Buy and Hold mantra
One popular theory is that investors should buy and hold their stock investments. They should not try to outguess the stock market. This idea became a mantra after the market recovered so well following the 1987 share market crash. The crash now only looks like a hiccough from the great bull market of the 1980s and 1990s. That recovery was a manifestation of the market's long term resilience.
A related theory is that the stock market should always outperform bond yields over the long run, as stock investors are compensated for the extra volatility.
These types of theories may have faded a little now, after global investors experienced the bear market in 2000 and the recent 2007-2009 severe bear market. In the US, the broad stock market indices closed lower in 2005 than five years earlier. Five years is a long time, even for patient investors.
As the buy and hold theories have become widely held, the effect has been to push prices higher, increasing the entry cost for new buyers and removing their attraction - a kind of self-defeating prophecy.
Using PE ratios
Other theories, based on ratios, such as PE ratios, would have been very effective in signalling the tech crash a few years ago. However, using this would have made many investors over cautious, and missed much of the fantastic bull market in the five years earlier. That would have cost investors a large amount of missed profits. (Caution!! Maybe risky strategy.)
In summary
Choose the best periods to be invested in the stock market. There are long periods of over and underperformance.
Watch the economy and the big picture influences.
The best way to time investments is to allow some broad consensus to build in the market and invest after the price begins to move. (For example: There is a consensus building that the worse of the recession is over and the world economy is heading towards recovery. Moreover, the prices have moved.)
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