Timing the Market

In: Business and Management

Submitted By lewismike
Words 684
Pages 3
Timing the Market – Buy / Sell Decisions

Digression: Timing Buy / Sell Investment Decisions o Economies are cyclical. Stock markets go up and down. Industry sectors rise and fall. o An obvious investment strategy is -- buy at low prices, sell at high prices – with timing. o How easy is it for an expert to get the timing right? Pick the right time to trade stocks?
 Most professional mutual fund managers under-perform the market, consistently.

 Most amateur investors and traders do even worse than the professionals do.

 Throw darts at the Wall St. Journal’s NYSE quote page. You will out-perform 85% of all professional stock pickers over any given five or ten-year period!

o Why do people “play the market”? Ego, herds -- and it is lots of fun. People lack discipline; they fail to compare their results with market averages for the same period.

o In private equity investing, the same temptations are present. Try to time the market, time (buy at) an industry bottom, or invest at a country-risk bottom, sell at the top, etc.

o If you base your private equity investments on market timing, you probably will not do any better than the average public market trader does. You will do rather badly.

o The comparative advantages of a private equity investor are: (1) Access to a lot of legal insider information about the target company; (2) Ability to judge management skill after gathering lots of information; and (3) Ability to negotiate a specific deal that reflects the risk and rewards of the particular situation. Not market timing. Avoid it. o This avoidance of “timing the market” is not easy to do -- even if you set out to do it. Your associates, brokers and friends will tell you, “Now is a good time to do health care deals” or, “Now is not the right time to invest in Brazil.” Much peer pressure. o You do need to form opinions on…...

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