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Stock Market Timing

Partners' Network Blog

My last blog talked about the stock market highs and lows and when you enter or exit the market.  Unless you are a trader, you own very few stocks and they all tanked at the same time or if you completely panic, it is rare that you would exit the market.  Getting into the market is a continuous process unless you are retired and living off of your investments, and then the buying days are over leaving you to only make withdrawals but those are of smaller amounts.  Here is some more background on “growth.”

The 2008/2009 Dow Jones Industrial Average (DJIA) low was on Mar 9 at 6,507 and with last Tuesday’s 25,806 you had a substantial profit since then.  However, if you got into the market on Jan 1, 2008 when the DJIA was 13,265 you also did well, but not as great of a percentage gain.  Still very good and when you include the dividends you received this was very good.

If you got in on Jan 1, 2019 with the DJIA at 23,327 you also had a great short term profit through last Tuesday, but if you got in on Oct 1, 2018, at 26,651 and sold on Dec 31, 2018, at 23,327 you lost a bundle, but if you held it until last Tuesday you would still be down, but not with such a devastating loss.

Those that got in on Jan 1, 2017, at 24,719 would be up as of last Tuesday, and down somewhat as of Dec 31, 2018, but also not such a terrible loss.

As we can see, timing is important, but not necessarily controllable and there are usually artificial measuring points since very few get in or out at the exact measuring dates.  I believe the most effective stock market strategy is to get in when you have the funds, hold based on your goals, and then withdraw the dividends and perhaps some principal to meet your retirement cash flow, or otherwise when you attain your goal.

A comment about withdrawals of principal to achieve cash flow needs is that you are subject to the vagaries of the market when you sell stocks to make withdrawals.  However, those withdrawals in addition to the dividends are usually small amounts, possibly 2 or 3 percent a year of the entire portfolio.  Regardless of the market situation at that point, any drops in value will not materially affect the overall portfolio.  Further, such withdrawals on a regular or annual basis should have gains some years that will offset any losses.  Again, I am referring to well-diversified portfolios.

Market timing is a strategy that involves buying and selling decisions made based on predictions of future price movements.  Generally, this is a whole market strategy based on the market’s aggregate performance, although many people attempt to do this for individual stocks or sectors. There are many variations of this and myriad descriptions are available online by searching “market timing” which appear to lend credibility to this strategy.  I do not believe market timing is workable unless you are extremely lucky, and if not, then the chances are you will not do as well as if you just bought and held.  Also, my recommendations and blogs are focused on long term investing and do not cover trading and short term buying and selling.

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