3725: Can You Actually Time the Stock Market? by Phil Town of Rule One Investing on Stock Market Investing

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[00:00:56] This is Optimal Finance Daily. Can you actually time the stock market? By Phil Town of Rule1Investing.com. And I'm Justin Malek. Welcome to one of the only podcasts in the world where articles are narrated to you for free with permission from the authors. So with that, let's get right to it as we optimize your life.

[00:01:19] Can you actually time the stock market? By Phil Town of Rule1Investing.com. Market timing or being able to time the stock market, predicting when it is going to crash and investing accordingly, is the holy grail of investing. Investing nirvana.

[00:01:42] Having a crystal ball to predict the market is every investor's dream. No matter what some analysts may tell you, timing the market in this fashion is an impossible goal. However, instead of predicting a crash, there are different ways to time the market that are entirely doable and can end up being just as valuable. The best way to time the stock market. The perception of market timing is often misconstrued.

[00:02:10] Many investors consider timing the market to be predicting when a crash will take place and selling before it does. However, stock market crashes are all but impossible to predict, even for the most informed investors. Instead of trying to time the market by selling before a crash, it's much more beneficial to time the market by buying after one.

[00:02:35] When I got out of the market in 2007, it still went up another 10% before it crashed. I knew I couldn't time the market, but I knew it was time to get out. Stock market crashes present an excellent opportunity to buy valuable companies at discount prices. After a crash is one of the best times to buy companies that you have targeted as great investments at a price point that leaves plenty of room for big returns.

[00:03:05] Timing the market in this manner, predicting gains after a crash rather than predicting the crash itself, is the most effective way to time the market. Of course, you'll need to invest in companies that can survive the crash, as not all companies can. Following a crash, you'll want to choose established companies that have a moat, something that keeps competitors from carving away a large portion of their market share. You'll also want to be sure and buy companies that you believe in,

[00:03:34] companies that align with your values, and companies that you have reason to believe that they will survive the crash. Does Warren Buffett time the market? Like most great investors, Warren Buffett times the market by buying after a crash rather than trying to sell before one. After a crash, Buffett says that the priority is to find cheap individual companies with solid fundamentals rather than investing in the market as a whole,

[00:04:03] timing the market based on the value of individual companies rather than the direction of the overall market. Timing individual companies allows you to take advantage of discounts on companies that will, in all likelihood, only be affected by a crash for a short period of time. Once the effects of the crash wear off, great companies will still be going strong, and in most cases, their price will return to its pre-crash level in a matter of months.

[00:04:32] Don't sell during small crashes. Buffett also warns not to sell during small crashes, and instead to weather the storm by focusing on the long term. If the companies you own are successful established companies, they too are likely to return to their pre-crash price before long, making holding onto them the wisest decision. Trying to play the guessing game about when to sell them before or after a crash

[00:05:02] will almost always only lead to headaches and lost opportunities. When to sell Timing the market by buying stocks after a crash is great for knowing when to buy a stock, but what about knowing when to sell it? After all, even the most long-term investors must sell their stocks eventually if they want to lock in their returns. While it's best to buy stocks with the intention of holding onto them as long as possible,

[00:05:31] there are a few times you are better off selling. If greed has driven the price of a stock up above its true value, you're better off selling. In the same way that undervalued stocks almost always eventually reach their true value, overvalued stocks almost always drop down to their true value as well. It's important to keep in mind though, the difference between price and value. The price of a stock may fluctuate rapidly,

[00:05:59] but its value is typically inherent and unchanging unless a major change within the company itself takes place. If there is no major change to the story of a company and its price is still at or below its value though, hold onto it for as long as you can, no matter what the market does. Throughout all of this, it's important to keep in mind that when determining whether to sell a stock, that you are evaluating and timing the individual company

[00:06:29] rather than the overall market. No one can predict with certainty the future of the market, but with the right investment know-how, you can predict the future of an individual company, allowing you to know when it's time to sell. You just listened to the post titled, Can You Actually Time the Stock Market? by Phil Town of Rule1Investing.com. And I'll be right back with my commentary.

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[00:07:57] at monarch.com with code optimal. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required compatibility and availability varies 18+.

[00:08:27] Thank you to Phil. The general advice you'll hear on this podcast is to never attempt to time the market. And I get that. And I'm glad he mentioned where it didn't work out for him. He said he got out of the market in 2007 and it went up another 10% after he did. He's using that as an example of not being able to time it. I appreciate the honesty. When most of us hear timing the market, we picture getting out at the top.

[00:08:56] What he's describing is closer to the opposite, being ready when everything is on sale. And that's less about prediction and more about preparation, which is a completely different skill. And I think it's mostly an emotional skill and not a math one, because during a crash, the numbers are the easy part. What's hard is that everyone around you is panicking. The headlines are awful and sitting still feels irresponsible.

[00:09:26] I know I've felt that. The plan you write when things are calm is not the plan that feels right when things aren't. So something to think about today, what do you want to do when there's a crash? Decide when you're calm. Maybe just write it down somewhere, because chances are you won't be thinking clearly when it does happen. And probably none of us are. So thank you to Phil, and thank you for being here, wishing you a wonderful day, and I'll see you tomorrow,

[00:09:55] where your optimal life awaits. And we'll see you tomorrow, we'll be thinking thank you guys. Go ahead and mention