Stock Picks: Timing Is Everything

Most people assume that the most important aspect of making money on the stock market is picking the right stocks to invest in. I actually think that's the least important aspect, at least for swing traders like myself. What's most important is timing. Not what but when.

A great example of this can be seen with some big name stocks that have taken some big tumbles over the past year: Citigroup, AIG, & GM. You may think that the idea that someone could have actually made a big profit by buying into stocks like these is insane, but it's not. I know from personal experience because I recently made a great return on both Citigroup & GM and I wanted to get into AIG (but was short on cash at the time.)

I think people learn best through example so let me run you through the possibilities with each of these stocks. I will show you how you could have both made huge gains or huge losses with each of these stocks depending on when you bought and sold them.

Citigroup: If you had bought C at $23 in October of 2008 and sold it for $1 in March of 2009 you would have lost about 95% of your investment. If you had bought $10,000 worth of C stock you would have had only about $430 left!

On the other hand if you had bought C at about $1 in March and sold it for about $3 later on in March (this movement happened in just a couple of weeks) you could have tripled your money. A $10,000 investment could have sold for about $30,000!

Do you see how in the case of Citigroup timing is the difference between having $30,000 or $430 in your bank account?

GM: If you had bought GM for $23 in May of 2008 and sold it for $1.50 in March of 2009 you would have lost 93.5% of your initial investment. If you had invested $10,000 you would have had only $650 left.

But, like with Citigroup you could have made huge returns with General Motors if you had bought (and sold) at the right moment. If you had bought GM at that $1.50 price in March you could have sold it at $3.50 just three weeks later for an awesome 133% gain. Your initial $10,000 investment would be worth over $23,000 in such a scenario.

AIG: Probably no other company has been a bigger symbol of the economic collapse than AIG and yet even with this company you could have made big profits if you had got in and out at the right time. Again timing is everything.

If you had bought AIG stock for $49 in May of 2008 and sold it for 35 cents in March of 2009 you would have lost over 99% of your initial investment! If you had invested $10,000 you would have about $70 left. Sadly this scenario is all too real for a lot of people who were heavily invested in AIG.

But if you had bought AIG at 35 cents and sold it at $1.62 just a couple of weeks later (which is possible) you could have made an incredible 363% gain. The $10,000 worth of stock you had bought could have been sold for nearly $50,000.

Yes, in the case of AIG timing could have been the difference between $70 and $46,000.

I think my point has been made. Those that do very well on the stock market are those that know how to best time their buys and sells. For the momentum trader it's not so much about which stocks are bought but about when they are bought and just as importantly, when they are sold.