Timing the market

Timing the market well means, waiting. Waiting until after the press have stirred attention and after investors have lost interest. All the while you need to keep an eye on the management and the company's progress. Only then, when the public has turned it's attention elsewhere, is it time to invest.

By Bengt Saelensminde

published 27 July 2010

in Features

Everywhere you look you can get share tips... the key is to time the market well andseparate the wheat from the chaff.

If only there was a sure way to find winning stocks, life would be perfect wouldn't it?

But unfortunately, even the professional fund managers struggle to pick winning stocks. I've worked alongside these guys for years. They read the financial press... they have to... and they think that they can glean some useful information that'll get them ahead of other investors.

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But in my experience, the chances of finding winning stocks from second-hand news in the public domain are pretty slim.

As the adage goes, once it's 'in the press, it's in the price'. After all, anything you read in the papers is yesterday's news. Even with online media, it takes a while for a story to break and even then it's been distorted by journalists.

Don't get me wrong, the media can be good for generating ideas. You know I love MoneyWeek (that's why I write for them)... it's one of the only publications I've found that focuses on investment ideas and themes rather than just reporting 'news'.

But I decided a long time ago that there had to be a better way to assess investment opportunities than just reading the financial rags. And you know what...?

There is.

Timing the market wellwill give you a headstart on most investors...

The problem is that journalists love writing about cutting edge stuff, the latest technology and the latest products.

If I find interesting articles, I cut them out, file them and put them to one side.

Rarely do I rush out and buy the stock.

I tuck away my little gems in a folder somewhere and sit on them...

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Fine tips are like fine wines. You have to lay them down and allow them to mature. There's a time when these tips should be acted upon... and it's rarely when they've just been published.

Here's why....

Let other people finance your ventures

Let other people put their hard earned cash into IPOs, or any other businesses that are dealing with new technologies and untested ideas.

[Editor's note: Check out our thoughts on the Ocado IPO here]

Keep an eye on these businesses from afar. And guess what you'll see... the majority of them don't end up as fine vintages...

You see, new technologies usually suffer teething problems. New management teams also need time to 'bed-in'. I've seen loads of new issues that have come out of academic institutions for instance...

These guys are academics, they're not industry pros... they don't necessarily know how to run a business.

They learn on the job... and that costs money.

Let others carry these costs. You just look on from the sidelines...

Look out for the great deals...

Many of these seemingly wonderful stocks will disappoint, but they may still have what it takes to succeed. That's when I want to put my money in...

I want the benefit of hindsight... and I want others to finance it.

Wait until all the razzmatazz has worn off and you'll see whether the business really is a goer. Keep up with the news stories and see if management really are delivering on their goals. Even decent technologies take more time to get to market than anyone realises.... they may require more funding too. That's sure to knock the price down.

Impatient investors give up and sell out... that's when we pounce.

You've got to be patient and you've got to keep a close eye on what's going on with these companies. You may be surprised at how many fall by the wayside. So don't put your money in too soon... wait until you see evidence of sales picking up. That's the only true indicator of a winning stock.

Technologies and ideas are grand. But cash flow is what you want to see.

I'd rather follow thirty companies diligently (even if I don't own them) than read about every company the FT deems newsworthy on any particular day.

That's how you get to really understand companies... and that's how you can avoid the losers.

This article was first published in the free investment email

The Right Side

Your capital is at risk when you invest in shares - you can lose some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment. Past performance and forecasts are not reliable indicators of future results. Commissions, fees and other charges can reduce returns from investments. Profits from share dealing are a form of income and subject to taxation. Tax treatment depends on individual circumstances and may be subject to change in the future. Please note that there will be no follow up to recommendations in The Right Side.

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Bengt graduated from Reading University in 1994 and followed up with a master's degree in business economics.

He started stock market investing at the age of 13, and this eventually led to a job in the City of London in 1995. He started on a bond desk at Cantor Fitzgerald and ended up running a desk at stockbroker's Cazenove.

Bengt left the City in 2000 to start up his own import and beauty products business which he still runs today.