Market Timing Strategy

[GaryInCO]

Hilarious. You have a promising second career as a comedian.

Everybody seems to be having a wonderful time making fun of me and any concept of active management. Fine. I have no need to prove anything to you or convince anybody. I know this works -- I know many people who've done it very successfully for many years. If you don't believe it, that's your choice.

Obviously you are all very confident you have the ultimate answer and have no need to consider any alternate ideas. I won't waste any more time trying to discuss or document anything that challenges your dogma.

 

[REWahoo]

Well, believe it or not, over the last seven+ years it's just possible that there have been one or two other posters who have felt the same way and made similar statements. However for some reason they seem to have all drifted on to other things before sharing the ultimate results of their tempting strategies.

Some don't drift, they flounce...

I have no need to prove anything to you or convince anybody.

 

[Lsbcal]

I'm an indexer, and DCA and shoot for my percentage allocations to try and take my emotions out of the process. Even with that approach...something like the 2008 meltdown was difficult to bear (no pun intended) at times.

I do not know of any equity investment approach that does not involve pain.

With buy-hold you have those sickening down drafts.

With timing you have those occasional whipsaws which are a characteristic of all timing methodologies I've seen.

I think the pain exists because it's called the equity risk premium. Risk means occasional pain or the danger of it even if you haven't yet experienced it.

You just have to pick your poison and stick to your knitting -- sounds poetic.

 

[GaryInCO]

Some don't drift, they flounce...

If I throw a "so there, hmph!!" over my shoulder, does that increase my flouncing score?

 

[REWahoo]

If I throw a "so there, hmph!!" over my shoulder, does that increase my flouncing score?

I'm not sure. Maybe you should start a separate thread and post your flouncing activity so we can verify your results.

 

[easysurfer]

I do not know of any equity investment approach that does not involve pain.

With buy-hold you have those sickening down drafts.

With timing you have those occasional whipsaws which are a characteristic of all timing methodologies I've seen.

I think the pain exists because it's called the equity risk premium. Risk means occasional pain or the danger of it even if you haven't yet experienced it.

You just have to pick your poison and stick to your knitting -- sounds poetic.

Yes, poetic

From the rebalancing and surviving the free fall of 2008 came widsom. Also had to repeat to self (only a paper loss until sold, think of all the shares bought at discount). Then when the market did pop back up...sweet reward for sticking to it.

 

[ERD50]

Why debate it? Just start a new thread and post the trades/results each month. Follow the rules, no second guessing.

We'll see how it goes.

-ERD50

I'm not sure. Maybe you should start a separate thread and post your flouncing activity so we can verify your results.

Everybody seems to be having a wonderful time making fun of me and any concept of active management.


Obviously you are all very confident you have the ultimate answer and have no need to consider any alternate ideas. I won't waste any more time trying to discuss or document anything that challenges your dogma.

There's two votes for post the results. That's not making fun of the idea, it's simply a way to measure it. If it works (or not), we all learn something.


I'm always looking for alternatives. My B&H approach is due to a lack of alternatives I feel I can trust. I have no dogma in this fight. Let's just take a look, what's wrong with that?

-ERD50

 

[brewer12345]

I think you are crazier than a shthouse rat, but if it works for you it is all good.

Hilarious. You have a promising second career as a comedian.

Everybody seems to be having a wonderful time making fun of me and any concept of active management. Fine. I have no need to prove anything to you or convince anybody. I know this works -- I know many people who've done it very successfully for many years. If you don't believe it, that's your choice.

Obviously you are all very confident you have the ultimate answer and have no need to consider any alternate ideas. I won't waste any more time trying to discuss or document anything that challenges your dogma.

 

[kumquat]

I know this works

Any reason you ignored the question I asked?

...............

How long have you followed this strategy (not backtesting, but actually buying and selling based on these indicators) and how is it working for you?

I have an open mind but there seems to be a lack of first-hand data. Can you supply some?

 

[Nords]

Hilarious. You have a promising second career as a comedian.
Everybody seems to be having a wonderful time making fun of me and any concept of active management. Fine. I have no need to prove anything to you or convince anybody. I know this works -- I know many people who've done it very successfully for many years. If you don't believe it, that's your choice.
Obviously you are all very confident you have the ultimate answer and have no need to consider any alternate ideas. I won't waste any more time trying to discuss or document anything that challenges your dogma.

