Does market timing work?
Would you know Russia is going to initialize military operations against Ukraine and when will it end?
Do you know how fast and how much will the Fed raise the interest rates?
Do you think you can beat the governors of the FED(and their wall street friends) who were caught trading before major policy changes were announced?
Do you know which industries will be regulated next?
Can you beat the super-talented PhD researchers with super-computing resources who are also constantly looking for investment opportunities in the market? They are likely the one who buy/sell from/to you.
There are analysts making all kinds of positive and negatives forecasts and predictions on the markets and some of them will seem like genius and attract media attention. While their analysis might seem valid, you will never know whether it is luck or skill. One thing I am sure is it is impossible to consistently time the market successfully over a long period of time. The market is unpredictable – there will always be other black swan events like covid-19 in addition to those mentioned above.
Two of the worst mistakes you can avoid by not attempting to time the markets are:
1. Selling during a panic and not being able to get back in the market when it is recovering
2. Buying near market’s high when everyone is excited and optimistic about the market or some hot concepts and get stuck when the music stops.
One might successfully time the market for some gains and think it is an easy game. However, one mistake might derail your financial plan and momentum. Remember it takes a 100% return to recover from a 50% loss. Moreover, active market trading will likely incur additional costs such as commissions, stamp duty, subscription fees, redemption fees and bid/ask costs.
Jack Bogle, founder of Vanguard Group’s timeless advice: ‘Don’t do something, just stand there.’ Once you settle on a low-cost and diversified long-term investment strategy, like a low-cost global ETF or MPF global equity fund/discretionary investment strategy(DIS), you should remind yourself to be disciplined, ignore noises in the market and avoid making impulsive trading decisions. This proved to be correct again for the market rout in March 2020 and will be right again for investors with long-term investment horizon.
Last update: 22th March 2022