Successful timing on the stock market

Buy low, sell high. In times of turmoil on the stock market, many investors wonder whether it would be better to exit the market and re-enter later, when prices are expected to be lower. But timing, which seems attractive in theory, is extremely difficult in practice.

In theory, you can easily make a profit with shares. The magic formula is buy low and sell high; nothing more nothing less. When they are low, you buy shares and a little later you sell them at a higher price. A child can do the laundry. But how different is the practice.

WHEN TO BUY/SELL SHARES

Entering and exiting the stock market at the right time with the aim of achieving a good result is called timing. To be able to time well, you need to know what (stock) prices will do in the short term. When the market is at a low point, you need to buy. And after the ride up, you get off at the highest point.

It is the nature of investors to want to make as much profit as possible. Many investors believe that good timing is essential for successful investing. But buying and selling shares at the right time is perhaps the most difficult part of investing. If you can do this well, you will get good results. And that is essential.

Which trading days to buy shares

Research shows that only a limited number of days are decisive for the return of stock markets. If you miss those days, you miss out on a lot of returns. The ipo boston dynamics stocks is found online. From that point of view, it is not wise to actively enter and exit the market. On the other hand, missing the worst days boosts returns.

Timing and the market

Investors who time the market want to maximize their returns. In practice, nobody does this by anticipating the best or worst trading days of the year. Time in the market is more important than timing. This does not alter the fact that timing is high on the agenda for the majority of investors.

When the market is at a low, you buy and after a nice ride up, you get out at the high. This is the appropriate way to make a return. Yet many investors go wrong because they buy and sell at the wrong times.

But how essential is timing? In a historical simulation, the returns of three imaginary investors are simulated. The first stock portfolio measures the returns of an unflappable investor who buys $100 more shares every month, regardless of where the US S&P 500 is.

The second investor is a brave bottom fisherman. Whenever the market bottoms in a historic bear market, the test taker goes all in. In the period before the market trough, he puts aside $100 each month at 2% interest per annum. The S&P 500 has experienced seven historic bear markets in the past fifty years with drawdowns ranging from a preliminary -25.2% on September 30, 2009 to -56.8% on March 9, 2009.

When to buy stocks in history

The third test subject is an unfortunate worrier. After doubting for a long time whether it is the right time, this investor buys flawlessly at the top of the market. Like the daring bottom fisherman, the hapless brooder sets aside $100 monthly in interest.

From the start in January 1973 to October 5, 2022, the unfortunate worrier has saved and invested a nice amount. This test taker’s net worth grew to $474,079 excluding dividends. There’s no other way, the tough bottom fisherman does better: $700,032.

Timing | When to buy or sell shares

So successful timing is essential in the stock market for a good result. However, a look at the assets of the unflappable investor shows that his balance has now risen to $ 748,721. And all this without having to worry about rising or falling stock prices. Just buy every month.