ABCs of Investing

Timing the market or market timing occurs when an investor or fund manager makes a decision to buy or sell an investment in anticipation of that investment going up or down in value.  This can occur on a broad scale where a fund manager might alter the ratio of stocks to bonds in his fund or it can apply to a single investment such as an investor selling a stock because she thinks it will go down in value.

A very simple “timing the market” example

Bob holds a European mutual fund that he thinks will go down in price and sells it to put the money into an Asian mutual fund that he expects will perform better.

Should I try to time the stock market?

If you are going to try and time the market then make sure you do so for the right reasons.  Panicking when the stock market crashes is not a good reason to sell.  Greed is another tough opponent - if the market is doing really well and you want to buy in, then you are chasing returns which you might not get.

Decisions on buying and selling securities should only be done within the context of a defined investment strategy.  There are many different methods for determining when to buy or sell investments but fear and greed should not be part of the equation.