Market Timing: Should You Attempt It?

Top 220. May 3, 2002 7:24 AM

» Rande - Re: Re: Re: `Buy-and-hold' stock strategy may be outdated

In response to message posted by Kirk:

One good point is that buy-and-hold does not mean buy-and-forget. Ongoing monitoring is certainly required since market dynamics may cause certain asset classes, sectors or styles to stray from strategic allocation guidelines. The disciplined approach automatically requires that the investor buy low and sell high, in effect, as part of the periodic rebalancing that goes with the territory. Discipline and a long-term perspective are key, as it's difficult for most to ignore the current bullish or bearish shouting and arm waving. Without a well-thought-out plan in place to begin with it's impossible.

-- posted by Rande

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http://www.siliconinvestor.com/stocktalk...

Top 221. May 7, 2002 7:37 AM

» Kirk - Briefing.com's Robert Walberg Capitulates

Below is Briefing.com comment on the market at the moment. Thought it was worthwhile to keep a record here.

Tech Stock Analysis

Updated: 07-May-02

General Commentary

On various occasions over the past couple of months, Briefing.com outlined the rational behind its bullish call on the market/sector... Last week when the Nasdaq broke well below pivotal retracement support at 1658, we admitted to being wrong - at least over the near-term... While we remain puzzled by the degree of despair and the scope of the selling, we also recognize the futility in fighting the tape.

The ongoing weakness, especially in the large-cap names such as IBM, EMC, Sun Microsystems, Microsoft, Intel, Oracle, Veritas, Dell Computer, Siebel Systems, AT&T, Nokia, Qualcomm, Cisco, Micron Tech and Verizon, is indicative of capitulation on the part of institutional investors... And with retail interest in the sector depressed by the brutality of 2000-2001 retreat, there's just nobody there to absorb the selling.

The reasons for the selling are numerous. They include but are not limited to: no new must have products to generate excitement, overvaluation, lack of end-user demand/sluggish IT spending, global economic slowdown, anemic sales/earnings growth, aggressive accounting practices, unwieldy debt (especially in telecom sector) and miserable momentum.

At some point buyers will return, but given the technical damage done over the past week, the still uncertain economic/earnings outlook and poor seasonals, the questions are when, and with how much conviction. Buying could emerge as early as today, or not for another couple of weeks, or another 100 to 200 points.

Trying to pinpoint the bottom in a one-way market is virtually impossible... So instead of offering opinions on which support levels may hold or belaboring the big picture problems, Briefing.com will try and highlight those situations that look attractive for the long-term.

Robert Walberg

-- posted by Kirk

Top 222. May 7, 2002 3:48 PM

» KLR - SY HARDING SITE

The fact is that buy & hold investing doesn't work in the long run. It only becomes popular after long rising bull markets have eliminated investors’ normal understanding of market risk.

For instance, buy and hold investing was out of favor for the entire 20 years prior to the beginning in 1982 of the recent bull market. And for good reason!

After all, from 1962 to 1982, the market had numerous rallies and corrections of 25% to 45% for market timers to take advantage of. But for buy & hold investors the Dow gained just 43 points (5%) in 20 years. Yes, that’s only 1/4% per year. See chart at left.

With such little upside, yet hit by numerous 25% to 45% declines, virtually all buy & hold investors gave up on the strategy, usually with large losses at one of the correction lows.

Market timers, however, thrived. Those 25% to 45% corrections and rallies provided wonderful opportunities from both up and down markets. Buy & hold was ridiculed. Market timing was king.

Buy & hold investing was also out of favor for the first 12 years of the recent long bull market. Again for good reason; Serious corrections in 1981, 1983, a crash in 1987, and a bear market in 1990.

However, thanks to the unusually one-sided bull market from 1995 through 1999, Wall Street was again able to convince investors that a buy & hold strategy is a viable strategy.

As usual, it was not, particularly for the Nasdaq, which in 15 months plunged 67%.

How long will it take buy & hold investors to get back to even? 3 years? 5 years? 10?

THE MARKET ALWAYS COMES BACK? Brokerage firms say "the market always comes back", without pointing out that they don’t always come back within an investor's lifetime.

It took 26 years after the 1929 crash, until 1955, for the market to come back. Ten years later, in 1965, the Dow hit 1000 for the first time.

It then declined 35%, and it was 16 years, in 1981, before it came back to 1000 and began to exceed that level. That's a total of 42 years out of the last 70 that buy and hold investors would have been waiting for the market to 'come back'.

No wonder buy & hold is ridiculed by experienced investors.

By the way, it isn't even the same stocks that come back. Many leading stocks in one bull market are nowhere to be found in the next. That's because the Dow and S&P 500, which supposedly prove that the market always comes back, are constantly undergoing changes that make that claim absolutely silly.

As stocks within the indexes falter, they are replaced with newer, stronger stocks that more accurately represent the economy at the time. For instance, 43% of the stocks that were in the Dow 10 years ago no longer are in that index today.

In the meantime, since 1900 there have been 29 corrections, or one on average of every 3.4 years, with declines that averaged 31.2%. The 9 worst averaged declines of 49.1%, (one of those monsters on average of every 10 years).

By definition a buy & hold investor is guaranteed to suffer every one of them.

-- posted by KLR

Top 223. May 7, 2002 4:16 PM

» Fred2000 - Re: SY HARDING SITE

In response to message posted by KLR:

"In the meantime, since 1900 there have been 29 corrections, or one on average of every 3.4 years, with declines that averaged 31.2%. The 9 worst averaged declines of 49.1%, (one of those monsters on average of every 10 years)."

