Why Timing the Market is Ineffective: An Illustrative Example

This year has been an eye-opening one for investors and provides a great case study on market timing (or, more precisely, why timing the market doesn’t work and should be avoided).

As this forum hosts many aspiring and novice investors, Wikipedia aptly defines market timing as follows.

“Investment strategies involving making buy/sell decisions of financial assets (often stocks) by trying to anticipate future price movements may include technical analysis or fundamental analysis as a basis. Such an investment strategy would focus on an aggregate market outlook rather than specifically one asset.”

Are the alluring words of financial experts alluring enough for you? So let’s go through this year’s market timing lessons together in order to make it less so…

This year began relatively steadily for stocks as markets entered their seventh year of an aging bull market. When this happens, investors can almost expect some bad news to occur to dismantle it all… which happened through various unpredicted events…

Russia/Ukraine took place, followed by Greece and Middle Eastern unrest; followed by the Shanghai Composite index’s collapse; as well as fears over whether the Federal Reserve will raise interest rates as the economy strengthens.

All this market volatility created an ideal storm until investors finally cracked under its pressure and bolted. And this happened…