Market Timing will Beat Buy & Hold 99.8 Percent of the Time

The financial profession has known that a Buy & Hold (B&H) strategy does not work as well as a Market Timing strategy since at least 1992 and possibly earlier (1975).   The main reasons that early market timing was less attractive are 1) high transaction costs and 2) human emotions.  A lot has changed since 1975.  Most notably the cost of executing a transaction and secondly investment instruments like Exchange Traded Funds (ETF).  With the wide spread availablility of online brokers offering very reasonable (if not downright free) transaction fees the equation changes.  There still remains the problem with "human emotion"!  Most individual investors are still ruled by their heart and not their head.  The simple solution to this problem is market timing using ETFs.

It is important to understand what TimingTruth means by "market timing."  We mathmatically identify the trends of broad markets using various indices of these markets.  What is an "index"?  An index is simple a way to measure or track a complicated collection of stuff.  For example the S&P 500 is an index of the 500 largest companies in the US.  When we time the market for large US companies we use the S&P 500.  We NEVER track or try to time individual stocks.  Another example is the MSCI EAFE.  It is an index that tracks larger European, Australasia and Far East companies.  From the perspective of an American investor it is an index of the major foreign stock markets.  Because the S&P 500 and the MSCI EAFE are driven by different underlying economies they have different trends.  At TimingTruth we analyze these different trends to determine our BUY or SELL timing signals.

If you use a B&H strategy you depend completely on the underlying economy to grow which it typically does.  The problem is that sometimes it doesn't and when that happens the gains you have earned over years of "holding" can be wiped out in a few months.  If you use our Market Timing strategy you can avoid a major portion of this declining market.  It also allows you to reinvest when there is a clear upward trend so you don't miss all the growth market.  Here is a real example using our timing signals.  In this chart SPY is the index fund for the S&P 500 and EFA is the index fund for the MSCI EAFE index.  The three strategies are:

This chart covers the date range 8/27/2001 through 7/31/2009.