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Book Review : All About Market Timing, 2d ed.

  
Analysis, Education
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“If you were in a leaking boat,” Leslie N. Masonson writes, “you’d have three choices: 1. Stay in the boat and stop the leak = Go short. 2. Get out of the boat = Switch to cash. 3. Go down with the ship = Buy-and-hold.” (p. 60) In this second edition of All About Market Timing: The Easy Way to Get Started (McGraw-Hill, 2011) Masonson explains why market timing is superior to buy-and-hold and describes some timing strategies that have been profitable in the past.

Most people, I assume, would prefer market timing to buy-and-hold—if it really were a viable strategy. The main argument against timing is that it can’t be done. The investor will end up being out of the market on the best days, in on the worst days, and poorer for his efforts. Better just sit there, say the critics, take your lumps in bear markets, and trust that the market will eventually power ahead, taking you along with it. Unfortunately the market can be very slow to recuperate from downdrafts, as the author documents in several tables.

Masonson presents five familiar market timing strategies: the best six months, presidential cycles combined with seasonality, simple moving averages, the Value Line 3 and 4 percent, and the Nasdaq Composite 6 percent. These strategies are best pursued using ETFs rather than individual stocks or mutual funds. (more…)

Effectiveness Is the Measure of Truth

  
  Education
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In trading as in life, effectiveness has to be the measure of truth. If something doesn’t work, there is no point in continuing to do it. Misperceptions, false unconscious or conscious beliefs, and unhelpful behaviors can contaminate and desecrate your most sought after results.

Imagine the frustration of a trader who perceives that a market is changing direction when in fact it is persisting in its original thrust. Or consider, for further example, an investor who bought into the belief that buy and hold is a valid investment strategy. That investor had to have experienced devastating losses over the past year. Or ponder the trader who repeatedly fails to utilize stop losses and experiences numerous outsize losses because he won’t accept a loss. (more…)

Effectiveness Is the Measure of Truth

  
  Education
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In trading as in life, effectiveness has to be the measure of truth. If something doesn’t work, there is no point in continuing to do it. Misperceptions, false unconscious or conscious beliefs, and unhelpful behaviors can contaminate and desecrate your most sought after results.

Imagine the frustration of a trader who perceives that a market is changing direction when in fact it is persisting in its original thrust. Or consider, for further example, an investor who bought into the belief that buy and hold is a valid investment strategy. That investor had to have experienced devastating losses over the past year. Or ponder the trader who repeatedly fails to utilize stop losses and experiences numerous outsize losses because he won’t accept a loss.

When you choose effectiveness as your measure of truth, you can learn from your mistakes. You can make plans, take action, receive feedback, and assess the results. You can revise your plans, take new actions, receive new feedback, on and on, until you find a viable strategy that will work most of the time.

When you fear loss, when greed overcomes you, when you get reckless, or when you hesitate, you become grossly ineffective. When you’re confused or ambivalent yet think you need to take action, you do yourself no good. In each case you need to sort through your thoughts, develop a clear focus, search for the high probabilities, and take prompt and calm action. (more…)

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