Why do so many people tell me not to time the market? - Seedly

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Asked by Anonymous

Asked on 08 May 2019

Why do so many people tell me not to time the market?

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Junus Eu
Junus Eu
Top Contributor

Top Contributor (Aug)

Level 8. Wizard
Answered on 11 Jun 2019

Honest answer:

Because they don't want to take the responsibility when you lose money ;)

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Brandan Chen
Brandan Chen, Financial Planner at Manulife Singapore

()

Level 5. Genius
Answered on 08 May 2019

On hindsight, its easy to say when you should have entered or exited the market.

Like what Billy mentioned, high can be higher, low can be lower. Although the current market seems to be high now, you choose to wait till the the market crashes before you enter. What if this is the start of another 10 year bull run? You would have missed the boat completely.

At the end of the day, what matters is time in the market rather than the timing you enter.

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Jefremy Juari
Jefremy Juari, Financial Writer at Medina Books

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Level 3. Wonderkid
Answered on 16 Jul 2019

You can actually judge for yourself when is a good entry point. Understanding the fundamentals and using technical analysis we can see whether the instrument is under priced or over priced. We buy low, sell high, no one knows the exact bottom or top, but enough time analysing the markets will give you a a ball park figure. Hence why education is the best investment.

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Zen Bold
Zen Bold

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Level 1. Freshie
Updated on 16 Jul 2019

A tale of two statistics

"1 out of 4 accidents result from using your phone while driving." Now, when you tell someone that, their normal reply would be to dismiss the statement and say: "It won't be me". This is know as "Overconfidence Effect", in which you feel that you are better than the average person when in fact, you are no better, or even worse than the average! Now on the other hand, the chances of winning the lottery is 1 in 13 million, but when you tell people that, their response is "I may be the lucky one: you never know". This is known as "Simulation heuristic"- in which people tend to determine the likelihood of an event based on how easy it is to picture the event mentally.

Two statements, two very different reponse

Obviously, the odds of you causing a car crashing while texting and driving is higher than that of you winning the lottery. But people tend to underestimate the former, and overestimate the latter. That my friend, is cognitive bias at work- why majority of the people buy high and sell low. Caught up in the moment of irrational exuberance, the crowd believes bull market run is here for good- prices will keep go up and up. Buy now or FOMO! The converse is true - the bear market seems to drag on forever as the atmosphere of fear and despair causes even the strongest bagholders to dump their holdings- it will keep dropping lower and lower! You can think of "timing the market" like choosing a job that has no basic pay, and is entirely commission based: this would causes you a lot of worry, and may not pay you as well due to your performance, and you will toss and turn in bed thinking about job stress. Of course, if you are great at it(Hint: most likely you are not), your upside will be unlimited, but the converse is also true(and most likely is the case): your downside is also unlimited too! On the other hand, "Time in the market" would then be a job that has a high basic pay, which makes it relatively "worry-free"- all you need to do is to show up! So, Time in the market(DCA-Dollar Cost Averaging) VS timing the market(Buy The Fking Dip: which one do you want? Worry, stress and headache "timing the market", or a fuss-free hands off approach in which you take the "time in the market" approach:)

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Alex Chua Cheng En
Alex Chua Cheng En, Pcme at Anderson Junior College

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Level 4. Prodigy
Answered on 08 May 2019

The answer: it is very difficult to understand Mr market, unpredictable. Adding on the what Brandan Chen and Billy Ko:

Here are some of my comprehension and insights from Benjamin Graham's margin of safety. Instead of timing the market, have a game plan of WHEN you have decided to enter and exit the market. The usefulness behind margin of safety is to reduce risk/loss from human error and/or your analysis such that you can maximise your returns. This brings into the definition of time in market' mentioned by other commenters on 'the period of time you want your stocks/index/etfs to be compounded'.

- P. S: humble advice from books' insights and experience. No prior experience from myself yet. Only analysis

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Simply because low can always go lower, high can always go higher and there's no way to know when each would happen.

When one times the market, emotional aspect comes into play. Looking at a stock down 5%, would you have the guts there and then to enter? Turning things the other way, if the stock is up by 5%, will you have the tendancy to take profits?

Hence that is the reason why many would just advice you to stay vested regardless of market conditions (through RSPs / DCA)

That being said, one can practice timing the markets only if one has the confidence in one's discipline, telling yourself when you would enter / exit the market at a specific price.

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