Most individuals will lose money, over time, buying and selling stocks. A fundamental mistake most people make is the notion that the stock market will continually rise. Technically it will, but there are time restraints for most people in the simple fact that none of us live indefinitely and depending on when the stock market goes through one of its corrections can negatively impact our portfolio.If you are under the age of 50 (as an example) and the market goes through a severe correction, more than likely you still have enough time for your portfolio to recover until retirement, assuming it never goes through another correction in your lifetime. How about if you are in your 60's and the market corrects itself? Chances are you will never recoup the losses that you incur.
A second mistake most people make when purchasing stocks is that they never have an exit strategy. Probably more important than buying a stock is knowing when to sell a stock. I learned a long time ago to never fall in love with any stock because eventually it will break your heart.You may have done your due diligence in researching a stock, but there are forces at work that may limit the ability of a particular stock to move in a positive direction. Some, but not all stocks are manipulated by Wall street. Many times a stock is over hyped by analysts and brokerage houses in an effort to get people to buy the stock and drive up the price. Once the stock reaches a certain price, the Wall street insiders then sell their shares and the rest of us are left with a stock that starts to decline. The problem for most people is that they generally get into a stock after its made it big climb only to then see the price drop. It is the old buy high-sell low mentality; a sure strategy for losing money in the stock market.I have read in more than one source that 70 percent of stocks move in the direction that the overall market is moving, so if you have a stock with great fundamentals and the market is declining, guess what? Your great stock is probably declining as well. Additionally, 20 percent of the movement of a stock is based on the sector that it is in (eg: transportation, health care, banking, etc.), so if your sector is not doing well then chances are your stock will not as well.Lastly, 10 percent of a stocks movement is based on the true fundamentals of a stock, but those fundamentals can be skewed by management of a given company as well as the brokerage houses and the analysts.Back in the mid 1990's everyone was a stock picking genius.
It seemed every stock you purchased did nothing but go up. Then in 2000-2002 reality set in. Most people who were in the stock market without an exit strategy suffered severe losses. At that point many people vowed to never play the stock market again. What happened in 2003? The market soared again, but of course those with a sour taste for stocks either did not get in or got in after the big run up to end up either making very little money or no money at all. Once again, the buy high-sell low strategy came into play.So, what are you supposed to do? You could buy mutual funds where "supposedly" your money is professionally managed to avoid these corrections.
The problem here is two-fold. One, these funds have managerial fees which take away from your profits and two, perhaps even more important, during the downturn from 2000-2002, mutual funds in general also performed poorly.The problem we all face is that we are looking for a place to invest our money and after considering all options it would seem the stock market offers better opportunities than other investment vehicles. If you are going to invest in the stock market, as I said before, you must have an exit strategy to protect your assets.One option is timing the market.
You will read every where that you cannot time the stock market. Truthfully, no one can predict which way the market will go on any given day. BUT, there are ways to see trends in the market, either up or down (and sometimes sideways). Once you are able to identify these trends you can have your money in the market when it is going up and have your money sitting safely on the sidelines when the market is going down.Over the last ten years I have looked at a number of stock market timing systems. None of them will get you into the market at the exact bottom, nor will they get out at the top, but they will get you in and out somewhere in between so that you can walk away with a profit and most of them will have you out of the market when it is correcting itself.
Active trading like this gives the average investor a tremendous advantage over the person who buys a stock then "hopes for the best".My suggestion is to do an internet search for "stock market timing" and take a look at the various programs out there. Look at their track record, consider how many times they have you switching in and out of the market (you do not want to be jumping in and out every few days) and the cost for the service.Find one that meets your investing needs and give it a try. You will find that you are able to sleep much better at night.
A serious stock market enthusiast just offering "one man's opinion."
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