Market Timing: Should You Attempt It?
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- JenL_2
- burkmorz
- Kirk
- Mark_J
- Will_L
- Mark_J
- SteveT
- JenL_2
- Mark_J
- SteveT
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-- posted by burkmorz
» Kirk - FAMOUS FORECASTING QUOTES:
FAMOUS FORECASTING QUOTES:http://www.lsp.ups-tlse.fr/Stephen/STATS...
Sample:
"Those who have knowledge, don't predict. Those who predict, don't have knowledge. "
--Lao Tzu, 6th Century BC Chinese Poet
"Prediction is very difficult, especially if it's about the future."
--Nils Bohr, Nobel laureate in Physics
"I always avoid prophesying beforehand because it is much better to prophesy after the event has already taken place. "
--Winston Churchill
"He who lives by the crystal ball soon learns to eat ground glass."
"The herd instinct among forecasters makes sheep look like independent thinkers. "
"If you have to forecast, forecast often. "
--Edgar R. Fiedler in The Three Rs of Economic Forecasting-Irrational, Irrelevant and Irreverent , June 1977.
-- posted by Kirk
» Mark_J - Market Timing
From BarronsRight On Time.
There's more to successful market timing than just being in the market on the best days of the year. To really make a bundle, investors must
also be out of the market on the worst days of the year, Barron's reports.
This is why I like Bob Brinker's program. He's right there, keeping you in for the bull markets, and warning you about bear markets. Should be a great article this weekend in Barrons.
[EC: The Facts Follow:] QQQ since "Act Immediately for a quick 20% gain" on 10/16/00: Trouble with market timers - Brinker can make a good guess to go to 60:40 in Jan. 2000 (and later to 65% cash reserves) but then advising buying TEFQX and tossing up to half the cash into QQQ before it lost more than 50% causes those that FOLLOWED ALL of his advice to lose more than if they just stayed put (and that is before taxes!)
Brinker did well to advise going to 60% cash in January 2000.
Then he gave it ALL back and then some with his advice since Jan 2000.
What a disservice to others to say otherwise:
TEFQX: 1/1/00 - 9/21/01
<img src=http://www2.marketwatch.com/charts/int-a... width=452 height=366>
<img src=http://www2.marketwatch.com/charts/int-a... width=452 height=366>
Brinker's 10/16/00 QQQ Recommendation :
-- posted by Mark_J
» Will_L - Re: Market Timing
In response to message posted by Mark_J:"This is why I like Bob Brinker's program. He's right there, keeping you in for the bull markets, and warning you about bear markets. Should be a great article this weekend in Barrons. "
Right you are Mark. He warned you sorta about a bear market in early 2000 and got you in those QQQs in late 2000 at 86 for a bull market ride down to 26. Whoa Nellie!!!
-- posted by Will_L
» Mark_J - Barrons article on Market Timing
Barrons Article.Kudos to Barrons for including a positive article on Market Timing, and including comments from the nation's finest Timer, Bob Brinker.
We're so inundated with "the crowd" telling us to buy and hold forever, it's quite refreshing to see the value of Market Timing given its proper due.
Nice article. Congratulations, Bob! For more information on Bob's approach...
[EC: The Facts Follow:] QQQ since "Act Immediately for a quick 20% gain" on 10/16/00: Trouble with market timers - Brinker can make a good guess to go to 60:40 in Jan. 2000 (and later to 65% cash reserves) but then advising buying TEFQX and tossing up to half the cash into QQQ before it lost more than 50% causes those that FOLLOWED ALL of his advice to lose more than if they just stayed put (and that is before taxes!)
Brinker did well to advise going to 60% cash in January 2000.
Then he gave it ALL back and then some with his advice since Jan 2000.
What a disservice to others to say otherwise:
TEFQX: 1/1/00 - 9/21/01
<img src=http://www2.marketwatch.com/charts/int-a... width=452 height=366>
<img src=http://www2.marketwatch.com/charts/int-a... width=452 height=366>
Brinker's 10/16/00 QQQ Recommendation :
-- posted by Mark_J
» SteveT - Re: Barrons article on Market Timing
In response to message posted by Mark_J:Yes he is so proud he can't even make the program today. Of course when you get to go to the World Series in a stadium named after yourself, who could pass that up? But by a stroke of good fortune he will be able to make the program tomorrow.
