It is interesting to read that many investors fancy themselves as being good at timing the market (Timing the market is mission impossible, Sept 6).

The psychology of investing reveals that investors, more likely than not, overestimate their ability to time the markets.

Consequently, they tend to make the mistake of investing instead of selling when markets peak, and selling instead of investing when markets trough. In their minds, they are all investment experts.

Take for instance how the volatility of Singapore stocks doubled in the first quarter of this year alone - the FTSE Singapore Index 12-month volatility was 22 per cent as of the end of March, up from 10.7 per cent at the end of December last year.

With such market volatility, it is anyone's guess when the market sell-off will end, or which direction the market could move next.

Overestimating their ability to time the markets moreover distracts investors from adopting a long-term view on investing, and veers them towards frequent and excessive short-term trading.

This is detrimental because it attracts commissions and fees, and the hidden cost of the bid-ask spread - the difference between what buyers are willing to pay and sellers are willing to accept.

Moreover, stocks with less trading volume often have wide bid-ask spreads and with enough trades, these costs can add up and be a drag on investment portfolio performance, extinguishing any chances of earning above normal returns.

Japanese billionaire Yusaku Maezawa articulated it well when he said that he was blinded by the virus-driven market swings - he lost 4.4 billion yen (S$56.5 million) through repeated short-term trading of stocks (Japanese billionaire regrets losing $56.5m in day trades, Sept 8).

In the current volatile environment, it would indeed be prudent for investors to undertake disciplined, low-cost passive investing, and to be more cognisant that their investment funds should not be wagered as casino chips in volatile markets.

Woon Wee Min