Yet in the last 60 or 70 tears, the average annual return was 10 to 11 percent.

At the average return, the value today of $10,000 invested 65 years ago would be almost $9 million. Tell me more.

-- posted by Fred2000

Top 224. May 7, 2002 4:29 PM

» Kirk - Re: SY HARDING SITE

In response to message posted by KLR:

SY Harding went net short on Monday:

mutual fund portfolio:
35% invested long, in the utilities and
50% invested for the downside, in the Rydex Ursa fund, and
15% in cash

It will be interesting to see if he makes money or gives some back.

-- posted by Kirk

Top 225. May 7, 2002 4:44 PM

» mdorsey - Re: Re: SY HARDING SITE

In response to message posted by Fred2000:

I know of no one with an investment horizon of 65 years. My maximum time frame is 30 years. By then I will be dead. Quoting returns of rolling time periods of 5,10,15,20,25 or 30 years would be much more useful.

-- posted by mdorsey

http://www.geocities.com/bob90245/peaks1...

Top 226. May 7, 2002 7:53 PM

» bob90245 - Re: Re: Re: SY HARDING SITE

In response to message posted by mdorsey:

Here’s an article I wrote on the subject:

And here’s a useful spreadsheet (ZIP file) that shows the returns for the S&P 500, Intermediate-Term Government Bonds and 90 Day Treasury Bills from any period from 1926 to 2001:

http://www.suite101.com/files/mysites/bo...

-- posted by bob90245

http://online.wsj.com/barrons/article/0,...

Top 227. Jun 30, 2002 12:09 PM

» Kirk - Barrons THE NEW RULES OF INVESTING

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Let me see.. they sell a Magazine to help you time the market. smile

THE NEW RULES OF INVESTING [from Barron's cover
http://www.siliconinvestor.com/stocktalk...

1. Forget the Old Rules. The buy-and-hold mantra that was drilled into investors' psyches by the bull market of the 'Eighties and 'Nineties no longer leads to nirvana. One can't buy the dips anymore and expect to be bailed out. Just look at what has happened to all the bottom fishers over the past two and half years. Most are now losing money with little prospect of any appreciable rebound.

2. Trade the Ranges. Over the next five to 10 years, the stock market is likely to be caught in a trading range, held in check by high valuations and anemic earnings growth. Good tops for that range might be the 2000 highs for the Dow and S&P of 11,722 and 1540 respectively, though it's likely that the two market measures have yet to reach their current cycle lows. Once a range seems to be established, it can be traded, though the terrain could be treacherous for non-professionals. Some investors made a decent living between 1966 and the early-Eighties buying stocks whenever the Dow sank to around 800 and selling out when the average approached 1000. The Dow traversed this no man's land six times during the period.

3. Yield Matters. Embrace stocks that pay healthy dividends. A bird in the hand is better than two in the bush, even if dividends are taxed twice -- and legislation may change that. Healthy dividend payments also indicate that companies are generating real earnings rather cooking the books.

4. Diversify. Bonds prices are no longer moving in lockstep with stocks, which makes tactical asset allocation, or swinging between the two asset classes, even more attractive. Besides, diversification always makes more sense in trying stock market periods.

5. Shun the Old Favorites. Forget technology for the time being. Groups like gold and energy stocks had mega moves in the early-'Eighties, then didn't play again for a decade or more after their blow-offs. Yet investors will lose a ton just trying to recapture the excitement and adrenaline rush of once-in-a-lifetime bubble moves.

-- posted by Kirk

Top 228. Jul 1, 2002 11:17 AM

» CaptRon - Re: Barrons THE NEW RULES OF INVESTING

In response to message posted by Kirk:

Doesn't mean the info is wrong, Kirk....
More on B&H from The Streets Rev...:
(bold my add)

Email James "RevShark" De Porre at RevShark@aol.com.

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Selling Is Your Best Friend
7/01/02 12:52 PM ET

"A good scare is worth more to a man than good advice."
-- Edgar Watson Howe

Now that some of the indices are back to levels where they were four or more years ago, and we are down 70% or so from the highs, we are suddenly seeing a flurry of advice about how buy-and-hold investing might not be such a great idea. This weekend Barron's even had a cover story with the cutting-edge observation that buy-and-hold isn't working.

A number of other publications and personal finance "gurus" are also discovering that it isn't such a good idea to try to be a Warren Buffett with a holding period of "forever." We even have the Motley Fool, the poster boys for blindly holding on to stocks, now trying to sell advice about when to sell a stock. The guys who sat idly while they watched huge gains disappear have now found religion.

Years ago, when I adopted the screen name RevShark, my goal was to "save souls from buy-and-hold." My primary point back then, which is even more clear now, was that finding a stock to hold for the very long term is much harder to do than finding an effective and profitable trading style. Discovering the next Microsoft is a lot harder than trading the stocks that aspire to that title.

Warren Buffett himself has said you might only find a handful of opportunities in a lifetime worth holding forever. The pied pipers of buy and hold would have you believe that virtually any stock, especially the well-known big-caps, have the potential to be big winners over the very long term. You just have to be patient, buy the dips and hold on.

The truth is that selling is your best friend. Selling is simple, easy and cheap. It can be easily reversed. It is not a dramatic or monumental event. It is the way to stay safe. Learn to do it.

Many folks simply can't handle re-buying a stock after they sold it at a lower price. In many cases that is the best way to make sure you have the odds in your favor, rather than simply continuing to ride a stock down that is falling apart.

Learn to sell, and do it often. It will make you a better investor and trader. If buy-and-hold were so easy, there would be a lot more Warren Buffetts in the world.

-- posted by CaptRon