Market timing, an attempt to be in the market for the rallies and out for the corrections, is a highly overrated investment approach.
The stock market moves either up and down every day but probably 95% of the time, the market itself is not in a strong bearish or bullish market condition.There are very rare exceptions, on average every 10 years, when we experience extreme market conditions that would justify to step out of the market (combination of Sky-high valuations with too much optimism for the future) and later to buy in again (rock-bottom valuations paired with desperate pessimism).
Switching in and out of the market comes with a cost (commissions, spreads and taxes). Additionally Investors often do it at precisely the wrong times. They are in for the corrections and out for the rallies, or even worse miss out entirely.
One way of beating the market is to evaluate businesses. Take into account what the great investors of our time did. They might have entirely different investment methods but they all earned extraordinary long-term, outstanding returns. Warren Buffet is a value investor, while Peter Lynch likes growth stocks and John Templeton favours global investing. None of them were market timers and all conceded that they never know what the market is doing next. All they did was identify companies whose prices traded for less than what they were worth, hold them until the market recognized the values and then sold them.
So, why not doing the same as these successful investors did?
Forget about the dream to profit on the rising markets, get out when it gets too hot and getting in again when the market is on its low and bottoming out.
It is a lot easier to analyse and identify the prospects for a single business than to forecast what the financial world offers next. Does economic growth stall, here and abroad? Who changes interest rates and when? What about rising and falling commodity prices? Is the USD going down or the Chinese Yuan up? How do we guess, inflation numbers, new legislations, executive orders, political events, and all other sorts of world wide events that might cause the end of a long term rally and bull market or initiate a crash or long term bear market. You will need a crystal ball because the world is too complex to fore see how markets will behave and will do next.
Think smaller and focus on individual businesses. Analyse their products, sales, cost and earnings prospects. In a correction, various stocks go lower even their business gets better. Here exist the best opportunities in the market. Take advantage of these opportunities!