Having a knack for market timing

AS INDIVIDUAL investors, you and I make lots of mistakes. We trade too much, hold on to losing stocks for too long, and buy stocks on the basis of just headline news. However, there is also a pool of investors who are known to outperform the market. Warren Buffet comes to mind. His investment skills have seen him become the second wealthiest man in the world.

While smart "stock picking" is one way to beat the market, an often less mentioned strategy is market timing. Timing is critical as the stock market is like a roller coaster ride with its peaks and troughs as we have witnessed in the global financial crisis 2007-08, and more recently in August with the effect of China's economy on stock markets worldwide.

Thus, just as important as knowing what stock to buy is knowing when to get in and out of the stock market. Market timing is a different investing strategy from stock picking since it requires knowledge of the whole market and macroeconomy, not just of a single company. Furthermore, since almost all information relevant to the macroeconomy is publicly available, it is hard to believe that some investors have better information than others. This implies that good market timers understand public information better than other investors.