Market Timing Facts vs.
Market Timing Fiction
The phrase "market timing" has been terribly misused,
and misunderstood, by market commentators, analysts, traders
and investors.
A stock, ETF, mutual fund, commodity, is purchased with
the expectation it will be worth more over "time." It is
sold when the expectation is that its value will decrease
over "time." Any analysis intended to create a profitable
return on investing, is a form of market timing.
The fact is, no one buys a stock expecting it will be
worth less over time. They choose a time to buy it, based
on fundamental or technical analysis, and expect that over
time it will be worth more.
Market timers usually use index mutual funds and more
recently ETFs covering one or more of many possible markets.
They can time the S&P 500, the Nasdaq 100, Gold, small
caps, bonds, U.S. dollar, etc.
Timers purchase the index fund with the expectation that
it will increase in value. They sell the index fund when
they expect it will decrease in value.
Just about everyone trading the financial markets is,
in one way or another, a market timer.
If you think of market timers as crystal ball watchers,
well...there are some out there who believe they can forecast
the future. But we do not.
We use technical analysis to identify and follow market
trends and we do so quite successfully.
At Fibtimer, we specialize in trading index funds, as
well as sector funds, exchange traded funds, and even selected
stocks which tend to trend well and work profitably with
our timing strategies.
Tell Us Another Story
We believe that some of the worst advice, which is given
to the vast majority of investors, is to select an index
fund, set up an automatic deposit program to make monthly
deposits into it, and then do nothing until you retire.
At that time, so the logic goes, you will be rich from
the huge profits derived from your investments.
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Buy-and-hold say the experts.
Buy-and-hold say the advisors who profit from
your investment purchases though commissions.
Buy-and-hold say most mutual fund companies who
profit from load fees so numerous in variety it
would take too much space to list them all here.
Buy-and-hold say TV commentators and newsletter
publishers who's clients already own the stock.
Imagine for a moment an investor, following such
a buy-and-hold strategy, who planned to retire
in 2002 or say 2008.
Depending on the index fund, the value of his
or her retirement funds would be worth 50% to 80%
less after the 2000-2002 bear market.
And if they did manage to recoup some of those
losses, what happened in 2008-2009 when the stock
market again lost 50%?
"...the
markets will always go up and down, and
the majority of stocks in the market will
follow the current trend. Change is inevitable! " |
But those mutual fund traders who spent a little
time watching the markets, who used even a simple
200 day moving average to determine that their
fund investments were no longer performing well
and exited to cash, avoided most of the losses
and made money in money market funds.
Market timing doesn't work? Sure, tell us another
story.
Change Is Inevitable
Market timing is based on the fact that 80% of
stocks will follow the direction of the broad market.
It is based on the fact that the markets trend
over time, and have been doing so since the beginning
of freely traded markets.
It is based on the fact that change in the financial
markets is the one thing we can count on to always
happen.
Simply said, the markets will always go up and
down, and the majority of stocks in the market
will follow the current trend. Change is inevitable.
And here is the key.
While over the short term, financial markets can
seem very chaotic. Going up one day and down the
next, seemingly with no rhyme or reason. Over time,
they trend in huge up and down moves, easily seen
on historical charts. And those long term moves
can be traded profitably. Trend timers (trend traders)
have been doing it for years. Quietly making huge
sums of money while most investors, following the
emotional dictates of fear and greed, lose.
Either Take Action,
Or Go Along For The Ride
The best tools for making entry and exit decisions,
in order to profit during upward trends and safeguard
capital during downward trends, are technical analysis
tools. Fundamental analysis does not take into
account whether a stock is in a down trend or up
trend. It is of little use to market timers. What
counts is price. Is price rising or falling? Is
it trending? Technical analysis can give us the
answer.
As mentioned above, a simple 200 day moving average
would have kept mutual fund investors (and most
individual stock investors) from losing their shirts
in the 2000-2002 bear market. It also would have
saved them from losses during the 2008-2009 bear
market. Moving averages are very simple technical
analysis tools.
"You
either use a methodology that takes you
out of declining markets, or you tank right
along with the declining markets (along
with all the other buy-and-hold investors)." |
Obviously there are better tools than the 200
day moving average. Not everyone wants to wait
until a mutual fund has dropped below its 200 day
average. Much depends on a traders time frame.
Are they aggressive, conservative, or active? Their
emotional ability to handle losses is also a factor.
Gains can also be enhanced by aggressive traders
who are willing to use bear funds during declines.
In the case of the 2000-2002 bear market, our aggressive
strategies that use bear funds beat the market
by over 100%. In the 2008-2009 bear market, our
aggressive strategies beat the market by 59%. Even
our conservative strategies were safe in money
market funds.
But regardless of a traders choice of funds, whether
or not they are aggressive, conservative, or just
don't want to lose their shirts when the markets
tank, market timing is the only answer.
You either use a methodology that takes you out
of declining markets, or you tank right along with
the declining markets (along with all the other
buy-and-hold investors).
There is little choice. Either take action or
go along for the ride.
We are market timers here at Fibtimer and have
been for a very long time. We have realized the
profits, and have also been through the ups and
downs of many market cycles; bull, bear and sideways.
Exceptional results are made by following solid,
tested, non-discretionary timing strategies for
long periods of time. Poor results are the consolidation
prize for those who follow conventional wisdom,
park their brains on hold for decades, and let
the markets decide whether they retire rich, or
unfortunately, poor.
Recent articles from the Fibtimer market timing services;
© Copyright 1996-2015, Market Timing Strategies, Inc.,
All Rights Reserved.
Fibtimer reports may not be redistributed without
permission.
Disclaimer: The financial markets are risky. Investing is
risky. Past performance does not guarantee future performance.
The foregoing has been prepared solely for informational
purposes and is not a solicitation, or an offer to buy or
sell any security. Opinions are based on historical research
and data believed reliable, but there is no guarantee that
future results will be profitable. |