Market Timing by SG Value Investor, The Value Edge

Two concepts widely debated on would be timing the markets. Essentially, the former refers to individuals entering and exiting the market at crucial moments to effectively maximize their returns. While the latter just refers to individuals entering the market and holding on till the stock has reached its fair value. Despite being a value investor, even I have constantly questioned myself regarding this issue.

What if I sold King Wan Corp. Ltd. (SGX:554) when it hit the previous high of 34c, and bought back when it reached the low of 25c?

Honestly speaking, following such a method I would have made a huge load more money. However, the crux is that this is all in hindsight. Would I know back then to sell? Did I even have the inclination to sell? The answer would be NO! Given that we are just merely mortals, how are we able to effectively time the markets? Aside from technical analysis, and other factors such as market psychology and economic news, with that many variables how does one perfectly time the market? To date, I have yet to have met someone who has been able to effectively time the market.

Market Timing

I would like to highlight a research done by Schwab Corporation on market timing. (Click Here)

Market Timing: Key Summary

The best results goes to the individual who was able to time the market perfectly for the research period of 20 years, accumulating $87,004. While the individual who did not time the market came in second with $81,650 – only $5,354 less that the winner. For the amount of effort spent by the first individual compared to the second to only outperform marginally, is he truly the winner?

To conclude, this article isn’t about which method is ‘right’ or ‘wrong’, but rather the difficulty of timing the market especially with the amount of emotions involved. Essentially, the most realistic strategy for the majority of us would be to just invest in stocks immediately, assuming that we are comfortable with the margin of safety at that point in time. More of than not, procrastination can be worse than bad timing. Just waiting for the price to drop by that 0.5c may just have cost you that 2 or 3 bagger. Lastly, one of the oldest yet safest methods would probably still be using a dollar cost averaging method, which in the long run would still perform relatively well.