CSANews 105

Finance What is market timing? First things first: let’s clarify our terms. When we talk about market timing, we’re generally talking about a variety of strategies that guide investors’ buy or sell decisions. Those decisions are ultimately based on a market outlook for the near future – whether the stock market will go up or down in the next several months or quarters. Or, to put it a little more simply: market timing is a strategy that purports to tell investors when to buy low, and when to sell high. Typically, market timing refers to strategies applied to optimize your equity portfolio. And that makes sense, because stocks are an asset that can fluctuate significantly in a short period of time, and therefore present the greatest opportunity to apply a market timing strategy. But really, investors could theoretically time price movements for almost any asset – real estate, for example. Or commodities such as gold, oil or soybeans. Or bonds. Or even fine art, if you really wanted to. Most of the time, when we talk about market timing, we’re talking about some variation (or combination) of the following strategies: Asset class – probably the most common example of market timing, this strategy involves shuffling your portfolio among the broader asset classes (stocks, bonds and cash) in anticipation of big moves (up or down) in the equity market. For example, when you think that the overall stock market is expensive, and some sort of downturn is imminent, you sell some or all of your stock holdings and shuffle the proceeds into bonds or cash. Conversely, when you think that stocks seem inexpensive, and that we’re on the verge of a long bull market, you sell down your bonds and use your cash to boost your exposure to equities. Investment style – With this strategy, you move your money between ETFs, mutual funds and other pooled products which offer exposure to different management styles. Again, the idea is to optimize performance during a specific point in the market cycle. For example, you might shift from a growth-oriented mutual fund to a value fund in anticipation of a decline in high-flying growth stocks. Or, if you anticipate a decline in the U.S. stock market, you might sell your holdings in expensive U.S. stock funds in order to reinvest in a relatively cheaper international equity or emerging market funds. Sector rotation – This market timing strategy involves shifting assets between different sectors of the economy, depending on how well you think a given sector (and its associated businesses) will perform in the coming months. Such a call is based at least in part on howwell you think the underlying economy will perform over the same time period. For example, if you believe that the economy is currently in a growth phase, you might overweight technology and industrial stocks in your portfolio. Such businesses are likely to be beneficiaries of increased economic growth. On the other hand, if you anticipate an economic downturn, youmight want to shuffle your assets into health care and consumer staples stocks – the idea being that people will still need to buy drugs and toothpaste regardless of what the unemployment rate happens to be for the next several months. CSANews | WINTER 2017 | 33

RkJQdWJsaXNoZXIy MzMzNzMx