Are you a market timer? Is your Advisor a market timer?
If so, its time to evaluate your strategy.
2008 seems so long ago. Yet for most, it was like just yesterday. The average investor lost upwards of 30%+ while the S&P500 was down just shy of 37% that year.
Many lost over 40% or more as a large percentage of investors sold during the carnage and failed to reinvest their cash in 2009 when the markets started this incredible 5 year Bull Market.
Losing 30-40% is one thing, but to fail to earn it back for fear of losing more is just one of the many pitfalls of market timing.
If this story describes your situation, you’re not alone. Investors – with or without Advisors – in 2008 were left stranded and afraid with no better strategy than “just don’t look at your statements right now,” and “let’s sit on the sidelines until things get better.”
These are not strategies. They’re surefire ways to lose money and ensure your assets aren’t working as hard for you as you did to earn them in the first place.
Let’s look at some of the stock market timing signals & stratgies out there.
The first, which I love to discuss, is self-named The Knee-Jerk Timing Model.
The Knee-Jerk Timing Model
While this isn’t a true timing signal, investors should know that if their Advisor isn’t a buy-and-holder (who I disagree with too!), chances are they have an Advisor who considers themselves “Market Timers” and use this timing model whether they admit it or not.
The “Knee-Jerk” is what happened late in 2008 when your Advisor called you up and told you he/she was raising cash – it was a “knee-Jerk.” And, it was too late.
This model is highly flawed with emotion and ego bias and is signaled purely by the Advisor’s or the investor’s gut.
Investor Bad Behavior
One needs to look no further than DALBAR’s annual study of Investor Bad Behavior to see the staggering underperformance by investors trying to time the market.
Despite investors, in 2013, “timing” the market correctly “75% of the time,” per DALBAR, they still managed to underperform the broad markets by a staggering 6.87% – AND when they were 75% correct!
There are certainly other, more official, timing “systems/signals” that we could discuss…
The Seasonality Trading System
One of my favorites (tounge and cheek, I assure you), effective or not, is the Seasonality Trading System.
The system calls for being 100% in stocks at the turns of each calendar month and prior to exchange holidays. It’s in cash at all other times. Can you believe that?
I will vouch that there are articles out there that tout this “system’s” effectiveness, but one most ask themselves…REALLY!? No matter what, own 100% stocks at the beginning of each calendar month and then sell all for cash?!
Are you picking up what I am putting down here? Whether a knee-jerk or an outlandish trading system that dates back to the 70’s (which requires you to trade your account every single month of the year,) they’re desperate attempts to mitigate risk in one’s portfolio. Desperate!
No one wants to lose money in the stock market. And while the “buy and hold camp” needs to take serious caution (a whole separate blog, forthcoming!), the market timing camp needs to also take note, and soon, with the state of the market and current market indicators.
The Liberated Investor Model™
You see, Liberated Investors™ take the best from each of these “camps” for a better way to navigate the markets ups and downs. The Liberated Investor Model™ borrows the discipline of the “buy and holder” yet not the passivity. It borrows the responsiveness of the “market timer” but instead of emotion driving the choices, our model looks at facts and logic.
So, here’s what you need to know:
- Apply only fact-based logic to your trading/timing decisions. FACTS not emotion (ahem, knee-jerk);
- Don’t fund Wall Street’s golden sidewalks with commissions and trading costs; timing = active trading. Be aware of who is winning your trading game;
- Surround your timing decisions with time-tested RULES. Be disciplined to time tested RULES. Don’t fall into the “bad behavior” category of investors;
- When you invest in stocks in a Bear Market, YOU WILL LOOSE MONEY. Set ground Rules and get the Facts of what defines a BEAR MARKET.
Unsure of the best way to navigate markets, good and bad, without ensuring that Wall Street is the only winner? Become a Liberated Investor™ and get the tools and knowledge to beat Wall Street at its games. Its time to time the market the right way – the Liberated way.