“Let’s say it clearly: No one knows where the market is going-experts or novices, soothsayers or astrologers. That’s the simple truth.” – Fortune
With all the education we have today and real-time access to financial news, trying to time the market would seem like a brilliant thing to do and you’d expect to make a lot of money doing this. However, the data shows that not even the professionals can successfully time the market. Not even with all their training and years of experience.
You might read about that trader who rightly called the stock of company X, they might even hit a homerun a couple of times thereafter, but that tends to be just one half of the story, they often conveniently forget to include the times they lost money in their story. The truth is, while it is possible to get it right a couple of times no one has been able to do this consistently
And it’s for good reason, there are just too many things that influence the direction of a company’s share price; as such it’s near impossible to accurately and consistently predict what the market is going to do.
Often, a company will release stellar financial results and beat estimates, but instead of going up, it will head south. If on the back of the good numbers, you place a huge bet on the stock while at the same time, there’s a large foreign investor who needs to exist the stock because he is facing some challenges their home county. You might lose some money on that position because the presence of a big seller might pressure the stock downward.
On the other hand, if by chance you get wind of the big seller and delay your purchase of the stock, it is also possible to miss out on a good buying opportunity. It just might happen that an investment manager on the other end of the world, suddenly sees the value of the stock and launches a buying program that surpasses that of the seller. And before you know what is happening the stock is flying.
The important thing is to do your homework, find companies that are doing well and most importantly you expect will continue to do well in the future and regularly buy shares in those companies. But if that is over your head, then find a good mutual fund, index fund or ETF and consistently invest in them regularly.
Ideally, the stock market should be for the long term. So while in the short-term, there will be troughs and peaks. One thing is clear, the long term trajectory (i.e. of the overall market or the stock of a good company) is positive.
Based on the foregoing, given that today’s peak might just be tomorrow’s trough, your best bet is to keep you money in the game and avoid the temptation to jump in and out of the market in an attempt to catch the bottom and the top.