THE TWO TYPES OF INVESTORS

    The world stock markets are walking a tightrope since the pandemic rocked the worlds and they have taken over the news. It is possible that within these times you have heard so much about the term Market Timing.

    Although not often referred to in those exact terms by financial players the explanation is the same in their message. They give advice and thoughts on the complete sale or partial sale of one’s equity investment due to the effects of the coronavirus and the state of the market afterwards.

    Deciding to pull out all of your money or half of it when you expect a fall in the market prices and value or even keeping your investment back in the market is the concept that makes up what is known as Market Timing.

    Successful market timing strategies are best carried when informed and intelligent predictions on possible events such as wars, oil price shocks, interest rate rises, the turnout of elections and general opinions, the impact of a pandemic and so on. It is serious work to understand the market and even predict market reactions.

    It can be a very challenging approach.

    The first red flag about this “predict” or “anticipate” approach is that it is difficult to make clear and informed decisions. Stock market visibility is unclear at these times so choosing to hold back your investment, pulling out all or some of it would not be done intelligently.

    This approach has been in competing with another market strategy. This other strategy involves investing a particular amount of money throughout a trading period regardless of the condition of the market. This strategy is called the Pound/Dollar averaging. It is used by a lot of investors and it obviously can be profitable in some cases.

    The first strategy where you have to predict or anticipate requires a keen foresight to be able to invest a particular amount everyday but know when to stop as a crash in the market has been anticipated to save cash.

    Choosing to use the first strategy or approach of market timing in your investment will be risky and may be damaging to your net worth because no one has the out-worldly foresight to predict events accurately. An example is how difficult it would have been for anyone to predict the covid-19 pandemic or its effects on the market.

    Most times financial advisors or commentators will predict that an event will not occur and that it would have a certain effect on the market should it in fact happen then the opposite of what they have said will happen.

    As far as market timing is concerned, there are only two types of investors and they are those that cannot actually do it and those that know that they cannot do it. It is smarter to know that you cannot do it than to take damaging risks.

    These are the views of Terry Smith, the CEO of Fundsmith LLP which he considers personal. He opined this in his 2013, financial times article which you can read through this link https://www.fundsmith.co.uk/news/article/2020/07/02/financial-times---there-are-only-two-types-of-investors