How to predict the stock market

Become a brilliant investor

One of the difficulties in investing is timing the market. The solution to the problem of trying to time the market is that you cannot! If anyone knew when the markets (any market) was going to go up or down then they'd be a multi billionaire (never mind multimillionaire). Evidence that even the likes of the great investor Warren Buffett sometimes gets it wrong (his investment in Tescos is a case in point) proves that no one can predict which way the market will turn. So if the stock market analysts, hedge funds, professional investors, banks, private equity funds, and asset managers cannot get it right all of the time then you need to wake up and accept that you cannot predict the market.

If I can't predict the market then why am I still reading?

You cannot predict the market. However, you can pounce when opportunity strikes. When markets take a significant down turn is the time to invest. Be greedy in the markets when others are fearful. When stock markets have "crashed" and the media is generally reporting negative sentiments, this is the time to invest big in solid Companies.

Investing heavily during times of distress is something that I've done in the past and it's been very profitable. During the recent financial crisis: 2008 - 2011 UK banking shares (Lloyds, RBS, HSBC and Barclays) took a hammering in their share price. Lloyds Banking Group Plc reached a low of 10 pence per share from a previous all time high of £7. Lloyds was bailed out by the UK government. Given the UK government was now the major shareholder it seems unrealistic for the Company to ever go bust. The U.K. Government would have been willing to throw good money after bad to ensure that the Company didn't go bust - as to let that happen would have been a political disaster. I invested in 2011 in Lloyds, (at 30 pence) probably one of the safest Companies in the FTSE given the UK government backing. I since sold the Company in early 2016 at 75 pence realising a 150% profit growth. This all happened because I pounced when the opportunity arose.

How to prepare for the investment opportunity?

The difficulty with investing is that often times you will find that when you find an opportunity to invest there is no cash available with which to make the transaction. This has happened to me on more than a few occasions. People who begin investing in the stockmarket tend to invest all that they have. If this is you then stop. Your actions are preventing you from taking advantage of the opportunities.

The solution is to always keep cash back for investment opportunities. You don't need to be fully invested all of the time. Keep 50% back in cash. This added discipline has the added bonus of preventing you from investing for the sake of it. 

In practical terms let's say that you've got 50% of your money in cash and an opportunity strikes. Of corse you will break the 50% rule to take advantage of it. But do not fully invest. Invest half of the remaining cash. Then build up your cash pot again and wait for the next opportunity.

In summary, you cannot time the market so don't try. Instead, have the discipline to hold a portion of your money back in cash to take full advantage of investment opportunities as they arise.

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