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Monad International | Market timing: The myth and how best to ride on market volatility
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Market timing: The myth and how best to ride on market volatility

Market timing: The myth and how best to ride on market volatility

By Danny Wong Teck Meng

SELL right at the peak before the equity market crashes and with your wealth intact, go on a holiday.

Hopefully, when you come back, calm will have somewhat returned to the markets. You deploy your cash just at the right time to catch the rebound. Now, that’s buying low and selling high; and market timing at its finest.

Sure, timing the market may sound easy and highly rewarding when you get it right – or if you do get it right, at all.

Even for the professionals, that may be easier said than done. Here are the two most ideal and desired scenarios by market timers, examined in greater detail and what could burst their bubble.

The fallacies explained

Attempting to predict market top
As the stock market rally stretches on, some investors will undoubtedly get nervy. Whether it has been a month, a year or even a 10-year bull run, they will begin to question the sustainability of the rally.

A better option may be to evaluate the global growth outlook, price earning multiple, corporate earnings trend or other macro data. Analyse the numbers and the cold, hard facts.

Regrettably, most investors base their decisions on pure instinct or hear-say. Once he starts converting the majority of his wealth into cash, Mr Bear will be waiting for the ‘buy signal’ or market crash to come.

Only time will tell if he is proven right. Again however, even professionals don’t have a crystal ball to predict when and where the crisis will come.

If the market does not crash as he predicted but instead prices just keep creeping up higher, how long more do you think the investor can continue holding on to cash which yields next to nothing and keep waiting?

When he eventually gives in, he will be forced to buy at an even higher price. What an irony if it so happens that the market has really reached its peak.

Buying when market starts coming down
Having that thought is a good start, after all the legendary investor Sir John Templeton once said: “Buy when there is blood on the streets”. But then again, how many can actually walk the talk?

In times of market downturns, the majority will succumb to the initial panic selling. The few who manage to buy into the initial sell-off may not have the stomach to follow through the strategy all the way.

It is not unusual for prices to come down lower even after a steep drop in prices.

On the other hand, you have Mr Watcher who may be all cashed up and waiting to buy but he thinks markets can go even lower because the outlooks still looks ‘muddy’.

However, by the time a more convincing story has been pieced together, the market will already have rallied. Mr Watcher would probably have missed the sharpest period of rebound.

The equity market is a forward-looking animal, hence whatever sentiments you are feeling on the ground, right now would already have been priced in much earlier by market participants.

It’s true, at the height of the selling, nobody truly knows where the bottom is. But in the absence of any deteriorating fundamental changes, sell-offs caused by swings in risk appetite are temporary in nature.

For us, volatility and times of market sell-off present a good opportunity to acquire stock at prices which would now trade far below their actual value.


By making emotional decisions, market timers inadvertently turn the famous investing adage of buying low and selling high, upside down. They sell at times of greatest panic and potentially miss out on subsequent gains.

If you do feel equity valuations are high, consider taking some profit and maybe raise 10-20% in cash.

That way, if the market really comes down, you can re-deploy your reserve cash in several stages to catch the market at its lower levels. However, if the market goes up instead, you still have 80% invested to catch the rally.

Try to avoid from making drastic moves to your overall portfolio. Keeping 100% cash for instance, is a gamble. What if the market goes the opposite way?

In our next issue, we will analyse the facts between market timing and staying invested.

Does staying invested warrant its perception as being too sluggish – the broader portfolio refrains from making any big moves, thus potentially taking a hit when correction comes.

On the contrary, does a more agile strategy like market timing truly help in generating outsized returns?

Danny Wong Teck Meng, CFP, is the CEO of Areca Capital Sdn Bhd and a certified member of FPAM.
Article originally published in Focus Malaysia on 25 July 2021

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