Over the years, we’ve met a number of investors who favour investing in stocks only when economic and financial conditions seem good, if not ideal. If these investors hear talk of a drawn-out recession or rising interest rates, for example, they are inclined to stay out of the market, or get out if they’re in.

In contrast, when they think conditions are ripe, these same investors are relatively casual about what they buy. They readily accept recommendations from brokers, or they buy stocks that are spotlighted by public-relations firms. They give dicey insiders the benefit of the doubt.

You might say these investors are highly sensitive to stock market timing risk, but relatively insensitive to investment-quality risk. This is pretty much the opposite of our approach to investing.

Stock market timing can compound your losses

We are relatively insensitive to market-timing risk. That’s because you can never get away from market risk, and it can cost you money to try. If you only buy when it seems market risk is low, you’ll wind up paying top prices (even though prices may and probably will eventually exceed what you paid.)

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If you compound the error by selling whenever you think market risk has gone up – right after the recent market downturn, say – then you’re going to sell near market lows.

Up to a point, you might say we give the market outlook the benefit of the doubt. Stock market investors have to accept the constant risk that a presidential assassination, a terrorist attack or even a spike in interest rates, may come at any time. You can’t predict when these events will take place. For that matter, you have no way to tell if an unpleasant surprise is a solitary event or the first in a series.

Mind you, we always have an opinion on the market outlook and we routinely share that opinion in our publications, including our flagship newsletter, The Successful Investor. Our market views do have some impact on our recommendations. But our advice relies much more on investment quality and our five-sector approach to diversification.

Cut risk by focusing on investment quality

Opinions always differ about what constitutes a high-quality investment. However, if you routinely aim to invest in companies that have a lot of the attributes we look for in awarding our Successful Investor ratings, you’ll find that your investment or stock market timing mistakes rarely lead to serious or permanent losses. If you make a point of spreading your money out across the five main economic sectors, you’ll cut your vulnerability to market risk all the more.

In contrast, your stock market timing skills will always be crude and unreliable. They will never protect you from the risks of investing in companies with flawed business plans.

Moreover, even the best market-timing skills are useless when it comes to protecting you from untrustworthy insiders. If we have reason to doubt the integrity of a company’s insiders, we stay out, no matter how tempting it seems. There is no limit to the ways in which unscrupulous insiders can cheat you.

Those are the risks we focus on and attempt to avoid. The damage they can do to your finances makes presidential assassins, interest-rate increases and general market risk seem tame by comparison.