Market Timing: Should You Attempt It?

http://www.bobbrinker.com/message.asp?th...

Top 20. Jun 13, 2000 11:14 AM

» FCSTECKIII - Rande

I feel like telling this person to just read your
post but I just don't have the heart to. -Thanks

-- posted by FCSTECKIII

Top 21. Jun 13, 2000 11:50 AM

» Will_L - Fred, You are so correct but besides being seen as "wrong heade

Fred, You are so correct but besides being seen as "wrong headed" you would also be banned from the Brinker site --if they didn't take your resignation.

His performance though lacking --and I'm sure the reason for that is that his "managed funds" didn't outperform the indexes they were designed to on average. Also in Rande's inclusive view it takes into account the only other time that Brinker was anything other than 100 percent in the market--he underperformed. Coupling those two things would give one pause--A) why pay someone to pick funds to underperform the market and B) why trust someone to time the market who failed in his only previous attempt?

The post you mention though has a slice in it that is something that I strongly disagree with and know even among many who don't believe in market timing that it is a good 'rule'. That is the 4% of one's portfolio in one stock rule. I find that limiting the upside and paying no attention to market weighting-and just simply an arbitrary decision by someone I don't particularly trust.

My feeling is this--there are few stocks that "outperform"--the "clear winners". By automatically capping them at 4 percent you are doomed to do no better and most likely worse than the averages. Last I looked GE, and Cisco, were all in excess of 4 percent-- on the Vangard 500 index fund. Why on this earth would one want to limit the very best companies in history to 4 percent of ones portfolio? I could see that being true of a very small tech stock or a itty bitty restaurant stock (I have one of those --called O'Charleys--seems to be a "comer") that is a drip in the lake of the world of stocks. However when you carry the same limit on "O'Charleys" that you do on Cisco Systems--you are saying that you had better just buy an index fund because you cannot possilby win--You will sell winners to buy the "also rans". If you don't even feel comfortable with a market weighting of the best stocks in the land, why try picking stocks?

I think until a person's portfolio is of a significant size they should avoid individual stocks but beyond that I think there are valid reasons why one might be better served by individual stocks. Lets say a person has an equity portfolio of 1,000,000. a managed fund will cost between 10,000 and 20,000 bucks every year--if in a non tax deferred account there will be hopefully a significant short term gain--further eating into one's overall return. Once you buy a stock--it is your's --no expense period --a tremendous thing for compounding. To limit that compounding when a great stock becomes 4% of ones portfolio I believe is wrong headed. My approach would be to --look at the stock--is it a huge winner--ala Cisco, Sunw Intc --msft (still think it is)? Is it a "market weighting" in the S&P? Why cull a stock that is over 4% of the S&P because of its growth pattern from your portfolio? I think--for large caps that are the "barn burners" 2x the S&P weighting would be a smarter course-- for smaller companies maybe the 4 percent rule is applicable --but then I believe that you should not buy in at 2 percent of your portfolio but 1 -- if you are going to be topped out at a double--you won't beat the averages--the only way you beat the averages is to have "big winners"- many times purchase price over time. Most stocks will not do that so if you redeploy everytime a stock doubles or triples into something "else" (meaning most likely not as good a company) you are doomed to failure.

At least that's my opinion and it works here so far. We'll see-- if Brinker is right and the mother of all bears is at hand I may change my mind.

-- posted by Will_L

Top 22. Jun 13, 2000 11:53 AM

» Kirk - Advisors ARE useful

Remeber FCS that many, if not most, get sucked in by even worse hype... Like the lady that cut my hair, they buy hot stocks they hear about well after they have made their major gains. Quite often, these hot tips turn into duds and they sell at a loss. Like the lady that cut my hair, they then go to their bank to get good, SAFE investment advice and they are sold loaded growth funds that often underperform AND they get to spend 6% for the privilage of underperformance for a given risk.

They can do a whole lot worse then following Bob Brinker or many of the other newsletter writers that say to use no load mutual funds. With any amount of luck, the market timing part won't hurt their portfolio too much, but look at how unhappy most that post here and went to cash are about staying in cash while the rest of us make money. They are already jumping into QQQ at levels 10% or more higher than where their guru said to jump.

