Market Timing Strategy

[GaryInCO]

If anyone is still watching: September has closed out, and the entire bar was below the 12-month average. This model has now officially switched to a "bear" mode. In the past 50 years a "short trade" in bear mode would have won only 1/3 of the time, but that's because many of those 50 years were during a hyper-bull market. In a bull market the "bear" signal might miss a little bit of the resumption of the bull move, but it tends to reduce the volatility of the portfolio. In a bear or sideways market, the "bear mode" can avoid significant drawdowns.

For anyone wondering, I've lightened up my stock positions considerably, dropping some stocks that had already lost quite a bit and I should have exited weeks ago. Many of my remaining stocks are metals and mining stocks, which are getting hit but should do OK if gold/silver wake up again, energy stocks, and high-dividend REIT stocks like NLY. I also have some SDS (-2x SPY) and FAZ (-3x financials) which are doing OK as the market tanks. Those are basically hedges on the rest of the portfolio.

I haven't been spending much time here lately -- too many other demands on my time. Now that the model has switched modes, I think I'll bow out. Cheers all.

 

[samclem]

I was finally woo'ed over to technical analysis and now my guru has abandoned me. I guess it's back to plain old rebalancing.

Gary, thanks for taking the time to post. Good luck with the system(s).

 

[REWahoo]

I'm confused - did the system work?

 

[ER Man]

For retirement accounts and very long term investing, I do NOT time the market. I stick with a plan.

For short-term investing, timing is important. You can use Options Trading also for that.

 

[clifp]

I'm confused - did the system work?

I think we will know another 6 months or so. If the market continues down from here then the sell signal would have been a timely one. Obviously it would have been better if the signal had come at the end of Aug. but...

If other hand the market is up before we get the a buy signal than it would have cost you money.

 

[ER Man]

Anyone do Options Trading?

 

[Nords]

I haven't been spending much time here lately -- too many other demands on my time. Now that the model has switched modes, I think I'll bow out. Cheers all.

And... there goes another diehard market timer, in search of greener [-]suckers[/-] pastures.

Somehow they never stick around to explore all the parameters of their models, let alone let Mark Hulbert review their tax returns. At least Dixonge had the guts to stick around and preside at the post-mortem.

I'm confused - did the system work?

I think if it had worked then you'd have heard all about it.

When the market opens on Monday I need to take a good hard look at the prices on selling Berkshire puts. I've been "too busy" to get around to it, but maybe this could help pay for some of the home improvement project that we've been so busy with.

 

[target2019]

I am a participant and observer for about 5 years now. Before that time, I let it all ride, and cannot say for sure if that was better strategy for me than market timing, rebalancing, or whatever others may follow.

I read quite a bit, and also follow several discussions long-term on Morningstar.

My personal experience is that you can mitigate the downside by using timing signals. However, how do you get back in? That is vastly difficult if you have job(s), family, etc. It is not possible for many of us to successfully follow through with attention and execution when funds pierce a timing signal. If you execute a sell, you can miss a serious run-up.

Treating all investments as a single portfolio also presents challenges. In this month alone, there are two major changes to my 401(k) and wife's 403(b). These are structural, and for a period of time I am actually not permitted to make changes to a large portion of 401(k).

For now, I am quite content to buy low in my 401(k), keep reading, and perhaps use some technical indicators if I ever get to retire.

 

[Snidely Whiplash]

September has closed out, and the entire bar was below the 12-month average. This model has now officially switched to a "bear" mode.

I was intrigued following this thread and the strategy presented. Not to bust on GaryInCO but anyone who was tempted to give this system a whirl at the end of September really shot themselves in the foot by going into "bear" mode and missing this spectacular October rally.

 

[REWahoo]

I was intrigued following this thread and the strategy presented. Not to bust on GaryInCO but anyone who was tempted to give this system a whirl at the end of September really shot themselves in the foot by going into "bear" mode and missing this spectacular October rally.