Well, you have a chance to establish the credibility of your method and perhaps yourself as well.

We see this type of behavior a lot: claim you have a market-beating method, post an example without links and with approximations, pick a strawman benchmark comparison that's easily beat (but rarely used), ignore poster's questions, and move on. Get annoyed when your claims are challenged, offer more anecdotal evidence that would hypothetically support your system, then despair in our disbelief. Maybe a poster or two will take the rest of the board to task for not being welcoming of new ideas, or for being too quick to say "no".

I think your credibility rests upon the documentary evidence, not upon your personal claims. How hard would it be to post a link to a back-tested system like that one? Even the guys at FundVision can provide better support for their methods.

But, hey, your approach is definitely a lot less work.

Like I said, if you want to turn this into a productive conversation then start a thread in the stock-picker's forum and document your claims. Otherwise I'm done here.

 

[LOL!]

OK, I'm up for the market timing challenge. I will post trades in the other subforum.

 

[GaryInCO]

Otherwise I'm done here.

I think I am too. As I said, I have no burning need to convert anyone.

And frankly when the reactions vary between "ho hum, more of this crazy sh*t again" and outright ridicule, with nary a response to the hard facts I posted, it appears very much to be a very closed-minded dogmatic bunch. You're all convinced you're right, and I'm not only wrong but only worthy of derision. So why should I bother?

kumquat, I have no long personal track record with this method -- or any other, quite honestly. Outside forces have prevented me from implementing anything consistently, plus I'm still learning. (Though as I say I know quite a few people who have run various timing/trading strategies for years, quite successfully.) I have no interest in trying to prove anything by posting realtime track records, since it would take many years to show anything.

Y'all are happy with what you know and (for the most part) you vary between "not interested" and "hostile" to approaches that don't match your answer. You've seen it all and are quite sure anything that looks like market timing is some form pathetic delusional disease. So I won't infect you any further.

 

[kumquat]

kumquat, I have no long personal track record with this method -- or any other, quite honestly.

That's my point. I have an open mind to things that might work or have worked in the past. Well, your's might work but you can't show it to have worked in the past. The "I know a few guys..." argument doesn't cut it. Get them to post what they did and the results and I might listen.

FWIW, I've done OK and not by following the AA and re balance method that most here use. I've probably taken risks that most here would consider downright stupid. I don't get dumped on because I don't suggest to others that they should do what I have done. I certainly don't suggest that others should do what I haven't done.

Jumping in with a "this is the way" post is going to raise hackles. If you had posted a "what about this strategy" reply, the reception may have been better. Let's see what the future holds.

 

[redduck]

Gary, Gary Gary,

As you may have discovered by now, the vast majority of the people on this board do not believe that market timing works--especially over the long run (I can't define "long run"). Anyhow, you come along and state you have a timing method that works. You came on a bit strong. So, maybe it's the way you delivered the message that's the problem (part of the problem)? So, while I also don't believe market timing works (but, for some reason, I still harbor a hope that it does work) what's my next step? What do I look for? But, keep it real simple: no head and shoulders/candlestick stuff. Full moon stuff I'm down with.

 

[DoraM]

Full moon stuff I'm down with.

Just making sure you *did* realize that the full moon comment was a joke.

One week before and after a full moon is exactly half of a typical month and so you would expect the market to be up an average of 50% in this time period.

 

[DoraM]

I am guilty of one market timing trade. Around earnings for certain tech companies, I will buy a in the money LEAP (long dated stock option) on a company expected to post good earnings (say like Apple for example) and then sell a closer dated option out of the money. I do this because there are so many people trying to make a killing on options that they will buy lots of pie in the sky out of the money options with a short duration.

I will give an example of two of my trades:

Bought 50 GLW Jan 2013 $12.50 call contracts for $5.30
Sold 50 GLW Jan 2012 $19 call contracts for $0.80

Net 4.50 paid per option calendar spread, profit at $19 = 44% plus remaining time value of 2013 leg...probably 50% total.

Bought 5 AAPL Jan 2013 $300 calls for $95.20
Sold 4 AAPL Jan 2012 $400 calls for $20.15

Net $75 paid per option calendar spread, profit at $400 = 33% plus remaining time value of 2013 leg...probably 40% total.

I consider both of these market timing because it gives me a chance for a 2012 recovery if the market goes south for a few months (the short leg will expire worthless and I can sell July 2012 options to create a new spread). If the market goes north, I still make 100% annualized and 80% annualized respectively. Even if the market falls 10% by Jan 2013 I should break even.

