I refer to the article below that appeared in the print and online editions of the Australian Financial Review on Thursday 20th November 2014.
Philip wrote this article in response to a journal that I posted on Wednesday 12th November 2014 in the Gary Stone Journal:
With respect, Philip Baker totally missed my point and hence also totally missed THE TRUTH.
If there is any doubt let me restate my point using different more direct language. Using the research that I put forward in my Journal post on Wednesday 12th November 2014 what investors should actually do is this:
“TIME THE MARKET TO MISS THE BEST DAYS.”
This is the exact opposite of what Fidelity and most other large mutual/managed funds say which is:
“Don’t time the market otherwise you will miss the best days.”
Like so many things in the financial markets this is yet another paradox where the opposite of the widely propagated popular belief is actually the truth.
What my research shows is that by missing the best days an investor will also miss the worst days. And by missing both the best and worst days, investment returns will be better than being in the market for the best days.
This is the absolute truth. It is fact. There is no debate about this point. The numbers prove it.
So the investing goal should be to miss the best days, not to remain in the market to enjoy them as in doing so investors will also experience the worst days and all the dismay and disappointment attached to that.
Anyone can do this exact same research by downloading data from Yahoo and doing some simple spreadsheeting.
Philip twists the evidence that I provide and tries to use it to say that the market can’t and shouldn’t be timed and states that:
“They were so bunched together it was just way too hard to trade in and around them.
It’s all a reason to say market timing is a wicked idea. Don’t try it – ever, some would say.”
C’mon Philip, can you be objective for a nanosecond and realise this simple fact: it’s because they are so “bunched together” that it makes it far simpler and very possible even for low skilled active investors to miss BOTH THE BEST AND THE WORST DAYS.
Timing doesn’t have to be in and out of the market from one day to the next, which I wholeheartedly agree would be a “wicked idea”. It can and should be in and out of the market many weeks or even many months apart.
It is not just my research of timing the market that has demonstrated that it can be done but the research of many successful boutique and even large fund managers in the United States that demonstrate this with detailed empirical evidence.
For example, long time value investor and fund manager, James O’Shaughnessy, and author of many editions of “What works on Wall Street” shows that momentum timing massively outperforms using only value investing.
And that’s using just one timing technique, of many, called relative strength. So much so that this value investor’s best current strategies include timing as an inherent part of his recommended best strategies. One momentum timing strategy outperformed all other strategies by such a huge margin that the market would not have been big enough to sustain the size of the portfolio! His research data spans 84 years since 1926!
I could name many others, maybe another blog topic for another day.
In fact I’m writing a book on the topic and will be releasing a new method to go with the book next year based on being invested in a single index at any given time whereby anybody with a few thousand to a few million dollars to invest from ages 28 to 82 will be able to time the market using a simple strategy to ensure that they MISS THE WORST DAYS in the market. Sure they’ll also be missing the best days too but in so doing will achieve far better returns than any index and hence fare far better than nearly all fund managers over time. And do so spending as much time each week as they spend brushing their teeth
A simple question to finally ram home the point that timing works. What is the best known investing strategy on the planet?
Some clues: It uses timing – objective non-discretionary timing. It uses absolutely no value investing principles whatsoever, from Graham, Buffett or anybody. Every quarter around ⅔ of fund managers in Australia and the United States underperform this strategy and over many quarters there are only a handful from many thousands of fund managers around the world that can manage to outperform it.
It’s the S&P500 index.
And it uses a simple timing strategy based on dropping the laggards out of the index as their prices fall and identifying new stocks and investing more into those whose price is rising. Yes, simple momentum based on just one criterion, market capitalisation, which is simply price x issued shares.
Outperform this index by a few compounded percentages points per annum over many years using some simple well-known timing techniques, and by being in cash during large bear markets, and you’ll outperform 99% of the so-called investing professionals who tell you that you can’t time the market. As do their hangers-on tell you.
Don’t believe them….. you can time the market in simple ways to outperform the funds!
And you may have many 100’s of 1000’s of reasons over an investing lifetime to grow your knowledge and skills to do so.