It has been almost a month since GaryInCO last posted and a couple of weeks since he last visited the board. If he follows the typical path of the folks who post here about their market timing system and run into problems, we will not hear from him again.

Should he prove to be one of the very few exceptions and post again it will be interesting to see what he has to say.

EDIT: There was a one month interval between his last posts, so maybe he'll be along soon for an update.

 

[urn2bfree]

I will just point out that my adjusted DCA strategy of buying a small amount every month but increasing it every time a month is down worked beautifully again. This ratchets up each and every down month. The longest down streak in history is 9 months. By that time the monthly investment gets pretty big compared to the base 9 months earlier, but then pays off bigger when the market turns positive as it always eventually does...and the you go back to the low base amount.

 

[haha]

I was intrigued following this thread and the strategy presented. Not to bust on GaryInCO but anyone who was tempted to give this system a whirl at the end of September really shot themselves in the foot by going into "bear" mode and missing this spectacular October rally.

You are certainly corrct about what happened in this instance. But it really means nothing. Even quite valid systems will often give misleading signals. That is why they may stiill work. They do not work all the time, just well enough to beat buy and hold over time.

Ha

 

[arebelspy]

I was intrigued following this thread and the strategy presented. Not to bust on GaryInCO but anyone who was tempted to give this system a whirl at the end of September really shot themselves in the foot by going into "bear" mode and missing this spectacular October rally.

Yeah, it seemed to switch really late (to bear when in bull) then only switch right before the rally. Ha makes a good point though, long term is the important results.

I will just point out that my adjusted DCA strategy of buying a small amount every month but increasing it every time a month is down worked beautifully again. This ratchets up each and every down month. The longest down streak in history is 9 months. By that time the monthly investment gets pretty big compared to the base 9 months earlier, but then pays off bigger when the market turns positive as it always eventually does...and the you go back to the low base amount.

Sounds like the martingale gambling "system."

 

[haha]

Yeah, it seemed to switch really late (to bear when in bull) then only switch right before the rally. Ha makes a good point though, long term is the important results.



Sounds like the martingale gambling "system."

You are correct. However one difference may be that stock market returns over a reasonable time period seem to be mean reverting, rather than random.

It is still a risky strategy unless the investor has an unlimited bankroll and unlimited nerve. Return to the mean strategies can get you killed. For example, one strategy that made good sense and held up for many years has been killed over the past few years. Anyone who doggedly persisted would be broke. That is natural gas futures vs WTI. Shale gas has turned that one into a big time loser.

Another example though less dramatic is WTI vs Brent.

Ha

 

[urn2bfree]

Not quite the same as martingdale which doubles every turn and is always random in a system with no memory. You dont have to double the bet, because you dont usually lose all your monthly input each month. Also the market does have memory- which is why you rarely have long streaks one way or another because of corrections, etc. Not the same as a random dice toss or roulette wheel which can go against you everytime forever. You do have to accept lower returns in up markets. You do have to have a steady money supply. So far never have their been mote than 9 down months in a row and those are rare and followed by big gains.

 

[nun]

Surely nobody does pure B&H you have to include rebalancing. I DCA into low cost mutual funds and maintain a 40/60 AA. If that diverges by +/-5% I reallocate....although I don't like to rebalance more than once a quarter so in highly volatile times I'll let things drift a bit more but never by more than 10%. How a particular strategy performs depends greatly on the time period that modellers choose, but using a %age divergence trigger forces you to sell the gaining sector and buy the falling sector. It worked well through the down turn.

 

[GregLee]

Surely nobody does pure B&H you have to include rebalancing.

With suitable qualification ("nobody who is a knowledgeable investor ...") I suppose that might be so. But I do pure B&H, since I have never in my life sold a security except to spend the money on something outside of my portfolio (house down payment, e.g.). To the small extent I balance stocks versus bonds, I do that by buying the one I think I don't have enough of. But I don't sell either.