Today’s episode - Timing

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The allure of market timing is undeniable. The dream of perfectly anticipating market movements to buy at the bottom and sell at the peak is intoxicating. But as many seasoned investors will attest, "Market timing is a bitch."

In this episode, we'll explore the reasons why this strategy is fraught with challenges, explore the psychology behind it, and reveal the empirical evidence that casts doubt on its effectiveness.

So buckle up and get ready to discover why time in the market often trumps trying to time the market.

But before we do that, let's check the IWA Portfolio.

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Introduction to Market Timing

“market timing” refers to predicting financial market movements to buy and sell assets at optimal times.

The idea is simple: buy low and sell high. However, in practice, this strategy is complicated to execute successfully and has earned a challenging reputation, hence the expression “Market Timing is a bitch”.

The Illusion of Predicting the Market

One of the main problems with market timing is that financial markets are inherently unpredictable. Despite all technical analysis, fundamental analysis, and predictive models, unforeseen factors such as geopolitical events, regulatory changes, or natural disasters can instantly alter market behavior. This makes it difficult for the most experienced investors to consistently anticipate market movements correctly.

The Cost of Market Timing Errors

Another significant challenge with market timing is the cost of being out of the market at crucial moments. Historically, many long-term market gains come from just a few days of upward solid movements. If an investor misses those days due to a miscalculation in timing, they can lose a substantial portion of potential returns. Additionally, attempting to predict market movements can lead to overtrading, which increases transaction costs and reduces net returns.

Investor Psychology

Market timing is heavily influenced by investor psychology. Emotions like loss aversion, fear, and greed can cloud judgment and lead to incorrect decisions. Many investors buy high during moments of euphoria and sell low in panic, which goes against the basic principles of investing. Empirical evidence against market timing is strong. Several studies have shown that consistently outperforming the market through timing is nearly impossible. Even professionals struggle to outperform a passive investment approach like buy and hold. In the long run, spending time in the market has proven more beneficial than trying to time the market.

Investing is a journey, not a sprint. Although August and September may bring challenges, they also offer opportunities for those who are willing to do their homework. Keep your eyes on the horizon, stay informed, and never stop learning.

If you found this review helpful, you might also find our IWA portfolio useful. If you're interested in ETFs, take the first step towards a safer and more profitable investment journey by checking out our IWA portfolio today. ⬇️

IWA PORTFOLIO

After a significant market downturn on Monday, August 5th, the S&P 500 has shown a remarkable recovery, with its market capitalization increasing by approximately $4 trillion. This growth has brought the index close to all-time highs, with just a 2% difference. One notable example of this recovery is Nvidia, which has increased its market capitalization by around $700 billion. This demonstrates the resilience of major tech companies in a highly volatile environment.

The previous week, the market faced a "black Monday," marked by one of the most significant spikes in the history of the VIX volatility index. Despite this challenging scenario, the S&P 500 ($SPX) has overcome the initial impact and is now only 2.2% below its all-time highs. This impressive market rebound emphasizes the resilience of leading stocks and underscores the importance of staying composed during periods of high volatility.

Key Lessons

Staying invested, even during volatile times, is crucial. Patience and discipline are essential to maximize long-term gains and avoid impulsive decisions that could harm the portfolio.

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The easy way to begin or enhance your investment journey is to learn from what works for others. This section is for you if you want inspiration from an existing investment portfolio.

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IWA Quality Growth Stocks Portfolio

During the pandemic, I started an investment portfolio focused on reliable stocks. On August 6, 2024, we added Nvidia ($NVDA) to our holdings and funded multiple trading accounts globally. It might be seen as panic buying of our target instruments.

Return YTD 17.09% ➡️ 19.60%

Return 2Y 77.14% ➡️ 80.92%

Profitable Weeks 54.55%

IWA Quality ETF Portfolio

It’s one of the newest portfolios, having just celebrated its first anniversary. We are pleased with its progress, as it's safe, reliable, and stable.

Return YTD 15.42% ➡️ 17.55%

Return 2Y 49.12% ➡️ 51.86%

Profitable Weeks 60.00%

IWA High Dividend Portfolio

I am immensely proud of my holdings, which have grown from a small investment into a strong portfolio of 40 reliable stocks spanning stable industries, focusing on quality dividend growth.

Return YTD 9.90% ➡️ 11.16%

Return 2Y 13.90% ➡️ 15.21%

Profitable Weeks 55.36%

Portfolio Indicated Dividend Yield 2.66%

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Disclaimer: This newsletter is for informational purposes only and should not be considered financial advice. Please consult with a financial advisor before making any investment decisions.