Market Timing: Should You Attempt It?

» Flava2004 - Re: A winning oddsmaker's '04 Dow call

-- posted by Flava2004

» Kirk - Best-perfoming letters of 2003

When I get the updated Long Term Performance Rankings from Mark Hulbert (probably in the next month), remind me to check out how these letters did over the last 5 years. Some really did poorly over the long term. Some other letters, like Bob Brinker's who is not on this list either, had more modest returns in 2003 but probably beat many of these letters over the last 5 and 10 years. Still, it is intersting to note how well some did.

The BEST newsletter by far, according to Hulbert's long term data, seems to be The Prudent Speculator

As of June 2003, According to Hulbert's Financial Digest Long Term Performance Ratings, the Prudent Speculator has these AVERAGE compound annual returns going back the periods listed (some of his portfolios do better and some worse than average): (Wilshire5000)

1st 6 months of 2003 - 34.1% (12.9)
5 yrs - 7.5% (-1.3)
10 Yrs - 21.6% (9.5)
15 Yrs - 17.7% (10.9)
Overall - 17.4% (12.6) [beasts Wilshire5000 by 4.8% annual percent per year!]

Impressive gains none-the-less.

Handing out the presents
Top-performing newsletters of 2003
By Peter Brimelow, CBS.MarketWatch.com
Last Update: 12:01 AM ET Dec. 25, 2003

Full Text

Exerpt from article:

Finally, the presence on the Top 10 list of Prudent Speculator (up 92.7 percent) tends to confirm that editor John Buckingham has succeeded in filling the shoes of the late Al Frank, who made the service a leader throughout the 1980s and 1990s.

Small caps, tech, sizzle. Don't look now, but it does seem typical of the start of a bull market.

The top 10 performers of 2003, as of the end of November:

Medical Technology Stock Letter, 120.3 percent

Fredhager.com, 119.8 percent

Gilder Technology Report, 118.4 percent

BI Research, 109.4 percent

OTC Insight, 106.8 percent

The Oberweis Report, 105.4 percent

The Market Radar, 104.9 percent

Nate's Notes, 101.6 percent

The Prudent Speculator, 92.7 percent

Coolcat Explosive Small Cap Growth Stock Report, 89.7 percent

Note: The Wilshire 5000 is up 26 percent

Year-to-date:
 
  Date       Kirk    S&P500   Delta
2003 YTD    +76.7%    27.5%    48.2%  as of 12/31/2003 
 

Total Return:
                                  Kirk   S&P500+  NASDAQ 
5 Yrs 12/31/98 through 12/31/03  171.0%  ( 3.0%)  ( 8.6%)
Annualized Annual Return          22.1%  ( 0.6%)  ( 1.8%) 
  
  	
9/30/98 Inception Value:   $100,000
9/30/03 5 yrs later value: $345,395 up 245.4%
S&P500 between 9/30/98 and 9/30/03: up   4.6%
12/29/03   $424,249 - up 24.7% since 1/1/00!
With dividends reinvested. All Numbers unaudited. 
Click for a free issue of my newsletter 
Suitable for the aggressive growth part of your 
diversified investment portfolio. 

-- posted by Kirk

» bob90245 - Paul Merriman discusses market timing

I read one of Normxxx's suggested articles from Paul Merriman's library. This part caught my eye:

This month I’m going to share with you a list of 10 keys to being a successful market timer. And I’ll tell you some uncomfortable truths about timing, what it’s really like when it’s not fun. But even the best tips in the world won’t be of any value to you unless you put them into practice. And no matter what you think, you probably won’t do that unless you have the right emotional temperament to be a timer.

Timing is not for sissies. Sometimes it takes strong faith and a strong stomach. I like this quote from the legendary Benjamin Graham: "To achieve satisfactory results is easier than most people realize. To achieve superior results is harder than it looks."

He concludes by saying:

The bottom line for me is that timing is very challenging. I believe that for most investors, the best route to success is to have somebody else make the actual timing moves for you. You can have it done by a professional. Or you can have a colleague, friend or family member actually make the trades for you. That way your emotions won’t stop you from following the discipline. You’ll be able to go on vacation knowing your system will be followed. Most important, you’ll be one step removed from the emotional hurdles of getting in and out of the market.