-- posted by SteveT
» JenL_2 - Re: Barrons article on Market Timing
In response to message posted by Mark_J:Thanks for the heads-up Mark. Here's the article in 11/5 Barron's:
When you're out of the market can be more important than when you're in
By Jacqueline Doherty
Correctly timing the market-getting in just before stocks go up and exiting just before they go down-is the golden dream of many investors.
But financial advisers and others who preach the religion of buy-and-hold investing denounce the concept as a pipe dream. They insist that the average market professional, let alone the typical individual investor, has no clue about the market's next move and that trading in and out can lead to frustration, hefty transaction costs and, sometimes, catastrophe.
The pro-timers counter such arguments by contending that certain combinations of indicators have a good record of calling turning points in the market. And they assert that while buy-and-hold may work in a bull market, it can be a prescription for disaster whenever Wall Street falls captive to the bear -- as seems to be the case now.
Consider that in the last long-term bear market, the Dow Industrials closed at 995 in February 1966 and 16 years later, in August 1982, stood at 777. Anyone who hung in throughout that woeful stretch might have had a throbbing headache by the time the bull returned.
But even during that dour span, there were four periods in which stocks had strong rallies, which respectively boosted the Dow by 32%, 66%, 76% and 38%.
"This is why market timing can be used during times of secular bear markets," says Bob Brinker, publisher of Bob Brinker's Marketimer, a newsletter that advises investors on when they should jump in and out of the market.
Regardless of which camp one agrees with, one of the often-voiced arguments of the anti-timers is worth examining. That argument is that, especially in bull markets, much of any given year's profits are made on its five biggest up days and that anyone who's out of the market on those days -- as a hapless timer might be -- forfeits a huge opportunity.
And, indeed, based on a study done for Barron's by Birinyi Associates -- a Westport, Connecticut, invesment-research outfit, it's true that performance minus the five best days is dramatically lower than it would be if an investor stayed in the market for the entire year.
<img src="/files/mysites/jen7/markettiming.gif" width=369 height=257>
The accompanying table and chart illustrate this point. For example, the S&P 500's 19.53% gain in 1999 shrinks to only 3.98% without the five best trading days. And 1998's return of 26.67% slips to a mere 4.54% without the best days of the year included. In addition, the 29.72% loss the market suffered in 1974 balloons to 42.38% without the five best days. And investors who would have ended the year almost flat in 1970 would have found themselves stung with a 13.65% loss without the year's strongest days.
Worth noting, however, is that if you're dexterous or lucky enough to jump out of the market for the year's five worst days and be in for the rest, you will do far better.
This year, through October 29, if the worst five days for the market (measured by the S&P) are subtracted, the return is a 0.92% loss. While that's not much to boast about, it certainly is a lot better than the actual deficit of 18.03%. (Those out on only this year's five best days would have seen a 32.63% loss.)
And eliminating the five worst days can have a huge impact in years marked by really traumatic stretches. For example, in 1987 -- an annus miserabilis marked by an October crash -- the S&P returned a meager 2.03%. But those out of the market on the worst five days would have seen a return of 60.18%. (Anyone who wasn't in the market on the best five days of that year would have lost 20.09%.)
Overall, the Birinyi study showed, anyone who put one buck into the S&P in 1966 and held it through October 29, would have $11.71 (a 1,071% gain), while those who were in the market for all but the five best days would have had just 15 cents (an 85% loss). But those who were in for all but the five worst days would have $987.12 (an amazing 98,612% rise, aided by the power of compounding).
"This study confirms that your best opportunity for making money in a secular bear market is to identify the cyclical bull-market opportunities within the very long-term downtrend," says Brinker, who was told of Birinyi's findings.
The market-timing advocate, who lives in Henderson, Nevada, and whose Moneytalk radio show is syndicated nationally, has a model that looks at monetary policy, the economic cycle, the S&P 's valuation, investor sentiment and other technical factors.
