Timing investments in the stock market or buy and hold?

Question

Which approach do you believe will lead to higher average returns and why?

Answer 1

Timing the market (active investment) can lead to much higher returns, if you believe you have similar skills as Warren Buffet or George Soros. While stock market returned 9% in the last 60 years, Warren Buffet achieved over 20% annualized return for 60 years! But statistics shows that the vast majority of active investors under-performed the market. If you do not have the time and research to successfully time the market, then passive investment (buy and hold) is the way to go.

Answer 2

There is just two problems with market timing. One is to get your timing correct. It is very difficult to do. Another problem is the tax implications. Every time you sell and make a profit you have to fork over a very large percentage to the leaches.

Of course the buy and hold strategy also has some disadvantages also. It is very depressing to be holdings a stock as it is loosing 50% of its value.

To tell you the truth, I am not sure which leads to a higher average return. My suspicion is that a broad buy and hold policy but modified to reflect market overexuberence should give a better return.

It is really tough to continue holding a stock that has given a 100% return. The inclination is to take your profit and run.

Answer 3

Studies will show that a buy and hold approach yields greater returns than attempting to time the market. However, as long as no two investors are the same, different things will continue to work for different people. On a personal basis, I am a buy and hold investor, buying securities that are undervalued and selling once the stock appreciates to the point that I feel they are fairly valued.

Answer 4

Warren Buffet is the best known buy and hold proponent and probably the most successful investor in history. Repeated academic research has shown that 80% of the fund managers of actively managed mutual funds (probably the best professionals), fail to beat the index trackers. What makes you think you can do better?

Timing the market is fiction created by the investment companies to justify their fleecing their customers by exorbitant charges. It works.

Answer 5

According to Ibbotsen studies a market timer will have to guess right 75% of the time in order to equal the return that a buy and hold investor receives. I have never seen anyone that is right 75% of the time when it comes to something that they can't control.

Answer 6

You may want to try another type of investment where timing is not important and there is no guess work..
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You'll be glad you did!!

Answer 7

Both.