Market Timing Vs. Conventional Wisdom

Feb. 04, 2012 8:46 AM ET
TimerFrank profile picture
TimerFrank's Blog
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Contributor Since 2009

Frank started market timing in 1982 when the Federal Reserve cut interest rates and sparked the 1980’s bull rally. Realizing that this rally could have been forecasted, he began to search for indicators which had similar forecasting ability. Within a year, his first newsletter was launched, “Growth Fund Strategies Report” which used a market timing strategy consisting of changes in interest rates, Fed changes, Market breadth and market price (using the S&P 500 Index). The strategy was hugely successful and issued a major sell signal on September 10th, 1987, just five weeks before the market crash on October 19th. In 1996 his first market timing website was launched. “Market Timer Report” used a refined strategy to market time the general U.S. stock market, and followed a variety of growth stock mutual funds. It was geared towards more conservative mutual fund investors and averaged only one to two switches a year. By the end of the 1990s, the strategy was refined to one that followed market trends instead of using interest rates and breadth on which to base market timing decisions. Because trend following never missed major trends trends, and those trends which failed resulted in minimal gains or losses, it became apparent that this was the better way to profit in what was quickly becoming a hugely overbought stock market. The bear market of 2000 through 2002 generated substantial “bearish position” profits by following trends and Frank began using Fibonacci support and resistance levels to look forward and help identify trends. In 2002 we changed the name of our timing service to (live link) to better identify ourselves to prospective subscribers. We also began the process of adding new timing strategies, using our trend trading systems to develop both aggressive market timing strategies as well as conservative market timing strategies. In time we added sector fund timing, gold fund timing, bond fund timing and small cap fund timing. In 2003 we expanded to ETF timing strategies as well as starting a portfolio of individual stocks. All using our trend following systems to time the markets. Frank is currently the editor and chief market analyst of, as well as president of Market Timing Strategies, Inc.

Outlandish Claims

We recently did a search for "Market Timing" on several of the most widely used search engines. Some of the market timing results posted are staggering:

Up over 1000%... we guarantee our results! Up over 900%. 138% APR. Up over 1,400%. Up 18,000% since 2000. Up 3,494% in 4 years.

We have one question:

If you could make 1400% every few years (or 18000%, or 900%), guaranteed, would you sell the formula for $20 or $30 or $40 a month? Not us. We would use it for a few years, and then buy an island, complete with mansion and servants, and retire forever.

These phony numbers are a large part of what gives market timing a dubious reputation.

While market timing is about profiting, it is NOT about fast gains. It is about capitalizing on trends and avoiding huge losses!

Such marketing scams as we listed above, and believe us they are nothing but fake numbers, play on an investor's greed.

You know it can't be true.... but... just maybe...

One of the two emotions which cause the largest financial losses is "greed." And these ads play into that emotion perfectly. The other emotion is fear.

Market timing is NOT about instant gratification. It is about winning over the long haul. It is about withstanding the test of time. Profiting over the years while others go back and forth, from scam to scam, looking for the holy grail to quick riches. Or trading by emotions, news events, and the next door neighbor's secret tips.

Successful timing is about discipline. Following a strategy that will catch the major trends so that your are "in" for the advances and "out" for the declines. Most traders and investors are in for the declines and out for the advances. It is the disciplined following of a timing strategy that separates successful timers, from everyone else.

Fool's Game?

Critics say trying to time the stock market is a fool's game. That trying to forecast the future direction of the stock market cannot be done.

They are correct. It cannot be done.

But we do not forecast the future. We trade trends that are currently in progress. It is not hocus pocus but a carefully defined strategy.

Market timing critics have said that, if timing took you out of the market during only the very best days, or the very best months, your performance would suffer enormously. They are right of course" if " that is what market timing did.

In 2001, Barrons Magazine published a graph showing the hypothetical results of investing in the Standard & Poor's 500 Index in February 1966 through late October 2001. During that period of almost 36 years, an investment of $1,000 in the index would have grown on a buy-and-hold basis to $11,710.

Then, referring to a study done by Birinyi Associates, (an investment research firm in Connecticut), the article reported that if an investor missed just the five most profitable trading days every calendar year, that $1,000 investment would have shrunk to $150.

Right again! But what an incredible, one sided, misuse of numbers.

To anybody unfamiliar with timing, that statement would be convincing evidence that market timing is truly a fool's game .

Why would anybody even think of giving up a gain of $10,710 and replacing it with a loss of $850?

True Purpose of Market Timing

Ridiculous though those results are, they are quite damaging to those who do not understand the TRUE purpose of market timing.

Recognizing how one sided an imaginary timing system that kept investors on the sidelines during only the best five days of each year was, Mr. Birinyi took the idea one step further.

What would happen, Mr. Birinyi asked, if a timing system could be invested in all but the five worst trading days days each year?

He found that a $1,000 investment in the S&P 500 Index that missed only the five worst days each calendar year would have grown to $987,120 .

Nobody, of course, has been able to devise any system that could eliminate only the very worst days of every calendar year, nor the very best days for that matter.

But the contrast between "all-but-the-five-best-days" showing an investment that falls to $150, and "all-but-the-worst-five-days" showing the same investment rising to a whopping $987,120, is very telling.

And the next sentence is the most import one in this article.The article suggests that there are great gains to be made by "missing the worst days."

Wake up!

Missing the worst days is exactly what market timing is all about!

A market timing strategy that gets traders onto the sidelines during more bad days than good days inevitably reduces the risk of being in the market.

As subscribers who were with us during the bear market of 2000-2002 found out, as well as the bear market of 2008 and into early 2009, missing the bad days not only protects capital, but in the case of our timing strategies that used bearish short positions, it greatly magnified gains.

Don't fall for the scams. Execute and stay with a successful timing strategy for the long haul, and you will be greatly rewarded over time.

Market timing is the following of a successful trading strategy that keeps you "in" during long term market advances and gets you "out" during long term market declines. If you are in during all up trends and out during all downtrends, you will be "in" for most, if not all, of those five-best-days, and out for most, if not all, of those five-worst-days.

Cut your losses short and let your winners run. The very "definition" of market timing.

Recommended For You


To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.