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The topic above has probably been debated to death, and there are many studies and so-called research and material dug out from the historical annals of the stock market which can either support one theory or the other. In case readers may not understand the meaning of the title above, let me give a little background. Time in the market simply means “Buy and Hold” as it implies you are spending time staying vested in the stock market (i.e. the companies whose shares you purchased). Timing the market, on the other hand, is the practise of trying to enter and exit periodically and maximizing one’s gains through this method.
This post is more to compare and contrast the two methods rather than to pass judgement on which method is “right” or “wrong”. Of course, this is a value investment blog and I am a practitioner and advocate of value investment, which belongs to the “buy and hold” camp. Still, keeping an open mind is important and I recognize that this style may not be suitable for everyone as one’s investment style is intensely personal. Basically, as long as a particular style suits you, then whether it is time in the market or timing the markets, one should be able to profit consistently from it over the long-term.
Proponents of timing the market are of the opinion that as long as a long-term trend can be established, it is relatively safe and low-risk to enter the market and either ride it up or down. Others may also rely on charts, graphs and trendlines to determine support and resistance areas, and use these as price points for determining their entry and exit. I would assume that obviously if one thinks that they can time the market successfully, that they would be able to do so consistently and profitably. What one must always remember by using this method is that frequent trading will erode profits and magnify losses as frictional costs such as brokerage come in. Even if one were to trade, the trade should be infrequent and one should maximize the gains while cutting the losses short. This strategy requires, of course, much discipline and fortitude and is much easier said than done. Read more...[caption id="attachment_2864" align="alignright" width="150" caption="Photo by Ghetu Daniel"][/caption]
The topic above has probably been debated to death, and there are many studies and so-called research and material dug out from the historical annals of the stock market which can either support one theory or the other. In case readers may not understand the meaning of the title above, let me give a little background. Time in the market simply means “Buy and Hold” as it implies you are spending time staying vested in the stock market (i.e. the companies whose shares you purchased). Timing the market, on the other hand, is the practise of trying to enter and exit periodically and maximizing one’s gains through this method.
This post is more to compare and contrast the two methods rather than to pass judgement on which method is “right” or “wrong”. Of course, this is a value investment blog and I am a practitioner and advocate of value investment, which belongs to the “buy and hold” camp. Still, keeping an open mind is important and I recognize that this style may not be suitable for everyone as one’s investment style is intensely personal. Basically, as long as a particular style suits you, then whether it is time in the market or timing the markets, one should be able to profit consistently from it over the long-term.
Proponents of timing the market are of the opinion that as long as a long-term trend can be established, it is relatively safe and low-risk to enter the market and either ride it up or down. Others may also rely on charts, graphs and trendlines to determine support and resistance areas, and use these as price points for determining their entry and exit. I would assume that obviously if one thinks that they can time the market successfully, that they would be able to do so consistently and profitably. What one must always remember by using this method is that frequent trading will erode profits and magnify losses as frictional costs such as brokerage come in. Even if one were to trade, the trade should be infrequent and one should maximize the gains while cutting the losses short. This strategy requires, of course, much discipline and fortitude and is much easier said than done. Read more...
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The topic above has probably been debated to death, and there are many studies and so-called research and material dug out from the historical annals of the stock market which can either support one theory or the other. In case readers may not understand the meaning of the title above, let me give a little background. Time in the market simply means “Buy and Hold” as it implies you are spending time staying vested in the stock market (i.e. the companies whose shares you purchased). Timing the market, on the other hand, is the practise of trying to enter and exit periodically and maximizing one’s gains through this method.
This post is more to compare and contrast the two methods rather than to pass judgement on which method is “right” or “wrong”. Of course, this is a value investment blog and I am a practitioner and advocate of value investment, which belongs to the “buy and hold” camp. Still, keeping an open mind is important and I recognize that this style may not be suitable for everyone as one’s investment style is intensely personal. Basically, as long as a particular style suits you, then whether it is time in the market or timing the markets, one should be able to profit consistently from it over the long-term.
Proponents of timing the market are of the opinion that as long as a long-term trend can be established, it is relatively safe and low-risk to enter the market and either ride it up or down. Others may also rely on charts, graphs and trendlines to determine support and resistance areas, and use these as price points for determining their entry and exit. I would assume that obviously if one thinks that they can time the market successfully, that they would be able to do so consistently and profitably. What one must always remember by using this method is that frequent trading will erode profits and magnify losses as frictional costs such as brokerage come in. Even if one were to trade, the trade should be infrequent and one should maximize the gains while cutting the losses short. This strategy requires, of course, much discipline and fortitude and is much easier said than done. Read more...