 

[rescueme]

If you believe in the religion of B&H, and you're sure that nothing can possibly beat it -- then good luck to you.

I don't need luck (it works, and has worked for me/DW, over an extended period of time, over the last 30+ years).

It's the proverbial old story of two men running from a grizzly in the woods (and I'm sure you heard of it).

I don't need to be faster than the grizzly - I just need to be faster than the other person the grizzly is chasing (in this case, the long term market returns).

Lucky? I think not. I'll change my tact (on my sailboat) on a constant wind, but I don't rig the sales to take advantage of a "transient wind".

Just my simple POV.

 

[utrecht]

I am guilty of one market timing trade. Around earnings for certain tech companies, I will buy a in the money LEAP (long dated stock option) on a company expected to post good earnings (say like Apple for example) and then sell a closer dated option out of the money. I do this because there are so many people trying to make a killing on options that they will buy lots of pie in the sky out of the money options with a short duration.

I will give an example of two of my trades:

Bought 50 GLW Jan 2013 $12.50 call contracts for $5.30
Sold 50 GLW Jan 2012 $19 call contracts for $0.80

Net 4.50 paid per option calendar spread, profit at $19 = 44% plus remaining time value of 2013 leg...probably 50% total.

Bought 5 AAPL Jan 2013 $300 calls for $95.20
Sold 4 AAPL Jan 2012 $400 calls for $20.15

Net $75 paid per option calendar spread, profit at $400 = 33% plus remaining time value of 2013 leg...probably 40% total.

I consider both of these market timing because it gives me a chance for a 2012 recovery if the market goes south for a few months (the short leg will expire worthless and I can sell July 2012 options to create a new spread). If the market goes north, I still make 100% annualized and 80% annualized respectively. Even if the market falls 10% by Jan 2013 I should break even.

I wouldn't call those trades market timing at all. They are trades based on your opinion of the direction that those stocks are going during a certain time frame but if you call that market timing, then every single trade made is market timing. My definition of market timing would be a person changing their fundamental long term AA based on what they think the market will do in the short term.

 

[ERD50]

Measuring against a benchmark is essential also.

During the Gulf oil leak, I traded BP/calls figuring it was over-sold on hysteria. I was pretty proud of the nice profit I made, yet, when I measured against the S&P B&H for that same period, I did slightly worse than B&H.

A friend trades options (credit spreads are a big part of it) and swears he's making a great profit. Yet, I can't get him to pin down any % numbers versus a benchmark. He won't acknowledge the risk he's taking ('the odds of xyz stock going down that low in that time frame are almost nil!'), and doesn't think that even the S&P is a good benchmark ( 'that can go down 30% - not me!'). Good luck, I say.

edit -

I wouldn't call those trades market timing at all. They are trades based on your opinion of the direction that those stocks are going during a certain time frame ....

Agreed, those and my BP example are what unclemick calls 'testosterone trades'


-ERD50

 

[DoraM]

buy and hold, you are only going to get about 9% return. after inflation, about 6%.

if you want more return, either you must leverage in some fashion (my option plays are leverage but you could also buy on margin) or find a much riskier asset like penny stocks or junk bonds.

I prefer leverage, and if I cap my profits at a reasonable amount I can eliminate the time premium or even make it work slightly in my favor by using the calendar spreads. I keep 80% of the portfolio in the boring 9% return index though (well actually more like 50% stock index, 30% bond index, 20% leveraged trading).

A decent year might show:

50% * 6% + 30% * 3% + 20% * 80% = 19.9% real return

versus a 50% bonds 50% stock decent year real return of:

50% * 6% + 50% * 3% = 4.5% real return

A flat year for my portfolio might show:

50% * 0% + 30% * 3% + 20% * 20% * 30% = 6.9%

versus a 50% bonds 50% stock real return of 1.5%

And a horrible year where the market drops 25%?

My portfolio:

50% * -25% + 30% * 2% + 20% * -80% = -27.9%

versus a 50% bonds 50% stock real return of -11.5%

Is the risk worth the return...hard to say. Depends how many -25% market returns we get over the next 20 years.

 

[Lsbcal]

Regarding market timing I'd suggest a few ways of testing your results before putting your fortunes down on the system. WARNING: details ahead.

