Investor or trader? Why you should time the market


I received an email last month from a Marcus Today subscriber about trying to time the stockmarket.

He wrote: "Looking at our market approaching 6000 after a rapid run-up, I just know that this is one of those occasions where it would probably make sense once the inevitable downward trend emerges to exit the banks, Telstra and some other investments I hold and sit on the sidelines until after the correction. Even old-timers like me are pretty 'fleet of foot' with the aid of online broking, so should we try to time the market, even with the good long-term stocks?"

My reply is that absolutely you should try to time stocks - and don't let anyone label you or box you into the category of being simply an "investor" or "trader", which suggests you behave in just one of two ways.

time the market timing the market

Each investor is unique: you have your own personality and that makes you all different. You need to work out and own what type of investor you are - and there are 50 shades of grey to choose from.

When you're on the adviser side of the investment equation with an audience of thousands, it is hard to cater for all investors.

Instead you have to generalise all the time.

With thousands of readers, the bit you have to be careful about is not to tell long-term "don't disturb me unless there's another GFC" investors to sell banks and Telstra because they might believe it's a long-term GFC2 call, sell and never get back in.

That's why almost every general advice commentator qualifies their comments with "if", "but", "although" and "perhaps", so they don't disturb long-term investors with short-term advice and get sued.

But for investors who describe themselves as "fleet of foot" and are engaged and vigilant and understand their own investment style and tolerance for risk, why not try to time the market and time stocks rather than sit back all the time and only sell when there's a GFC, by which time the market will have already corrected significantly without you acting.

Marcus Padley (MAppFin, LLB, MSAA) is the author of the Marcus Today share market newsletter. He is an author, speaker and a regular on ABC TV and radio. Marcus has been advising institutional clients and a private client base for more than 32 years.
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