Market Timing

DesertCat · #1 02-10-2007, 03:48 PM

Article from this week's business week that documents the lousy overall record of "professional" market timers. And note, their comparisons don't include transaction and tax costs, which are likely to significantly reduce the results for the more active market timer vs. a buy and hold index.

almostbusto · #2 02-10-2007, 05:31 PM

good article. seems like you spend a lot of time trying to find articles that reinforce opinions you already have though [img]/images/graemlins/smile.gif[/img]

DesertCat · #3 02-10-2007, 05:38 PM

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good article. seems like you spend a lot of time trying to find articles that reinforce opinions you already have though [img]/images/graemlins/smile.gif[/img]

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Well it's just so hard to find any rational data that contradict my existing opinions

kimchi · #4 02-10-2007, 11:49 PM

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good article. seems like you spend a lot of time trying to find articles that reinforce opinions you already have though [img]/images/graemlins/smile.gif[/img]

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Well it's just so hard to find any rational data that contradict my existing opinions

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From previous posts, you seem to be a fubdamental value investor - the most sensible fundamental strategy in my opinion.

I lean more towards technical analysis, but that article is not suprising.

I've never bothered with any of those timing newsletters as I don't think that predicting market direction or picking tops and bottoms is a good long-term strategy. What I think they do do however, is reduce you portfolio's risk adjusted return. People can accept a slightly lower return for a lower volatility portfolio.

Most of these articles compare buy and hold Vs timing during the great bull market of the last 10 years. The bear market of 2000-2 was practically just a blip over this timeframe.

The 20 years previous to this bull market tells a different story. Most buy & hold investors' portfolios stagnated at best - it is these markets where timing can outperform. There were many tradable trends during that 20 year period, both long and short.

Also a trading strategy is best suited to leveraging you bets, and with proper risk management, discipline, and stops, can outperform buy and hold easily.

I also rotate my ISA funds between stocks and bonds. No leverage is available in an ISA and money management is difficult due to their tax efficient 'lock-ins' but I can sleep at night not worrying about bear markets (crashes are a different story as I only use weekly data for this particular strategy).

Anyway, while I agree with that article, it doesn't tell anywhere near the full story.

Sniper · #5 02-11-2007, 12:32 AM

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good article. seems like you spend a lot of time trying to find articles that reinforce opinions you already have though [img]/images/graemlins/smile.gif[/img]

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Well it's just so hard to find any rational data that contradict my existing opinions

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Cat, have you taken a look at Hirsch's Stock Traders Almanac?

DesertCat · #6 02-11-2007, 01:17 AM

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Cat, have you taken a look at Hirsch's Stock Traders Almanac?

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Nope, what am I missing?

pig4bill · #7 02-11-2007, 02:20 AM

[ QUOTE ]
[ QUOTE ]
good article. seems like you spend a lot of time trying to find articles that reinforce opinions you already have though [img]/images/graemlins/smile.gif[/img]

[/ QUOTE ]

Well it's just so hard to find any rational data that contradict my existing opinions

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It's especially hard if you never look for it. [img]/images/graemlins/smile.gif[/img]

Sniper · #8 02-11-2007, 05:01 AM

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Cat, have you taken a look at Hirsch's Stock Traders Almanac?

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Nope, what am I missing?

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rational data that contradicts your existing opinions... [img]/images/graemlins/smile.gif[/img]

mrbaseball · #9 02-11-2007, 09:42 AM

I don't have link or anything but there was some study done where if you bought the market in Novemeber and sold in May (stayed out for May to Nov) over the past 80 years or so you would have shattered buy and hold long term by an amazingly wide margin.

DesertCat · #10 02-11-2007, 01:06 PM

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I don't have link or anything but there was some study done where if you bought the market in Novemeber and sold in May (stayed out for May to Nov) over the past 80 years or so you would have shattered buy and hold long term by an amazingly wide margin.

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Show it to me, and show me how the study accounts for taxes and transaction costs. I have an open mind, there is a rich literature on market timing studies and I've read a good deal of it. So far, I haven't read anything convincing.

For example, the market timers from the article are professionals who make money when they are right, so they have huge incentives to be right. Don't you think they read all the traders almanacs and academic studies and cherry pick the greatest strategies? Yet only 10 out of 100 beat the market over the last 10 years. That's way worse then flipping a coin!

And it's unclear whether Hulbert was incorporating tax and transaction costs in that study. If he didn't, then their results are even worse. But I think he must have, and that accounts for why they were worse than coin flipping. When you try to market time, you turn long term capital gains into higher taxed short term capital gains, and you pay transaction costs. Do it often enough and those costs become anchor on your performance.

And the market timing study referenced by BusinessWeek is real results, not some historical pattern discovered through back testing.