Spend five minutes perusing an investing forum and you’ll likely find tons of discussion centering around the issue of timing the market. On one side of the debate, you’ll find more conservative investors who scoff at the idea of timing the market to make large sums of money. “There’s too many factors to investing,” these people will tell you, “Or investing is too complex and can’t be simplified like that.”
On the other side, you’ll find more aggressive investors who claim they’ve tripled or quadrupled their return on investment because they’ve timed the market. They’ll point to various anecdotes or past trends to indicate that, yes, it is possible to make money by timing the market.
Financier William O’Neil wrote an article where he told a story about a Harvard professor who asked his students to write papers on goldfish. Naturally, the students went to to the library and scanned the Internet to learn about the habits of goldfish. When the students gave this professor their finished papers, he ripped them up. He then asked the students to go rewrite their papers, but only after they sat in front of fish tanks and watched goldfish for many hours.
Timing the market is like that. It takes a lot of work, observation and research. You can subscribe to online newsletters and read as many investing books as you want, but there’s no substitute for taking the time to study the market on your own. When you start studying for investing purposes, make sure to pay attention to things like valuation, corporate mergers and buybacks, price changes, and investing sentiment. Learning about these things will help you develop your own strategies when it comes to timing, and beating, the market. Although there are many variations and twists, basically real estate markets fall into three categories.
Buyer’s markets exist when there is more inventory, meaning more houses, than there are buyers. Because buyers have many homes to choose from, not every home for sale will sell. Most experts agree that if six months or more of inventory stays on the market, then it is a buyer’s market. In addition, fewer buyers means fewer sales which can skew median home prices.
In a seller’s market, there are more buyers than available inventory. Because there are fewer homes for buyers to choose from, almost every home will sell. Typically, this translates into less than six months of inventory. In extreme seller’s markets, there is less than two months of inventory in reserve.
Neutral markets are balanced. Typically, interest rates are affordable, and the number of buyers and sellers in the marketplace are equal. The scales don’t tip in either direction, meaning the market is normal without experiencing volatile swings. Inventory is generally around four months, give or take. Note that good buys exist in neutral markets, but there are no overall signs that favor buyers over sellers or vice versa.
When it comes to timing the market, the most important thing to do is study major indicators. The best way to learn is by watching the market until you become familiar with investing trends, fluctuations, and tendencies.