Many young investors at times stop and think “If only I could have bought the stock at a particular date and sold them on certain date, I could have been a multimillionaire by now.”
To a good number, the prime reason of putting money in the stock market is because it offers higher returns.
And although investing in stocks can help in building ones financial stability, this is notalways guaranteed because of the unpredictable nature of the market.
A majority of young investors almost always try to predict the market in the end getting disappointed.
“Timing the market simply means pulling money out of stocks when share prices seem poised for a protracted fall in the hope of reinvesting when prospects improve.
“Many investors actually believe in this but not many have succeeded since timing the market is never easy,” said Mr Manyara Kirago, a Nairobi based author and personal financial coach.
According to him, during the time of market instability when stocks start losing altitude, it’s natural for investors to feel compelled to buy and sell according to their own forecasts of whether a stock, or the market as a whole, will rise or fall in the short term.
“It sounds a great idea to time the market, but the truth is it does not always work. Many investors have lost their money in stocks or even in bond investing because they do not know when to perfectly buy or sell their investments.
A good investor should try to limit the risk. This is why people are being discouraged from timing the market and instead focus on long term investment,” he said.
A lot of people are eager to make money, and most think that they have to be in the market almost or all of the time, over-trade, and get a little buzz cut here and there, as the market moves back and forth.
But research has shown that such investors mainly get rewarded with falling prices. Mr Simon Taiko, once a darling of stock market is one of them. He has always been keen on timing the market.
Glued to the TV monitor
“I have been buying shares only when the market was low and every time I am glued to the TV to monitor the changes in the price of shares, but I rarely got it right and when I do, I do not even get the amount of money I expected,” he said.
Mr Taiko has since invested his money elsewhere. “I do not think it was wise for me to put my money in buying shares, I got discouraged and decided to try my hands in property market since I realised that investing in stocks is a very complex thing for me.”
Being one of the most common investment strategies employed by investors, market timing comes with many shapes and forms and naturally there are many opinions as to when might be the most promising times during the year to buy and sell stocks.
However, some experts believe that predicting the market can work at times but only for those who fully understand it.
“The objective of any stock market timing strategy, says Mr Patrick Wameyo, a stock investment expert, “should be to reduce risk and maximise returns – with risk reduction being the most important factor here.”
Most market timing systems, he said, don’t work consistently enough to be valid. “Some will work in trending markets but fail during flat times. But it’s not a very reliable investment strategy since it can easily mislead an investor.”
Investors who time the market are said to use various combinations of historical data, hunches, economic theory, social science research, technical analysis, or even weather patterns to predict stock market.
But over time, these marketing timing strategies have proved to be little more than coin-flippers.
Good and bad times
“The stock market goes through cycles of good times and bad times. If you are looking to invest in stock market, you must go for long term horizons and not short term. Be prepared to see some volatility in the values of your portfolio, but do not panic.
“Have the belief in what the market can and has done consistently, because it’s not possible to time stock market,” advised Mr Wameyo.
So what is the correct formula for an investor to use in making good profits in stock market? According to Mr Wameyo, success in the market is not some secret formula.
“There is no holy-grail, no black box system, no get rich quick master system. In this type of investment, no one can promise you huge returns with no work, because stock trading is purely based on fundamentals.”
Investment experts recommend that individual investors should settle on the portion of their portfolio that they want in stocks and stick with it while trying to rebalance once or twice a year at most.
