V.12:12 (507-510): Three Market Timing Strategies by Daniel J. Traub

Three Market Timing Strategies by Daniel J. Traub

Does market timing work? It depends on how you measure the results, according to this market timer. Here are three simple market timing strategies to help you understand the basics of market timing.

Market timing may be the fastest-growing investment strategy of the 1990s. In 1993, Society of Asset Allocators and Fund Timers (SAAFTI) members reported growth rates in managed assets ranging from 25% to more than 200%. Driving that growth has been increasing awareness and visibility of professional market timers, a continuing assault on the efficient market hypothesis and general investor uncertainty. Today's investor faces a classic catch-22; since the last bear market in summer 1990, the best returns have come from the stock and bond markets. Yet bear markets exist and their impact over the years has resulted in the buy-and-hold investor spending more than 60% of the market's gains just making up lost ground.

Does market timing work? The answer may depend on how you measure the results. Market timers typically measure results on a risk-adjusted basis (excess return of a portfolio given the level of risk assumed). A SAAFTI study of 25 investment advisors managing client assets with timing strategies indicated that the advisors were successful in producing superior risk-adjusted returns. Market timers regularly lead the rankings of investment advisors, particularly in the low-risk category.