Suppose you use the monthly data from the SP500 from 1950 to present for investigate approaches. First you have to add in dividends (which you can get from Schiller's data). Now you come up with a scheme based on some momentum criteria and maybe even have a valuation factor like PE10. Let's say you come up with a CAGR for the 60 year period that beats the buy-hold CAGR by 2% per year. That is really good even though there are a few whipsaws. Any if you really do things right you have maybe only 1 trade every 3 years or so.

But there is more testing to go. You can construct another data series using not just the 1st trading day of the month but also the 6th, 10th, and maybe 16th trading days (trading days in month average 21). That is you can have a total of 4 separate series. Now you find that some whipsaws not seen in the first case are present in the other series. This drops your CAGR a bit but also is a caution that you might someday be on the wrong side of the market for a few months. That is reality #1.

But wait, you are still not finished testing. Now you gather up the French Fama data set and use the appropriate parameters for the SP500. Now you can back test to the 1930's with one monthly data set. Did it work in the Depression years? How did it do in during WW2? That is reality #2.

There's a little more testing to go but I think if you've read this far you might get the point of this post.

P.S. I've done this sort of testing ... but I like details

 

[Gumby]

During the Gulf oil leak, I traded BP/calls figuring it was over-sold on hysteria. I was pretty proud of the nice profit I made, yet, when I measured against the S&P B&H for that same period, I did slightly worse than B&H.

I would call this an "event driven" strategy, not market timing. I put some cash to work and went long GE in the wake of the Fukishima accident for the same reasons.

 

[samclem]

I'm sure folks would have fun setting up their model portfolios based on their systems (technical analysis, fundamental analysis, lunar phases, etc), and it would be fun tracking the horse race over time, but would anyone be convinced by the results? After a decade, would everyone say "Yep, George's system is best. It will provide the best returns going forward." The time period will always be too short and the inability to know if future market conditions will be the same as those over the trial period will cast doubt on the enterprise. And the "Yabuts" will proliferate ("Yabut, if I changed my moving average period from 200 days to 227 days, I would have had results better than George.")

 

[Nords]

I'm sure folks would have fun setting up their model portfolios based on their systems (technical analysis, fundamental analysis, lunar phases, etc), and it would be fun tracking the horse race over time, but would anyone be convinced by the results?

I'd do what I already do with other documented results: do my own due diligence and put some money into it.

If I liked the experience (profitable as well as compatible with my risk appetite and my lifestyle) then I'd do more. At about 10-15% of my asset allocation I'd say "Hey, this seems to be working" and I'd be convinced.

If I didn't like the experience then I'd file it under "Lessons [-]Re[/-]Learned and keep searching.

Some of these investing experiments took me a couple years to arrive at a conclusion. Others have been running for four years and will probably not conclude for at least another 10.

 

[easysurfer]

I think I am too. As I said, I have no burning need to convert anyone.

And frankly when the reactions vary between "ho hum, more of this crazy sh*t again" and outright ridicule, with nary a response to the hard facts I posted, it appears very much to be a very closed-minded dogmatic bunch. You're all convinced you're right, and I'm not only wrong but only worthy of derision. So why should I bother?

kumquat, I have no long personal track record with this method -- or any other, quite honestly. Outside forces have prevented me from implementing anything consistently, plus I'm still learning. (Though as I say I know quite a few people who have run various timing/trading strategies for years, quite successfully.) I have no interest in trying to prove anything by posting realtime track records, since it would take many years to show anything.

Y'all are happy with what you know and (for the most part) you vary between "not interested" and "hostile" to approaches that don't match your answer. You've seen it all and are quite sure anything that looks like market timing is some form pathetic delusional disease. So I won't infect you any further.

Gary,

Most folks here (and conventional wisdom outside of this forum) says that market timing does not work as a long term strategy.

Not saying that someone can't come up a winning strategy timing the market for a quick return...but consistently, following a system, people are still looking and looking...
Since conventional wisdom says market timing over a long period of time does not work, it's only natural to be skeptical when someone says they have "the system."

It's similar to as if you said, offense wins world series in baseball or you don't need a good quarterback to win a superbowl. Conventional wisdom says pitching wins championships and yes you do need a good quarterback to win superbowls. There were exceptions in the past, but they were not the norm.

In my opinion, it is so much easier to shoot for the easy (and safer, in my opinion) way and not do any market timing.