ValueExpectations.com's thoughts on market timing

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Market timing is the practice of many investors to try to predict the best time to buy and sell stocks based on expected market direction. For example, a mutual fund manager might switch a portion of his fund's holdings from stocks into cash when he believes that the market has peaked. If he times the market correctly, he could make a huge profit. Then, when he thinks the stock market is significantly undervalued, he could shift back into stocks in an effort to make another hefty gain. If such an investor was able to successfully time the market since 1950 till today and avoided the 20 worst performing months for the period, he would outperform an invested at all times strategy by 458 basis points annually.
 

Behavioral issues: A huge number of investors believe they follow a certain value strategy, while in reality they are subject to irrational emotional reactions to market fluctuations, which prevent them from perfectly timing the market. Often times such investors would wait on the sidelines for too long when the market is increasing, and jump in only after they can no longer watch other investors profiting from the run. When the market is in decline, on the other hand, this irrational system prompts the investors to remain invested for too long, even as they continue to lose money, eventually selling at very depressed prices. If our investor was unable to perfectly time the market and missed the 20 best performing months instead, that would translate into 331 basis points annual underperformance relative to an invested at all times strategy.
 

Market timing has many potential pitfalls and if you're trying to wait out current volatile conditions in order to maximize the value of your stock portfolio, you are taking on a huge risk for a strategy that is impossible to accomplish continuously in the long term.

Our goal is to seek long term capital appreciation and alpha generation by investing in good profitable companies that are currently undervalued on the market.