Timing Individual Securities in the Market
(4 of 7)
Timing Individual Securities in the Market
Many professional portfolio managers use some type of market timing to help them decide when to buy or sell certain securities. They apportion their portfolios among stocks, bonds, and cash to get the most returns for the smallest amount of risk.
Things To Know
- Market timers watch the economy closely.
- Market timers try to buy low and sell high.
It’s the economy ...
One way the portfolio manager knows when to buy or sell is to look at the collection of cyclical stocks in a portfolio. A cyclical stock is one whose performance is closely related to the business cycle of its industry. The sales and profits of cyclical stocks are very sensitive to repetitive economic cycles. When the industry economy goes up, so do cyclical stock prices and vice versa.
The portfolio manager also has the opportunity to invest in all-weather stocks. All-weather stocks do equally well in all market cycles. They are generally stable and provide relatively high returns.
Buy low and sell high
Portfolio managers who use market timing try to buy low and sell high. They use market analysis to determine the balance of cash and stocks within their portfolios. They should also take into consideration the investment goals of the portfolio owner.
