I recently read an article by a financial advisor claiming one of the biggest mistakes an investor makes is timing the market.
Unfortunately I'm not surprised to see this because MOST financial advisors sell products and don't know anything about actually analyzing a stock, ETF, or other equity. So, what's their recommendation? Buy and hold. Sound familiar? And if you're religious: Buy and pray. Pray that your investment goes up.
I've been investing in the stock market for 16 years now, and I've been doing it well for 10 years. I know what it's like to suck at the stock market, because for the first 6 years I bought into the "Buy and hold / pray" strategy.
On the flip side, I know what it's like to be successful in the stock market and have done so for the past 10 years. And let me tell you from experience: For a successful investor, Timing is Everything! And this goes not only for the stock market, but real estate, as well as other businesses.
You want to get on and off the train at the RIGHT time.
If you don't time the market, you will stay in a losing investment for way too long. Knowing when to admit you are wrong and chose the wrong investment is essential to being successful in the stock market both long term and short term. As a part of your systematic approach, you have to decide before you get into an investment what your exit strategy is. You have to know when to get out! I cannot stress this point enough. If you don't have an exit strategy for a bad investment you will lose way more money than you ever make.
You define your exit strategy by setting 2 goals: (1) Profit, (2) Loss, also known as risk. You decide how much you are willing to lose (risk) before you enter into the trade so that you have a plan to stick to for your exit strategy. It helps keep your emotions in check. Entering or exiting an investment based on your emotional state will ensure you lose money. Have a plan, and stick to it!
For the past 10 years, my results have looked like this: For 10 investments, 7 will be profitable, 2 will lose money, and 1 will be stagnant with no profit or loss.
Because I minimize my losses by following my exit strategy and let my profits run, math guarantees that I will continue being profitable as long as I stick to my systematic approach: timing the market.
Best of wishes to you on your financial journey!
Aneshia
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