Are You Trying to Time the Market?
It's not something I would ever recommend to a client. However, many of us are wired to try and capture value when (we think) we see it. This also applies to buying and selling investments.
Here's why trying to time the market will most likely end up costing you in the long run...
When your portfolio is or would be diversified across most sectors, market capitalizations and geographies, it is extremely difficult to determine when it would be a good time to invest or divest. When you are not as well diversified, it is more conceivable to open or close positions at certain price points. However, as an investment adviser, I would typically not recommend doing so. Here's the caveat...
If you only trade individual stocks or options, you can have the mindset that some of those positions may be buy-and-hold, and some of those positions may have a pre-determined entry and exit point. My point is this... if you have a clear picture of what you own or want to own, you can also determine when you want to buy it and sell it. This also applies to other investments like real estate. The picture is not so muddied, therefore you can have conviction in your thought process.
Studies have been done that show that there is such a thing as too much diversification. There is some evidence that shows that once you have 20 or so individual positions, you've achieved diversification. https://www.forbes.com/sites/janetnovack/2015/02/05/5-big-mistakes-investors-make-when-they-diversify/#f3953ea395d3
If you have all your money tied to ETFs, index funds, mutual funds, etc., you are basically riding it out until retirement. These types of investments are basically handing control over to your broker and you should not be looking to time the market. And that's okay. Not everyone is comfortable with the idiosyncrasies of the market. Most of the general public needs an adviser to help them deal with this. These bundled portfolios can create buoyancy, which can potentially level off gains and losses.
But then there are those of us who are wired a little differently. We take concentrated positions on individual stocks or options and attempt to create wealth in a quicker fashion. There is no amount of risk that will prevent us from taking a position as long as we can visualize and find reasoning that we will be closing the position with a large capital gain. And for some of these positions, it's still a buy-and-hold approach.
For instance, there may be a stock that brings a paradigm shift to an industry. And you want to buy-and-hold a position into your retirement years, because you think it has that much run. Other positions may not present the same opportunity, but if you think it could double in price over (x) amount of months/years, perhaps you take a position in it, but plan to sell it (without emotion) when it hits that mark.
In this case, you can't second guess if after you sell, the stock keeps running higher. Of course, you could chase it, but that could end badly. If you've locked in a gain on a position, you can walk away and look for the next opportunity.
A wise man I once knew used to say, "You can't go broke taking a profit." He also used to preach that, "Bulls make money, bears make money, but hogs get slaughtered." I think this is especially true when you take a gain on a stock, then you see it go higher so you buy back in only to see the stock drop dramatically.
In conclusion, the less you know about what you want, what you believe in, and the less risk you are willing to take, the more you should take a long-term, buy-and-hold, diversified approach to investing. But regardless of your risk tolerance or confidence level in your ideas, it makes a lot of sense to start with a roadmap or (financial plan). By having a defined set of goals, you can see how much return on your investments you will need to meet those goals by constructing a comprehensive financial plan.