WHAT IS STOCK MARKET TIMING?
When you invest in stocks, it is natural to want to make money. As you know, stocks go up one day and down the next with no real way to predict what will happen next. Occasionally, during extended bull or bear runs the market will go up or down for long periods of time.
Timing the stock market is the act of trying to predict what it will do next. It is something that many people want to do and find hard not to do. But most experts agree that it is something you should try to stay away from.
First of all, no one (other than God) can accurately predict what is going to happen in the future. So, for an average investor to buy and sell stocks based on what they think might happen tomorrow or next week is going to be a losing proposition much of the time. It is why many suggest that you should dollar cost average your stock buys so you get rid of temporary fluctuations. Market timing is something that some professionals claim they are good at and they have newsletters with their data to prove it. Maybe they can and maybe they can’t but even a track record of the past is no guarantee of the future.
On reason why it is bad to be influenced by market timing is because it will cause you to buy and sell stocks more frequently than you would otherwise. Not only will this cost you more in fees but it will also cost you more in taxes. Taxes on stocks are something you need to understand once you start trading. Profits on stocks that are held less than one year are taxed at the same rate as ordinary income. If you hold stocks for longer than a year, they are taxed at a lower rate. Therefore, if you are actively always trying to time the market and figure out whether you should sell here and buy back there, you are going to amass more of your gains and losses in that one year time frame and be taxed more.
Another reason why market timing is bad is that many who try it end up being on the sideline more than they are invested in stocks. You see, they sell to avoid what they believe will be a downturn and that means they are out of the market. Even if they are correct and the market goes down, it is difficult for them to pull the trigger and get back in. All in all, it is a mind game they play with themselves and it often leads to them not capitalizing on the up days when they should be invested.
Stock market timing is something that every stock investor has to battle to some degree. It is natural to want to avoid the bad days, bad months, and bad years but if you try to get too tricky, you usually only end up outsmarting yourself. If you are only concentrating on the best stocks to buy right now, your time horizon is probably quite short and you will end up making a bunch of short terms trades and miss any big long terms moves. Market timing and anyone learning how to buy stocks online just don’t mix. You should be concentrating on stock fundamentals and trying to find good stocks with solid earnings and solid potential.
