Next Investors logo grey

Market timing and how to manage risk

Published 26-JUN-2020 14:38 P.M.

|

2 minute read

Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.

In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.

The below articles were written under our previous business model. We have kept these articles online here for your reference.

Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.


Click Here to View Latest Articles

Investors are continually told to leave their money with professionals and to accept swings in the market over the long term, as many believe you cannot time the market. Those who advocate 'time in the market' attempt to discredit supporters of 'timing the market' by pointing to the small number of times the forecaster was inaccurate in order to prove their point.

With the fall into the March low and subsequent rise up, many investors attempted to time their exit and entry into the market and, so far, have been rewarded for their decision, but there are plenty that got it wrong.

That said, in ASICs recent report on investors trading during COVID-19, they indicated that retail investors get it wrong most of the time, which I tend to agree with.

So what is market timing?

Put simply, it is about managing risk, no more, no less. If the risk of holding an asset becomes too high, it should be sold. Just as importantly, if the risk of holding an asset decreases, it should be held, provided it supports the investor’s objectives.

Every week I predict what I believe the Australian market will do in the short, medium, and sometimes long term, and while I get it right the majority of times, sometimes I don’t.

However, just because a prediction does not unfold does not mean that ‘market timing’ is not an effective strategy.

While I am able to forecast moves in the market with an incredibly high degree of accuracy, market timing does not work 100 percent of the time, therefore, you need to be prepared that some predictions will not be correct.

Remember, market timing is about the risk of holding an asset first and foremost, and not about attempting to grab some quick profits, as retail investors are trying to do right now.

While some will get it right some of the time, most will get it wrong.

Consequently, those who were lucky in getting it right in recent times may be in for a big shock, as there is a high probability they will lose the gains they have made over the past few months.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online at www.wealthwithin.com.au



General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.