CM in MA

Market Timing Buries 'Buy and Hold' in Asset Allocation

Dr. K,

Thank you for the replies to my questions. I appreciate the time you took to provide the extensive answers.

CM


On May 14 07:31 PM Dr. Kris wrote:

> To CM in MA:
>
> Thanks for your insightful comments. Here's a response to the points
> you brought up:
>
> - Were transaction costs and taxes taken into account when calculating
> the returns?
>
> No. These are, of course, different for everyone. Within a mutual
> fund family the occasional movement in and out of an asset class
> can be done without charge. As to taxes, if you are holding your
> investments in an IRA there are none. Outside of an IRA you will
> be paying taxes on realized gains at a rate that depends on many
> things but that is still preferable to loss of principal. Taxes must
> be paid sometime. It's one of the two things you can be certain about.
>
>
> BTW, the SMC Analyzer does have the capability of adding these parameters
> along with others such as margin costs and account interest. <br/>
>
> - What is meant by the "averaging period is re-optimized every month?"
>
>
> This refers to the portfolio growth graph which is essentially a
> backtest of following the market timing versus the buy and hold strategies
> each month and then reaping the results of following the recommendations.
> Every month with the addition of new data the averaging period of
> the CCI for each asset class is re-optimized to maximize the effectiveness
> of its use in terms of portfolio growth.
>
> - Does it worry you that two assets with the following monthly Hi-Low-Close
> data (55, 45, 50; 100, 20, 30) yield the same "typical price" input
> into the CCI calculation? If these assets then had following months
> of (50, 40, 45; 70, 25, 40), the "typical prices" would again be
> the same for that month. Carry this on long enough and the deviations
> from the moving averages also become the same. Likely, perhaps not.
> But it raises the possibility that a very volatile asset can masquerade
> as a far less volatile asset. Would this affect your strategy?<br/>
>
> First of all, we are using asset classes here composed of many individual
> components hence the volatility intra-month should theoretically
> be dampened. Nevertheless, the analyzer uses only closing prices
> as a substitute for typical price. You do bring up an important point
> however. That sampling the performance of an asset class only at
> periodic intervals has a nonzero probability of misunderstanding
> its true characteristics. With 80+ years of monthly data available
> however there is a high confidence that the volatility of the asset
> classes used in the analysis is properly represented.
>