Criticism

~ Full Disclosure ~

We have a financial interest in promoting market timing strategies.

Most financial services professionals earn their money when you buy-and-hold their investments. Anyone giving you an opinion about buy-and-hold investing, or about market timing, should disclose which approach aligns with their financial interests.  A lot of the material promoting and criticizing market timing can be explained by considering the financial interest (and conflict of interest) of the author.  We found an unbiased publication from economists at the Kansas City Federal Reserve who published a market timing study in 2002.  They said

Few investment strategies have a worse reputation than market timing. Investors are told that their best strategy in stock investing is a simple buy-and-hold strategy… In fact, it is said to be so difficult [to time the market] that investors are better off not trying.

Contrary to this common negative perception of market timing, the Fed Economists concluded that

a few simple market timing strategies… worked well [from 1970 to 2000]. The simplicity and effectiveness of these strategies challenge the notion that market timing is inherently difficult.

Buy-and-hold promoters do research using widely accepted analytical techniques.  If these same techniques are applied to stock market index funds, is it not reasonable to conclude the analysis is just as reliable?  Market timers think so, and that is what we do.  The difference is in how the analysis is sold to consumers.  Most of the financial securities industry does this analysis to decide what to buy and when to buy or sell it.  They do the buying and selling inside a mutual fund and sell you on buying-and-holding shares of their fund.  Market timers sell you the signals from the analysis, telling you when to buy and sell.

The advantage to buy-and-hold is you can buy and forget about it.  The money managers do the work for you.  The disadvantage is the enormous size of the money in the mutual funds; it’s often millions of dollars.  If the money managers think the market is going down, it will take them quite some time to sell all their shares to avoid the downturn.  In fact, by the time they’re done selling, the market probably went down.  Anyone managing hundreds of millions of dollars will find it very difficult to sell high before the market goes down.  Hence the opinion that market timing is not possible.

The advantages of market timing are only available to the small investor.  Most of us have less than a million dollars, but based on the size of the market, even a few million dollars can be completely sold in a few minutes.  Individual investors have day jobs and are not experts in stock market analysis, and it doesn’t make sense for most of us to spend time becoming experts doing the analysis every day.  This is where a market timing service comes in.  Instead of paying fees to the mutual fund companies, you pay for market timing signals (also called forecasts).  This saves you the time of becoming an expert.  The disadvantage is you still have to spend a few minutes every day checking the timing signal and placing orders with your broker.

A good market timing forecast system will result in better performance versus buy-and-hold.  The extra few minutes and cost of using such systems can help you greatly improve the performance of your investment portfolio.  Hopefully this helps explain why there are so many conflicting opinions about market timing.

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