and bubbles, one will make money in the market. That is fine as far as it goes, but even in a traditional investment scheme, one has to be able to recognize when one is sitting on a bubble. The 2000 to 2001 collapse of the tech sector demonstrated this to many. More recently, the housing bubble crushed many. In short, if it looks like a bubble, buy and hold is not successful.
That is not to say that a stock market timing strategy isn't without its own risks. In general, stock market timing strategies are best used in speculative small cap ventures. And even then, you only get in the game when a stock is rising. This is counter to buy low element.
To illustrate, let us take the example of mining stocks. Small mining companies are available at pennies per stock. If a company hits a good find, the stock will increase in value for up to a week. Getting in and out early pays big, safe dividends.
But keep in mind that these types of investments are almost total losses if the only thing drive the valuation upward is air. For this reason, you should only risk this type of in and out when a change in a company's fundamentals is shaping up. For a wireless technology company this could be something as simple as the adoption of an industry standard that is compatible with the company's technology.
Regarding mutual funds: buy and hold with an eye on sector economics is the best way to go. Do not, however, allow yourself to become complacent. Mutual fund holdings must be monitored every month. Too many investor go into denial when a sector falters and tell themselves what they are doing is buy and hold, when what they are really doing is sticking their head in the sand. It is just human nature to avoid bad news.
The debate comparing stock market timing strategies as opposed to buy and hold strategies will never be finalized as context is key to which scheme will give the best return. It is the wise investor who does not allow the market to pass them by. This is the benefit of using stock market timing strategies. - 32373
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