A Comparison of Buy and Hold With Stock Market Timing Strategies

A Comparison of Buy and Hold With Stock Market Timing Strategies

By Tom Kearney

Stock market timing strategies can be long or short term. The strategies are different for single stocks than they are for mutual funds, of course. With single stocks you base your strategy on your knowledge of an individual company. What are the fundamentals of the company; earnings, sales, assets, technology and management. The context of the over all market for the service or product that the company produces is also relevant to knowing when to buy and when to sell.

It is simple to see the point of stock market timing strategies. As Warren Buffet will tell you over and over again, all you need to do is buy low and sell high. The tough part, of course knowing when. It is not possible to always be right, but it is possible to be right enough often enough to stay in the game.

Many experts advise a buy and hold strategy. This philosophy is based on the historical fact that markets rise in value over time, despite recessionary blips. But even in a buy and hold scheme, one must be able to recognize when a stock is in a long term retreat. Technology changes as does the competitive landscape. One need only think of the web companies that collapsed when the tech bubble burst to see that buy and hold is a risky undertaking during a bubble.

Setting limits is a commonly used tactic when it comes to stock market timing strategies. Buying stocks when they are at their highest level is only a good timing strategy when the company is a penny stock that has made some sort of fundamental breakthrough.

Mining stocks are the clearest example of this. If a mining stock hits the mother-load, buying it early, even it has risen to its highest ever, is feasible as you have actual metal in the ground to secure your investment.

On the other hand, getting in at the peak of a bubble without a good reason for doing so beyond the fact that the stock is moving up is a recipe for disaster. For this reason, we can establish a firm Rule Number 1 for stock market timing strategies: do not buy on the bubble; only buy on the basis of a new ingredient in a company basics (earnings, sales, management, assets, etc).

As far as funds go, it is market fundamentals that one must pay attention to. Again, the technology sector gives us prime examples. When the technology bubble started to deflate in February of 2000, the deflation continued well into 2001. Getting out of tech-based mutual funds in the spring of 2000 saved many investors from ruin. Those who bought and held even after it became clear many of the tech companies would not survive paid dearly.

Stock market timing strategies versus buy and hold is a debate that will continue far as long as there are stock markets. The market moves on emotion, but it earns on fundamentals. Day traders make their living on stock market timing strategies. For the average investor, however, buy and hold, but staying informed and being willing to move when fundamentals warrant, are the order of the day.

Taking advantage of stocks is easy when you learn the details of market timing! Get all the information you need today to include market timing strategies in your trading strategy and see significant returns fast! Article Source: http://EzineArticles.com/?expert=Tom_Kearney