Tuesday, August 30, 2011

Stock Market Investing: Timing the market

We are social animals and love to socialize. We do party, we do picnic we gather together to attend gatherings, sports events, watching a movie etc. In short we can say that we as humans like to follow and stay in the herd. But as an investor it is very important not to follow the majority rather should try to take independent decisions.

More and more Investors are following advices for investing instead of crafting their own ways of stock evaluation

During the stock market collapse of year 2008, common investors saw their investment got eroded to astronomical low levels. Why? It was mainly because they more and more untrained investors had their money locked in stocks without self analysis. These investors failed to recognize that their stock market investing was resting on a bubble which was going to burst any time.

A simple principle of stock market investing is to buy stocks during lows and sell when high. But when people rely on advices of others for buying stocks, by time the advice reach them the stock price has already climbed up. This is one reason why it is important for investors to learn timing the market. Normally untrained investors of 2008 big economic depression did more stock market investing through direct stocks and mutual funds during the bull phase and sold in panic during bear phase.

Now in Oct’2010 when the stock market has almost come back to reasonable levels even then the losses incurred by investors during 2008 rallies are not met. Stock market investing is not a rocket science, keeping it simple is the buzz word. Invest in value stocks (which are fundamentally strong) which is available at a bargain price today (undervalued stocks). It is very important for investors to learn the trick of timing the market and for that they have to play the game of wait and watch.

Then why we always come across listening that it is not possible to time the market?
The people who say this are ones who had made good money exactly when you were making losses in 2008/2009. These are the people who have learned the art of timing the market in stock market investing. But they do not want you to learn this trick and become qualified investors.

They want that all other investors should continue to invest in herds where they continue to make loads of money investing in isolation. Let me tell you stock market investing can only be successful after you master the art of timing the market. The stock investing tip that will help you to time the market to perfection is simple, but stocks when all other are selling.

There are two moments when you will see investors selling their stockholdings, firstly when stocks are at its peak and investors sell to book profits (which is logical) and secondly when stock index is falling and investors sells in panic. Keep your eye on the second example. This is the moment when stock market investing can be done with maximum benefits.

In this phase of panic, untrained and non-informed investors sell their stocks holdings in panic. To your surprise there are so many untrained investors in this world that when they start selling the stock market really collapses. This is the ideal time for you to buy. Buy stocks when all other is selling.

Having said that, I would also like to comments that timing the market to perfection are not as simple, because stocks are very volatile and it is difficult to realize when stocks are crashing and when it is just a jittery day. The solution is to learn the trick of value investing of Warren Buffett. Learn to evaluate stocks prices and answer a simple question “In this stocks overvalued or undervalued”.

Human beings are trained to stand is que, follow orders, stop and traffic signals, listen to talk shows on televisions etc. All of these acts ask you to rest yor mind while some one else is controlling the show. But stock market investing demands you to act like a leader and make your own decisions.

If you are dependent on advice of others for doing stocks market investing then there are chances that every time the stock market crashes (which is inevitable) you will end up making huge losses for yourself.

In short I will request my reader to start reading financial statements of companies and try to self-evaluate the worth of stocks before making any stock market investing. Learn Warren Buffets ways of value investing.
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