TIMING VERSUS PRICING

TIMING VERSUS PRICING

Since market cycles obviously do exist, wise value investors will make the best of them. There are two possible ways of taking advantage of the swings, Graham says:

· Timing
· Pricing

Research tends to confirm Graham’s belief that market timing, or anticipating the swings in advance, simply does not hold up. A 1995 study of market timing newsletter recommendations found that 75 percent did not do as well as a basic buy-and-hold strategy based on Standard & Poor’s 500 stock index. In cases where a newsletter beat the market for 2 years in a row, the newsletter had a less than 50 percent chance of doing so for a third year.

Since timing is well-nigh impossible, Graham suggested the pricing approach. By buying and selling on the basis of price, an investor will not have bought or sold in anticipation of a bull or bear market, but only after the fact. The investor buys after she knows that prices have declined and securities are undervalued. She sells when a bull market has pushed prices beyond the intrinsic value of the stock or bond.

By selling overvalued securities at the market’s zenith and resolutely holding cash, the investor will have the reserve funds to buy bargain issues when the market is at its nadir. Though market swings cannot be reliably and consistently predicted, they can be exploited once they occur.



THRIVING IN EVERY MARKET
Value Investing Made Easy (Janet Lowe):

1. THRIVING IN EVERY MARKET
2. MR. MARKET
3. SUITABLE SECURITIES AT SUITABLE PRICES
4. PAYING RESPECT TO THE MARKET
5. TIMING VERSUS PRICING
6. BELIEVING A BULL MARKET
7. THE PAUSE AT THE TOP OF THE ROLLER COASTER
8. MAKING FRIENDS WITH A BEAR
9. BARGAINS AT THE BOTTOM
10. SIGNS AT THE BOTTOM
11. BUYING TIME
12. IF YOU ABSOLUTELY MUST PLAY THE HORSES