Now I know the alternative, buy-and-hold, is no 'walk in the park' either. So it's up to each investor to understand the strategy he chooses as best he can. A thorough understanding of the selected strategy will keep the investor on-course through good times and bad.

-- posted by bob90245

» allancoleman - Re: Paul Merriman discusses market timing

being a confirmed ' market timer ' , i especially appreciated your post and the link to Paul Merriman's article . thanks to Normxxx too for bringing it to your attention .

that article will be a ' keeper ' for my reference library to reread later when my market timing doesn't work . .

-- posted by allancoleman

» Normxxx - Re: Paul Merriman discusses market timing

Now I know the alternative, buy-and-hold, is no 'walk in the park' either. So it's up to each investor to understand the strategy he chooses as best he can. A thorough understanding of the selected strategy will keep the investor on-course through good times and bad.

Hear! Hear! The reason most 'investors' either chase the latest fad or buy and hold only during up markets (they invariably sell out at the bottoms and buy back in near the tops) is because they have no convictions about the market! Remember, "Bulls make money, and Bears make money, but Hogs don't make any" or casual investors, either, I suppose. Amateur investors decisions to enter or exit the market always seemed to me a little like a novice driver trying to merge with high speed traffic. At the beginning, he is extra cautious, but after an seemingly endless string of cars pass him by, he throws caution to the wind, and makes a mad dash for it.

But up until modern times, it was hard to be a TA type, since Wall Street was almost 100% "fundamental and B&H." And that was before MPT. At least MPT urges rebalancing-- not buy and forget! It wasn't until the late '80s and early '90s that Wall Street started hiring quants in quantity! Now they really use them (but mainly for their own accounts!)

-- posted by Normxxx

» Kirk - Re: Paul Merriman discusses market timing

I’ve read Peter Lynch saw many lose money in his Magellan fund because it too was quite volatile (high volatility means higher returns if you have good skills and/or are properly diversified) but you MUST HAVE the stomach to hold through the low points for it to work. The extra returns, especially from my methods, come from buying more shares of the most volatile stocks when they are very low and selling some when they are high.

For example, my top holding has been as high as $18 and as low as $5.62 this year. I sold shares as high as $16 and bought shares back as low as $5.85 for the newsletter portfolio. Currently the stock is just over $10 and down 17% YTD but my portfolio is “only” down 4% YTD. This should be a great time to be buying my stocks if people are bullish, because many of my stocks went up 200% or more from the bottom to their peaks in early 2004 so they corrected hard while the markets were consolidating this year.

Take a look at one of the sectors I like to invest in, the SOX (Semiconductor companies):

<img src=http://cbs.marketwatch.com/charts/int-ad... >

This sector, the SOX, was down 23% as of Christmas (12/25/04). A nice, added benefit from my portfolio is it ads some diversity to portfolios that track the markets. Most fund managers want to track the market and beat it some so they can’t afford to be “out of phase.” I think this hurts their longer term results but people like me with small followings can take advantage of buying up shares that are “mispriced” to sell later when the market realizes they were wrong. For example, now most fund managers don’t want to show stocks in the semiconductor sector in their portfolios since they are down. My guess is there will be a nice pop after the New Year in these stocks when fund managers buy them back to take advantage of the good valuations.

You would think people would say “I want to buy the stocks that Kirk likes since they have corrected the most, they have great fundamentals going forward and are now reasonably priced.” But people are saying with their dollars “I want Sirius radio at $10,000 in market capitalization for every subscriber” or “I want Google at $200 per share on the hope they eventually grow into their valuation and nobody comes along with a better idea before then.”

You can buy GOOGLE today with a PE of 231 and hope it grows earnings 10 times to get a P/E of 23 or buy my top holding in the semiconductor capital equipment market with a trailing twelve month PE of 23 today and a forward P/E of 14. The choice is a “no brainer” for me.

The market is made up of fools looking for “greater fools” so the job of wise investors is to find strategies to take advantage of this. A passive strategy using index funds and rebalancing as offered in these books below is one way to accomplish this.

