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.

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It Has Been 25 Years Since the October 1987 Stock Market Crash.

October 19, 2012 was the twenty fifth anniversary of the 1987 stock market crash. On October 19, 1987 the S&P 500 dropped 20%.  It was a gut wrenching time for all investors.

The New York Stock Exchange, the world's large...
The New York Stock Exchange, the world’s largest stock exchange by market capitalization (Photo credit: Wikipedia)

Coincidentally or perhaps not, the prognosticators are predicting a similar crash will happen again. Granted we are experiencing some very turbulent times in the global economic environment. And we will experience a sharp downturn at some point, however, I nor anyone else can tell you when.

What these prognosticators are trying to do is strike fear into the investing public. These Wall Street bullies are looking for an increase in trading. These bullies want you to move your money from one asset class to another. Remember they make money on every transaction, whether you make money or not.

Wall Street has a product for every situation. And they know the investing public is constantly searching for the next big ‘thing’.

Investors’ real goal is stock market returns with Treasury bill risk.

This is unattainable. Remember, where there is no risk there is no reward. This is true in all other areas of our lives, not just the stock market.

What we must remember is that stock market or equity risk is only part of the problem. Inflation risk is the most destructive to your savings over the long term. It is constant and unrelentingly eating away at your purchasing power.

Owning equities or stocks may be the best way to combat inflation risk.

The most successful investors of all time have one strategy, a strategy that does not always look great, but over time leads to success. These successful investors are not always looking for the next great strategy. At times they will look like they do not know what they are doing.  These successful investors know risk is unavoidable.

It has been proven time and again that market timing DOES NOT work. This is evident during the 2008 crisis, there was a number of advisers who took their clients to cash. You must ask yourself.  Do you really believe these same advisers will be right again? Not only must they be right on getting out of the market, they must also be right about getting back in. Research has proven that this is NOT done consistently.

Investing for a long term goal such as retirement requires patience, a prudent strategy and discipline. This, in most cases, requires the assistance of a good coach. A good coach will guide you in following these three simple investing rules.

Own equities….globally diversify…..rebalance.

To succeed in reaching your long term financial goals you don’t need to know everything about investing, but you do need to know the right things

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