Another Reason You Can’t Time the Stock Market

With the stock market once again near its 4 year high, I’ve received a few emails from readers asking if now is the time to sell their stocks and convert to cash.

The idea is that they’ll sell off their stocks and mutual funds now and buy them back after the stock market goes back down.  After all, there has been a lot of ups and downs in the stock market over the last few years and they have a “feeling” that we are at the high end of the next cycle.

This theory of trying to “time the stock market” makes sense in theory except for one problem. It is IMPOSSIBLE to predict what the stock market is going to do over any particular time period.

Unless you’re buying or selling stocks on “insider information” (information about companies that has not been made public yet), which is illegal by the way,  the price of each individual stock available for sale on the open market already takes into account all of the negative and positive information available about that particular company.

Think about this example, there is a silly article by the Associated Press today trying to explain why the stock market was more likely to be down on Mondays vs. any other day of the week.  Not once is it mentioned that it could simply be a statistical anomaly. 

If there really was a reason why the stock market was down more on Monday’s than any other day, investors would simply start selling off their stocks on Friday’s before the Monday “sell-off” comes thus making Friday’s the day in which the market would be most likely to fall.  Smarter people than me have failed to crack the stock market’s fluctuations code using much more sophisticated techniques than simply going by what day of the week it is. 

There are stock investing techniques that have proven more effective than others, however, trying “time” the overall market based on previous performance is not one of them.

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