Monday, June 29, 2009

RIP Buy-and-Hold

The above chart shows the model portfolio returns since inception.

Note that there are three timing signals. BUY signals an intermediate-term uptrend is underway within a long-term market uptrend; this is usually a profitable time to be invested in a stock portfolio. A NEUTRAL signal calls attention to an intermediate-term correction interrupting a long-term market uptrend; usually a good time to remain invested and perhaps add fresh capital to your portfolio. SELL signals that both the intermediate and long-term trends are down; usually a good time to go to cash or take a short position against a market index.

When I initiated this live test in January, 2008, many market pundits were encouraging individual investors to stay the course, and remain fully invested in their stock portfolios, even though it was clear to many at the time that the economy was at the brink of recession. At the time I had no idea how deep the market downturn would be, only that the system's Thrust / Trend Timing model was signaling poor market conditions.

Over the past 40+ years of a secular bull market leading up to this secular bear market, "buy-and-hold" had become dogma. To assert that an agile investor can profitably time the market still invites ridicule from many so called professionals. For many, their primary goal is to retain control of your assets. This is how they are paid, by having your assets under their control. Unfortunately, they are less concerned about growing your assets. Many have been coached that the best way to retain control of your assets is to encourage a passive buy-and-hold mentality.

Now a year later, most of those professionals are busy explaining why their clients' portfolios have been halved. You will often hear, "Nobody saw this one coming." and "There was no safe place to hide." What more can they possibly say. They didn't have a clue!

If nothing else, this live test has shown that a basic Thrust/Trend Timing model can help investors positions their assets in alignment with PREVAILING market conditions, helping to avoid the big loss that can take years to recover.

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