We all know that being at the right place at the right time is what makes most great success stories. So too, as far as the world of investments is concerned, one not only has to get it right but also at the right time. The financial markets with the trillions of dollars in daily capital flows are not built for being almost right. Some of the prices of exchange traded securities change in nanoseconds and one cannot rely on hindsight to explain why an investment was or was not made.
So how can we improve on our timing and our ability to take advantage of what may very well be a brilliant investment opportunity? One can phase in, e.g. enter the investment in stages and only commit maybe 25% or 50% of our total trade allocation at the start. The great thing is, if the price goes up you are happy because you made money, if it goes down you are happy because you can buy more at a discount. Buying in spades gives you opportunities to react to (random) price movements. That’s almost like receiving a free option, if you discount for the opportunity cost that it only ever goes up.
We can also study cycles. Most investments come with some sort of a track record of historical values or prices. Whereas we cannot make predictions on the direction of future prices given historical data, we can study the patterns and trends in these numbers. There are highs, there are lows, and particularly when compared with other numbers, we can get a very good idea of what an investment will do under normal circumstances (e.g. it continues to exhibit the same behaviours as in the past). And that means, at the very least, we can buy on the low parts of these cycles or trends and try to come in at better prices.
Will either one of these methodologies help us in our timing? Not always, the world is random after all and timing is a female dog. But bar going to the casino to make 50/50 bets at the roulette table, we can only try to skew the probabilities in our favour. We know the tiniest of margins can make a huge difference in the vast world of leveraged finance. Allocating our capital so that we give ourselves a chance for the numbers to work out in our favour is about all we can do. Ultimately though, it’s better to be lucky than smart. And here’s to that.