Put a Stop to Market Timing

We all know someone (maybe ourselves) who just can't seem to get timing right.

Some common examples: Showing up late after forgetting to adjust the clock for Daylight Saving Time; planning a neighborhood party on the same day as the local school's big game; botching an elaborate meal by needing two things in the oven at the same time and at different temperatures, and making bad decisions when acting on hunches about investment opportunities. The result in all cases can be a disastrous comedy of errors due to poor timing -- but it's no joke when money is lost because of it.

Investors who want to avoid laughing all the way to the poorhouse should consider what makes comedy work. A select few people are born with a gift to tell jokes and leave the audience rolling on the floor. Similarly, a select few investors (or the ones privy to illegal inside information) seem to have the gift of consistently sensing major market or stock moves.

When Not to Say When

Smart investors realize that it's time, not timing, that will leave them with smiles on their faces. Given enough time, most quality stocks will eventually register market prices that correlate to their increases in value. Buying such stocks is a far better strategy than making the following types of time-hunch mistakes:

• Rumors: Let's say you hear good or bad news about a specific stock that is soon to come, such as unusually good earnings, a killer new product, or a pending adverse regulatory ruling. You believe that the news will raise or lower investor perception of a stock that has recently registered unexplained significant gains or losses. Sometimes, the news really is imminent and confirms the rumors. But just as often, the news turns out less positive or negative than the rumor -- and the stock price quickly adjusts in the wrong direction. Or, the news was known in advance by enough insiders so that it's already built into the price. Meanwhile, you miss out on letting your money work for you more powerfully in other investments.
• Snap Judgments: Say you act on a feeling that some of your stocks are about to move significantly up or down. Maybe you've believed for a long time that the U.S. deficit is getting out of control and you hear a report that foreign investors aren't snapping up U.S. bonds quite as fast. Or you think the dollar is about to take a major drop and that will severely cut into earnings due to an unfavorable exchange rate on foreign revenues. So you sell, but two weeks later, a crisis in a major foreign currency drives the U.S. dollar way up.
• Signals: This involves acting on buy or sell signals regarding the entire market. For example, let's say you read several reports that the moving average of a major index has gone down three percent for the first time in the past four years, coupled with the market recently having failed to break through a top the last four times it approached it. So, in reaction to these double-red-alert indicators, you sell broadly and move into bonds. Then the market does go down a bit for the next month, only to steeply rise when other analysts suggest that stocks are the biggest bargains they've been in the last two years.

If you're that person who's timing is always wrong, take heed to these tips and you could be the one left smiling while others can only wonder what you know that they don't.

Market Timing Newsletters: Do They Work?

Whether market timing actually works has been the subject of hundreds of papers, studies, and articles - with no clear consensus. But what about market-timing newsletters?

One widely cited study looked at whether investing based on recommendations from 170 such newsletters outperformed the market. Those recommendations were made over an extended period of time.

The results: More than 80% of the newsletters made recommendations that would have underperformed the market. But you might have guessed that. Otherwise, why would the publishers bother wasting time writing the newsletters when they could be working full time on making a fortune using their techniques in the market?