The result is that the detrimental effect of inflation is muted more in equities than debt. To add insult to injury, inflation also erodes the purchasing power of money. The fixed interest payments to the investor decline in purchasing power at the same time the value of the underlying bond declines. Stocks are selected for their strong earning potential and appreciation over the long term. When the underlying fundamentals no longer support the stock, it is sold.
Market timing is used to capture short-term swings.
This strategy seeks to optimize stock returns over simply buying and holding stocks. Contrarian investing is a type of market-timing strategy. A contrarian investor may look for certain market indicators that reflect an overbought or oversold condition and take an opposite position against the prevailing trend. For example, excessive short-selling indicates a bearish market attitude. Short-selling is selling borrowed stock with the intent of buying it back at a lower price.