You see, following a plan is hard too! The whip-saw effect is a real killer! Staying the course can be boreing, but it is a proven strategy.

-- posted by Kirk

Top 23. Jun 13, 2000 12:32 PM

» FCSTECKIII - Kirk

Speaking of QQQ's, I never heard Bob mention the
'exit strategy' for getting out of them (at what
price level, etc) ...

Nothing worse than someone using their dry powder
to purchase NASDQ 100 issues and then holding on
to long only to get slaughtered. -Thanks

-- posted by FCSTECKIII

Top 24. Jun 13, 2000 12:47 PM

» shep - Thanks Rande

Rande: Thanks for the data...that helps put things in perspective. Clearly, according to your data, following one specific individual, who is a proponent of market timing, produced sub-market results. The irony in the whole investment world is that the data clearly shows that most individual investors, and certainly most fund managers do NOT beat the indexes. Yet investors continue to try to beat the indexes with one strategy or another.

I would rather TRY to beat the indexes that settle for the mean. The key is to be intelligent in ones efforts.

But hey...everyone here knows that, right?

-- posted by shep

http://www.bobbrinker.com/message.asp?th...

Top 25. Jun 13, 2000 1:14 PM

» Karin_ - Will

Answer the poor devil.....

-- posted by Karin_

Top 26. Jun 13, 2000 1:32 PM

» Will_L - Ah Karin, that is the thing about wiping the slate clean--you we

Ah Karin, that is the thing about wiping the slate clean--you were what other's say you were. My posts don't change much--except recently they were a little more personal and a lot less interesting (knowing full well they probably never interested a lot of folks). As to his point about the GID thread--my posts there were the same as they were on the "Town Hall" one--not sucking up certainly but--not going out of my way to cause trouble. They were simply "my thoughts". They ruffled a few feathers but were never antagonistic to a fellow poster--unless they hurled a spear in my direction. I stuck to the issue which was gemane on that site and separated it from others--"market timing".

I remember precisely when that GID thread went down--it was shortly after they kicked Rande out for no good reason and the market call was going very much against Bob. Perhaps what Frank Will takes exception too back then was my pimping of Brinker about talking about oil and San Francisco realestate for 6 hours one weekend when the dow had gone up 500 points a record which he didn't mention on the preceeding friday. Frank along with a few other regulars took exception to me picking on the Bobster.

Shortly after that--there was an influx of "folks no one had seen" using very foul language and pretty much unrelated to anything going on on the site--much like happens in an aol chatroom from time to time. I am totally convinced the foul mouthed individuals were none other than Bob himself under "aliases" wanting to shut down the now "embarassing" thread that pointed out what was happening in the market. As far as I know none of those folks were seen before or after--and we all know he is not above saying some very weird things in assumed names on his posts or as an imposter in someone else's name.

-- posted by Will_L

Top 27. Jun 13, 2000 1:56 PM

» Will_L - Oops

I referred to another poster over there--instead of NC Owens both of whom I think probably are nice guys, but have a much differnt view on timing and Brinker than I do. The memory is the second thing to go smile

-- posted by Will_L

Top 28. Jun 17, 2000 7:58 AM

» wcwiii - Successful market timing (not for the average Joe)

One can be quite successful at market timing looking at purely technical indicators in the market!

Here's what my friends (PhD's in physics) who work in the field do...analyze short term data (often with a time scale of minutes) looking for statisticaly favorable imbalances that they can take advantage of by programming computers to give electronic trade instructions to their firms own brokers on the floor. They work in research teams, employ room-fulls of computers to acquire real time data, and have firms based in tax advantaged locales.

The end result for their clients who invest a minimum of $1M (less a 20% load that they can charge) is a fair return with virtually no risk. For the firm, it's not some much whether the return is 20% or 50% in a year; it's the fact that they can claim something like 29 or the last 30 months having a positive return.

I think this example sets the scale for what is needed for successful market timing.

-- posted by wcwiii