The terms “shoulda”, “woulda” and “coulda” are to be avoided in investing. For this week’s blog post we are revisiting market timing. Market timing is making decisions to be in or out of a market, at different times, based on predictions of what the future of returns might be. The Successful Investor website defines market timing theory as an attempt to interpret and detect buy and sell signals in trading patterns and history. The practice of market timing consists of acting on a series of guesses (or estimates, or probability assessments) to use in your buying and selling decisions. It is the look back at what has happened, the “I should have done this” or, “I could have done that” or, “what if I would have done this?”.
A recent example of market timings is linked to the recent announcement made by a large pharmaceutical company regarding vaccine trials. Immediately following this announcement, the stock price of that company went up dramatically. Coincidentally, we had a request from someone to buy that company’s stock based on the vaccine results. Information flows quickly and the stock price had already increased based on the news that came out. It would have been better to buy that company stock on Friday, before the announcement on Monday. There were no indications of an announcement on Friday.
Hind-sight bias shows us that It is easy to look at what has happened versus what will happen. Trading on old news is repeated many times, across many markets. It is easy to say I should have done this; I could have done that; I would have been better if...but these are just stories. We do not know what is going to happen tomorrow, we do not have a crystal ball. It is much more important to have a strategy to deal with avoiding pitfalls like trying to time a market.
Having a highly diversified portfolio, focused on your asset allocation that follows a well-developed plan will always provide you with the best foundation for your investments. Predictions surround us all and they are opinions not facts. Predictions are difficult to avoid because everybody has an opinion. These opinions could come from news media, a social media feed, friends, or even a friendly cab driver. Investors cannot make decisions about being in or out of a market based on what they think might happen. A noise filter is required, a way to separate investment strategies from opinions. Opinions are not a reliable predictor of a future outcome.
For more details on Having a Plan Vs Planning please join the CM Group on Thursday November 26th for a live webinar on this topic. To receive an invite please email Paige Hilton at paige.hilton@cibc.ca.
Happy investing!
-The CM Group
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