Market Timing….Luck or Skill?

The investment arena mourns the loss of one of its most colorful characters, Martin Zweig.

Mr. Zweig was made famous by his accurate forecast of the 1987 crash. His prediction was highly publicized because he was on Louis Rukeyser’s Wall Street Week on Friday October 16, 1987 and predicted a crash which was followed by the black Monday October 19, 1987 drop of the Dow Jones Industrial Average  of 29.2%

English: The value of $1000 invested in the he...
English: The value of $1000 invested in the hedge fund Long-Term Capital Management, of $1,000 invested in the Dow Jones Industrial Average, and of $1,000 invested monthly in U.S. Treasuries at constant maturity. (Photo credit: Wikipedia)

Although there were many who predicted the end of the bull market during this time. The timing of Martin Zweig’s prediction made him the ‘king’ of market timers.

Following his prediction of the 1987 crash investors flocked to his fund which opened in 1986. It became evident that making predictions is not as difficult as managing real money. Since inception in October 1986 through January 2013 annualized results were as follows.

  • Zweig Fund………………………………………………………………………6.79%
  • S&P 500…………………………………………………………………………..9.84%
  • Static mix 30% S&P500 70% Barclay Aggregate Bond Index   7.90%

The selling point of all market timers is that they will get out of the market during down markets and buy on the way up.

This is an admirable goal however this example illustrates that even the best are unsuccessful in the long term. Even those with illustrious credentials and diligently study the market patterns cannot beat the market rate of return in the long term.

NO ONE can predict the equity markets for the long term.  Those that do pick the market tops and bottoms are the relying on luck and not skill.

After the 2008-9 investors were and still are looking to avoid repeating any pain. These investors are getting out of the equity markets all together, a huge mistake. Volatility and risk are part of the reason the equity markets experience a return premium over the long term. Without this volatility your return would be much lower and you will be unsuccessful in keeping up with inflation. In other words the purchasing power of your money will not be maintained.

This is what I call the invisible loss.

Another group of investors is seeking out those analysts/advisers who avoided the down turn. Thus avoiding pain for the investor. The problem is that these analysts/advisers are unable to repeat their success over the long term as illustrated by the above example.

If investors are seeking to reduce their investing anxiety and improve long term results they need a prudent strategy and discipline. These investors will be unable to do this on their own. Therefore, the need for an investor coach is greater now than ever.

Reaching your long term financial goals cannot be accomplished alone.

Your emotions will not allow it.

Stop looking for the next great investment class or fund manager. Their ability to repeat is near zero. There are three simple rules of successful investing:

  • Own equities
  • Globally diversify
  • Rebalance

Find a coach who will help follow these rules and you will reach your long term financial  goals.

Enhanced by Zemanta

Leave a Reply

Your email address will not be published.