Sunday, February 14, 2010

Why I time the markets

A lot of so called experts will tell you that you cannot time the markets. I respectfully disagree. Very few people will disagree that if you could time the markets you could get rich very rapidly. If I had next weeks paper I am sure I could generate more than a million dollars in the stock market. I could make just as much betting on sports contests, Better yet for a few bucks I could buy a few lottery tickets and strike it rich the easy way. None of those things are going to happen.

My goal in market timing is to beat the market (buy and hold). I do not have to pick a top nor do I need to pick a bottom. I need to be able to do sell when the market is high and buy back a similar security when the market is lower. Conversely you can time the markets by buying when it is low and selling when it is higher. I prefer to buy high and sell lower. I cannot often sell at the top and seldom do I wait for the bottom. If you sell a mutual fund at $20 per share and buy it back at 18 you have 11 percent more shares. That does not even include any interest you may have received in your money market. How many times do you have to do this before you double your money? In the example shown you need to sell and buy seven times.

How many times has the NASDAQ dropped 10% after peaking in the last 10 years? I counted 19. That would be over a seven fold increase over buy and hold assuming you bought back at a 10% drop each time. If you caught just ten of those you are talking a three fold increase.

Timing the market has the potential for huge gains. Can it be done?

Next blog how did I do over the last 10 years?

1 comment:

  1. I am very interested in this and what you have done on this. You definitely don't know the future, but you are right on that you can buy and sell high and low generally. This should be a very insightful set of posts. Thanks