On April 14, 2022, JPMorgan CEO Jamie Dimon warned investors of “powerful forces threatening U.S. economy into a recession”, as seen in this article by Fortune. Around that time a downward trend that was gaining momentum from the main stock indexes caught my eye.

Following news’s sentiment and a quick fundamental analysis, I forecasted a considerable price decrease and was committed to profit from it. I opened my long position on an inverse ETF and waited for the downturn.

In short, I was aiming to time the market.

Market timing is the strategy of making decisions by attempting to predict the future market price movements. Prediction may be based on the results from technical, fundamental analysis, or other thought process based on heuristics.

Around the beginning of June, the market contracted in expectations to a higher increase in rates from the central bank (between other factors). Before the FED made a move, the market was already pricing in the tightening of the economy. This resulted in an increase in value in my portfolio and I wanted more of it.

Moving forward 3 months later the market is starting to bounce, and the inverse ETF is not performing so well. If I had closed my position in the middle of June, I would have maximized my gains. This of course it is impossible to predict.

This has allowed me to reflect on my financial decisions, and to avoid timing the market. The reasons for this are multiple: 1. It is impossible to predict future events (unless you have insider information). 2. Timing leads to emotional investing which fog your decision and make you take some bad ones. 3. The stock market can stay irrational longer than you can stay liquid. 4. Too-frequent trades can increase you commission and increase your taxes. 5. The most advance financial models can’t predict with complete accuracy a recession, or a market correction so why would I? 6. Statistically speaking, investors are better off if leaving their investment alone. According to DALBAR, the average investor in 2018 lost 9.42%, even thought the S&p500 lost less than half that amount at 4.38%. The reason is humans’ irrational decisions.

In conclusion, never try to time the market. Your return on the long run is better if you leave your investment alone (talking about well diversified and optimized portfolios to your risk tolerance). As of my investment decision, I will stop holding my position on the inverse ETF and will update my strategy to minimize my risk.