Stock Market Timing

The best stock investment strategy?

Investors who use a stock market timing strategy attempt to predict the future direction of a market, typically through the use of technical indicators or economic data.

The VIX index or CBOE VIX is one technical indicator that traders use to time buying and selling decisions.

It measures the market volatility on any day and is related to the level of fear (or greed) in the market. It is sometimes referred to as the fear index.

Market timing often means going against the prevailing opinion. It also often means taking a bullish position when everyone is bearish, and taking a bearish position when everyone is bullish.

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Index market stock timing is an activity that focuses on movements in a particular stock market as a whole rather than individual stocks.

Switching among mutual fund asset classes, such as for example between cash and equities, or between bonds and equities in an attempt to profit from the changes in the market outlook for these asset classes is also an example of this strategy.


Who Needs Timing?

Whether stock market timing is possible is really a matter of opinion. Stock traders rely on timing on a regular basis to be able to enter and exit short-term trades at a profit.

The difficulty is that traders have to get their timing right twice, once when they buy, and again when they sell.

There are those who say they can predict stock market and individual stock rises and falls with stock market timing software, and ask you to pay money to learn their secret, or buy the software. One wonders why they don't keep the information to themselves and make a fortune!


How Do Value Investors Use Timing

They say it's time in the market - not market timing. However, I think timing stock market investment is a combination of both!

For the value investor the evidence is clear. Investing for the longer term is the best strategy, and timing means timing when stocks offer value, or alternatively, when they have become over-valued.

Value investors have the confidence of not having to spend time studying the market on a daily basis, knowing that a margin of safety has been provided for if the market happens to drop unexpectedly.


A Contrarian Approach

The best time to buy is when the market has stopped falling and other investors are bearish or fearful. This applies to individual stocks as well.

This type of strategy is called a contrarian approach since the approach is going against the common market sentiment at the time.

Value investors adopt this approach and sell when prices are climbing fastest and sentiment is most bullish or exuberant. This is a signal that suggests the market is getting ready to reverse.


To Conclude

Investors who can confidently pick undervalued and overvalued stocks and recognize the different parts of a market cycle are more able to take advantage of timing signals.

They are also less likely to get fooled into buying at the worst possible time, which is usually when others are most enthusiastic!

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