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This mutual fund flow data seems to indicate that most investors (despite what they may say) actually follow a buy high, sell low strategy. Studies confirm that the general tendency of investors is to buy after a stock or mutual fund price has already increased. This creates a surge in the number of buyers which then drives the price even higher. However, eventually, the supply of buyers becomes exhausted, and the demand (supply and demand) for the stock declines and the stock or fund price also declines.
–Market Timing, Wikipedia
Forget Obama-Romney, Santorum-Gingrich, Rangers-Penguins or my March Madness brackets. If you want to start an argument, talk Market Timing.
The Wikipedia article is actually quite balanced. My balanced approach is unbalanced towards it’s all smoke-and-mirrors.
Three suggestions for those viewing the DJIA boat from the dock:
–Market timing failure is about being correct many times but then being wrong a select few times that just kill you.
–Market timing failure is wildly asymmetric. It is not what you do, rather it is what you don’t do. Inaction is where the failure is to be found, less pain is found in action. (See, October, 2011.)
–Market timing is not about making money. It’s about not losing it. Whether non-technical or technical, the analysis is far, far better at getting out of extended, effervescent long trades. The most difficult distinction for long-only players is when to “time” and climb on board amid gloom.
You can find a boatload of gurus who will disagree with each and every word above.
In summary, use economics, fundamentals, and technicals to get, and stay on board trends. Avoid stochastic analysis like the plague. Moving Averages used in a vacuum…well, just donate your capital to charity. ADX/DMI is killer at getting in; Parabolic SAR tells you when a trend is “long in the tooth;” never, ever short a stock in a group/sector and market that is going the other way.
Praying helps. Discuss.