Confessions of a Market Timer


By Jim Wiandt

Matt Hougan shows his true stripes and opts for a long/short momentum fund.

Matt—thanks so much for showering us with your market wisdom. Truly, it was enlightening. I'll summarize: Oil could go up or it could go down, the market will likely rise somewhat and not completely implode, real estate seems to be bottoming, in the spring there will be growth... You have really put your neck out there, and first I wanted to let you know, and I'm sure that I speak on behalf of many, that your braveness is admired.

There was one tiny little thing, though. You concluded your blog with an astonishing endorsement of a long-short (momentum-based) commodities fund (NYSEARCA:LSC). And you base this call on the fact that "...the commodities market is not like the equity or bonds markets."

And how would that be, in that their prices go up and down in spurts of various lengths of time, sometimes with lots of volatility?

And the best part of all? Says Matt, "What's nice is that, unlike an inverse fund, should the market reverse course, LSC should eventually abandon its shorts and adopt a long policy."

That sounds like it came right out of the marketing materials for one of those thousands of "hedge" funds that have been tearing it up for investors in terms of performance just when they most needed it. The great irony is that Hougan, by and large, is a contrarian investor if he's anything. So it's really almost comical to see him jump on the momentum bandwagon.

The fund gets a 3-month run, and Hougan's all over it. Well, right here and now, I'm going to put out some of my own investment guidelines:

  • I suggest that anytime the market is going up, you go long, preferably with as much leverage as possible.
  • If the market is going down, I'd suggest going short, ideally with maximum leverage as well.
  • If stocks are flat and bonds are outperforming, I'd recommend a strong allocation to fixed-income.
  • Generally you should be overweight any really hot market, like one that has 50%+ annual returns.

Hougan—I think you really may be on to something here. Index investing doesn't need to be about boring old asset allocation, buy and hold; it can also be about which index you bet on in which direction, and when.

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