Kenneth Orr on Timing the Market
Can you time the market to increase the value of your stock portfolio?
Kenneth Orr, a professional in the financial industry, says you may be able to, but it will be a difficult process.
In the News
To conclude that timing the market is such a hard task, we can look at the financial industry as a whole. Professions like portfolio managers and financial analysts exist because of this. These professionals — along with the average, educated investor — put in long hours to conduct research and predict what the market will do based on a number of factors.
One of these factors is the news of the day. Sometimes expected data and financial reports and decisions result in increased market volatility. For example, when the U.S. Federal Reserve is expected to decide on interest rate hikes, markets are quite active. The decision to either freeze or increase the interest rate is closely tied to the economy and is a sign of economic growth or stagnation. Another example is data regarding the supply and demand of basic metals. If supply exceeds demand, it bodes poorly for basic metals stocks and investors may decide to pull out their investments in the industry until demand increases.
While upcoming and current market news is useful in timing the markets, Kenneth Orr says there are many elements you just can’t plan for. In fact, making decisions based on upcoming news can be very risky, especially when investors may be predicting data before it becomes available. This is usually evident in market volatility prior to the release of information, as investors try to guess the results. If they guess incorrectly, it could be detrimental to their portfolios.
No Sure-Fire Time
What makes matters more complicated in terms of timing the market is that there really is no time period to base a decision on. We’ve established that news plays a significant role in determining stock prices. During the first hours of market open, news that was released after the closing bell of the last trading day is taken into account for stock prices. Sometimes it may be possible to establish a pattern from that. Closer to the end of the trading day, market activity usually increases again as investors prepare for the next trading day.
It usually holds true that weekly, the best day to buy stock is on Monday, when prices are at their lowest, and sell on Friday. Much like gym memberships spiking at the beginning of each year the market goes through what is often called the “January effect,” when stock prices tend to increase. This is attributed to an increase in buying as investors amp up their portfolios for the year.
This activity is based on perceived patterns, but Kenneth Orr notes that looks can be deceiving, as a lot of stock price fluctuations are entirely unpredictable. Take, for instance, August 24, 2015, which has also been referred to as “Black Monday.” There was a significant market correction that took place when slower economic growth in China unexpectedly caused the Dow Jones to drop 16% from May 19, which was an all time high.
All in all, attempting to time the market is a dangerous game. Inevitably, what will rise, will also fall, as was evident with the Great Recession in the late 2000s. We can’t predict when the next recession will happen, and predicting the correct time to buy stocks is equally as difficult.