Throughout the 'Nineties, Brinker was recommending that investors allocate 100% of their money to equities. Then on January 8, 2000, he issued a long-term sell signal and suggested putting 60% in cash, 25% in U.S. equities and 15% in foreign stocks. In August 2000, he slightly increased the cash recommendation to 65% and cut the foreign equity allocation to 10%, keeping U.S. stocks at 25%. "I think the probabilities are we've entered a secular bear market," that could last 10-20 years, he warns.
Of course, no market-timing model is perfect. Brinker didn't urge investors to get back into the market after the post-September 11 swoon, which was followed by a powerful short-term rally. "Our indicators have improved significantly, but not sufficiently enough to issue a buy signal," he says.
But Brinker advises holding on to quality holdings because he believes that a cyclical bull market will begin no later than next year.
When it does, investors will have a better opportunity to trim their exposure to equities before the secular down market resumes, he adds.
S&P 500 Return
The annual changes in the benchmark average under the three scenariosfor every year since 1966.
| Year | AnnualPerformance | Without 5 Best days | Without 5 Worstdays |
| 1966 | -13.09% | -21.55% | -3.53% |
| 1967 | 20.09 | 11.66 | 28.67 |
| 1968 | 7.66 | -1.16 | 15.59 |
| 1969 | -11.36 | -18.64 | -3.97 |
| 1970 | 0.10 | -13.65 | 13.36 |
| 1971 | 10.79 | 0.26 | 19.40 |
| 1972 | 15.63 | 8.42 | 22.49 |
| 1973 | -17.37 | -27.23 | -5.97 |
| 1974 | -29.72 | -42.38 | -18.06 |
| 1975 | 31.55 | 15.86 | 45.97 |
| 1976 | 19.15 | 9.83 | 28.74 |
| 1977 | -11.50 | -17.30 | -4.72 |
| 1978 | 1.06 | -10.12 | 10.88 |
| 1979 | 12.31 | 2.17 | 24.07 |
| 1980 | 25.77 | 11.09 | 43.64 |
| 1981 | -9.73 | -20.06 | 1.29 |
| 1982 | 14.76 | -4.49 | 30.80 |
| 1983 | 17.27 | 5.12 | 28.89 |
| 1984 | 1.40% | -10.64% | 10.19% |
| 1985 | 26.33 | 15.17 | 34.64 |
| 1986 | 14.62 | 3.41 | 34.30 |
| 1987 | 2.03 | -20.09 | 60.18 |
| 1988 | 12.40 | -2.70 | 35.11 |
| 1989 | 27.25 | 14.79 | 46.49 |
| 1990 | -6.56 | -17.82 | 7.42 |
| 1991 | 26.31 | 10.05 | 41.93 |
| 1992 | 4.46 | -2.95 | 12.61 |
| 1993 | 7.06 | -0.90 | 15.95 |
| 1994 | -1.54 | -9.16 | 7.64 |
| 1995 | 34.11 | 25.14 | 42.90 |
| 1996 | 20.26 | 9.78 | 36.20 |
| 1997 | 31.01 | 11.98 | 55.19 |
| 1998 | 26.67 | 4.54 | 55.92 |
| 1999 | 19.53 | 3.98 | 35.31 |
| 2000 | -10.14 | -25.28 | 8.64 |
| 2001* | -18.03 | -32.63 | -0.92 |
*Through October 29. Subscribe to WSJ & Barron's Online @ http://www.wsj.com
Source: Birinyi Associates
.....Jen
-- posted by JenL_2
» Mark_J - Re: Barrons article on Market Timing
In response to message posted by Mark_J:Kirk, can you go over the percentages of those holdings you mention in Bob's model portfolios? No explanations, just the exact percentages as represented in the portfolios. Thanks. I appreciate it!
-- posted by Mark_J
» SteveT - Re: Barrons article on Market Timing
In response to message posted by Mark_J:Mark, nice balanced post. You are to be congratulated. As I see the article it compares buy and hold to being out of the market on the five best days each year along with being out the five worst days each year. How does this correlate to the work BobBrinkerr does with his Long Term Stock Market Timing Model? When Bob is in the market it can be for years at a time through all the bumps and pull backs. When he is out or partially out be misses the good days and we have had a few over the past couple years.
It seems to me the illustration used in the article maybe a good academic exercise but in the real world of little value.
-- posted by SteveT
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