• The Lazy Person's Guide to Investing by Paul Farrell: Critical Praise

• The Four Pillars of Investing : Lessons for Building a Winning Portfolio by William J. Bernstein
  “A Triumph! It is my candidate for the best investment book of 2002.”
  ---- John Bogle, founder of the Vanguard Group.

• Stock Trader's Almanac 2005 After you read the first two

Another strategy is to do a passive strategy for your “core” funds plus allocate 5 to 20% of your funds to following my newsletter portfolio. (I list several possible internationally diversified portfolios in my newsletter to build a core portfolio or build your own from the books above.)

As of 12/29/04, the Total Return for Kirk's Newsletter since 12/31/98 is 158%. Here are some more periods and comparative benchmarks:

 
              Kirk   S&P500  NASDAQ 
12/31/2002    +68%    +42%    +63%
12/31/2000    +34%     -3%    -12%
12/31/1998   +158%      7%     -1%

• Click for a free issue of my newsletter
  
• Suitable for the aggressive growth part of your diversified investment portfolio.

Even if you don’t market time or buy individual stocks, my newsletter offers quite a bit of useful information and tables (Discussion of interest rates, The Fed Model, etc.) which many say are worth the price of the subscription on its own.

Support Suite101 and Buy TurboTax Deluxe 2004 Win/Mac

-- posted by Kirk

» bob90245 - Off-topic to Kirk

Kirk, I clicked on your link "Support Suite101 and Buy TurboTax Deluxe 2004 Win/Mac". But the page displayed was not TurboTax.

-- posted by bob90245

» Kirk - Re: Off-topic to Kirk

Thanks. I fixed the link!

Support Suite101 and Buy TurboTax Deluxe 2004 Win/Mac

-- posted by Kirk

» BoltonCT - Market Cash Flow Timing

The cash flow and the velocity of money are the mechanisms supporting the movement of price.
Using a market cash flow index allows one to see the flow of money in or out of the market. The velocity typically picks up when a bull market is young and declines when the bull market gets old or when a bear market is underway.

The market is past the "decision point". Where it goes next will probably be discovered next week for most people. The institutions have pulled back more in the last two weeks than did the small investor primarily reducing selling thereby inducing the small investors to drive up prices or at least keep them flat through the end of the year.

But I got out of almost everything on Dec 8. I am now 20% in foreign equities, 1% long US and 18% short US equities. The rest is parked at lower risk... no bonds either.

Even as NASDAQ ended near its high for this year more, than 50% of the cash that went in during the last rally had flowed back out. At the current rate the sell signal will come by January 21, 2005. But once people realize the market is in decline, the exodus of cash will increase and the sell signal could come earlier..

The NYSE is in a similar cash flow exodus but it never had a normal inflow typical of other rallies. Low volume was a symptom of the muted amount of money behind the small bubble we experienced in many stocks in 2004.

The N225 has begun to rally but probably will also have another buying opportunity in January. It is likely that the coming decline in the American markets will delay the rally that started in Japan and bring down other world markets. There may also be a tsunami effect from the terrible losses the SE Asian people just experienced.

Most are predicting the first half of 2005 will be better than the second. I see the opposite because I already know the cash has been leaving the US markets. There are some stocks that seem so overbought that one has to wonder why people did not learn from the 2000 bubble (e.g. AMSG, AUDC, ARRY, CMGI, CREE, DOX, KEYW, SCUR, SRNA, to name just a few). Many people still believe the sales hyperbole about the magical IP some companies are claimed to possess.

I would not be surprised if the market drops quickly by 20% and then regains it all back in 2005. Shock therapy is better on investors than the torture of a slow decline. When it is a shock it is considered a sunk cost and just water over the dam.

However, this decline could be a Bob Brinker secular relapse and it is possible most of the year will be a bear market. When a decline is deep or prolonged it sometimes appears chronic and calls for a change in investment philosophy. I hope the decline is of the shorter kind.

-- posted by BoltonCT

» BoltonCT - Ridge walking

Japanese markets are rebounding and shorts are working well in the American market as one overvalued stock after another collapses. The energy stocks are the last to rise and they are about spent.

-- posted by BoltonCT