Are you spending time in the market or timing the market?

Hi ,

You have likely heard the saying that “time in the market beats timing the market” or something similar.

But what does it actually mean? How can it really be applied to your own trading?

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The saying is related to the observation that the market always progresses upwards price wise. Also that in the short term active trading for the majority underperforms. Because of this it is recommended to simply hold broad indexes long term as a better approach, even it this effectively follows the market instead of beating it.

The main reason for this general recommendation is because of lower risk. The main concern of serious investors, which include you and me hopefully, should always be to minimise risk.

I’d like to add to the common interpretation that it also means time in the market as the time you have spent honing your skills as investor and trader.

Simply dabbling here and there, looking at some stock or crypto tips from experts, getting some wins and forgetting about all the losses, will result in long term bad performance. This is basically gambling with your savings.

Behaving like this you are trying to time the market, even if you invest long term and it might not seems as such. It is riding on luck and hope.

If you instead take investing seriously and treat it as a skill to learn and master like any other you will be spending your time in the market.

You will also find it much more enjoyable and less frustrating, because every loss becomes a valuable lesson on which to improve. You will find yourself with a reason for the loss instead of joining all the bulls and bears simply blaming the market.

Now once you have spent your time in the market, then you can work on timing the market!

I like the sentence “time in the market beats timing the market” because it summarises the rational approach to investing and trading mastery.

You start spending time in the market, as an investor with long trading windows (your expected time between entering and exiting positions).

As you learn, gain more skills, and develop your sixth sense and gut feeling for the market you invest in, you work on decreasing your trading window.

Eventually you will find yourself being able to trade successfully in the shorter term and then you are effectively timing the market!

I hope this reflection gives you pause to think about where you are in your journey to investing mastery, where you would like to be, and how to get there.

In the next newsletter I think I better get into how we can try to speed up the learning. Not all of us have the patience to spend a decade before shortening our trading windows :D

Happy Wednesday.

Have a good one,

Chris

Originally posted 4th October 2023 on ElliottSays.com

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