As I’ve articulated before, I’m not a big fan of timing the stock market, and everything I’ve read about the efficient market hypothesis (that stocks are rationally priced at all times based on the sum of everyone’s understanding of the market) makes sense.
That being said, there also seems to be a great case against selling when markets fall, or buying when markets are very bullish (going up fast). Following the market sentiment apparently can erode the gains many investors could have made. The average investor supposedly made around 6% annually in the market during the 90’s, when the market as a whole was gaining 16% annually. The explanation for this was that most investors were following the “hot money” and buying things AFTER they’d increased in value.
The general advice seems to be that the best thing to do would be nothing.
Given this, if its a bad idea to sell after the market has dropped like it has recently, wouldn’t it make sense that now is a good time to buy? If people lose money selling in fear after a drop and buying in greed during a bull market, it seems to me that doing the opposite should be a good idea. This is often called a contrarian strategy and while I haven’t read much of an objective critique of it, I imagine the investors I admire would claim that its just another form of market timing.
My strategy is to buy from a pool of stocks that have a long history of uninterupted, increasing dividend payments. I currently own BMO, NA, ROC and RUS (this one was a mistake, I somehow got it in my head that it fit my criteria, and afterwards realized its a cyclical). After a price drop, it seems rationale to try to scape together more money to buy more of this (since if I figured they were worth buying at X, they should definitely be worth 90% of X).
I believe the conventional wisdom though, would be to just keep buying on my regular schedule and not try to buy extra (i.e. time the market).