Terry Smith, chief executive of Tullett Prebon, writes in the Financial Times,
In theory, individual private investors have plenty of advantages compared to managers of big retail and pension funds. They don’t have to write quarterly reports to investors justifying their fees. They don’t have to worry about beating benchmarks all the time. And they’re not constrained by rules about liquidity or limits on portfolio constituents.
But many investors fail to capitalise fully on these advantages because they make basic mistakes, such as buying the wrong companies, trading too often and paying charges that are too high.
He goes on to list his ten rule of investing, one of which is,
2. Don’t try to time the market
“Market timing” is investing somewhere near the bottom in market cycles and getting out somewhere near the top. It sounds obvious and simple, but in practice it works in reverse: money flows into funds and markets when they have gone up and comes out when they have gone down.
Stocks are a “Giffen good” for most investors – demand paradoxically rises as their price increases. Investors feel comforted by the presence of others investing or disinvesting alongside them, rather like lemmings heading towards a cliff edge together. We don’t enjoy the lonely feeling of the contrarian who invests when everyone else is selling and sells when everyone else is bullish.
Humans are hard-wired to be bad at market timing, so don’t try to do it.
The rest of the article can be seen here.
And other collections of investing rules here.