More on Market Timing

[mayday]

Ron Popeil with his showtime rotisserie says "set it and forget it" and for some people that is the easy way to prepare a meal. I do'nt have one of those contraptions. Preparation takes many forms different recipies a dash here a splash there mix this mash that. For someone who does not want to learn how to cook "set it and forget it". Throw your money in an L-fund go about your merry way and DCA your way to happiness. For those who want to apply themselves to learn more on how to prepare for retirement you have come to the right place. Class begins immediately.Timing is our fortay. We have the tools and the ingedients to make this journey fun and educational. All you need is a desire to learn. Its your money. Set it and forget it or take control of your destiny. Your choice no-one elses.

 

[mayday]

You might become a master chief.

 

[robo]

Focus On The War, Not The Battle
Why do most traders lose most of the time?

Why is it so many investors will stay with a position as it loses, hoping it will bounce back, instead of cutting their losses? And why do those same investors, when they have a winning position, take quick profits instead of letting the trend play out?

It is all about emotions. Not wanting to lose. Wanting to feel good about a profitable position. But unable to make consistent profits.

It's Not The Trade, It's The Battle

Too many market timers believe their last trade is a reflection of just how good a timer they are (or how good the timing service they subscribe to is).

This boils down to one word - expectation.

If you expect to win all the time, or even the vast majority of the time, you're setting yourself up for a lot of heartache.

And the sad fact is, if you believe market timing is about winning all the time, you are also setting yourself up to be one of those many thousands of losing investors.

To win as a market timer, you must focus on the war - not the battle.

"If we can make all of our subscribers recognize that sticking to the strategy over time is the key to success, we will have accomplished a great deal."
The fact of the matter is, this is a game of odds, and should be played over a long period of time. Those market timers who recognize this fact, and do not pull out during a losing position (or even a series of losing positions) will be the winners in the end.

Market timing is about beating the markets, and all those "other" thousands of losing investors, over time. It is about following a timing strategy through thick and thin, and profiting over time.

We write about this all the time because we are just as human as our subscribers. We know the emotions. We know the pressures. If we can make all of our subscribers recognize that sticking to the strategy over time is the key to success, we will have accomplished a great deal.

The FibTimer historical trade pages (available by link from all subscriber reports) show the excellent profits we have made over the years. They also show small losing positions are common. It is to be expected in market timing and in fact in all trading. Be prepared for them so that they are not unexpected, and over time you will be successful.

The "Worry" Factor

All humans worry. If we didn't worry, we might take dangerous risks, and pay a steep price.

So, worrying is normal in our lives, and has an important function.

However, worrying becomes a problem when you do it too often and for no good reason. For example, if your last timing trade was a loss, and you worry about it, you tend to think the same thoughts over and over again. It doesn't help much and you are likely to let it interfere with your ability to execute the next timing signal.

Excessive worrying "can" be a problem for successful market timing.

If you are the kind of person who worries all the time, it may interfere with your ability to pay attention to executing your market timing strategy.

The solution? Think "long term." Remember, it is the "war" you are trying to win, not the current battle.

The Difference Between Winning Timers And Losing Timers?

LOSING market timers have unrealistic expectations about the kind of profits they can make, typically shooting too high.

They also debate with themselves before executing buy and sell decisions, and even dwell on a position long after it's closed out.

And... MOST pay little attention to money management, tending to enter and exit trades emotionally. And critically, they have no clear plan how, or when, to exit.

WINNING market timers follow a strategy that uses strict money and risk management rules which keep them in a winning position as long as possible, and protect them against large losses.

They obey their chosen timing strategy faithfully, knowing it will not be profitable all the time, but that "over time" it will beat the market, and it will never allow them to lose capital in a bear market.

Winning timers take action instead of suffering "analysis paralysis." And importantly, they never allow emotions to take over, or have any part in, their timing decisions.

Hopefully the second description fits you better, but if the first one seems a little too familiar, you now at least know how to start getting past that barrier

Why Do We Focus On Emotions?

We have been asked many times why we focus so much on emotions in our weekly commentaries.

Allowing emotions to affect trading decisions is the number one reason why most investors lose money in the financial markets. Allowing emotions to affect timing decisions is also the number one reason why market timers fail.

"Remember, it is the "war" you are trying to win, not the current battle."
When emotions enter the picture, timers jump the gun on buy and sell signals. They exit positions before the strategy tells them to. Emotions cause them to abandon a perfectly good timing strategy and, almost always, it happens at a time when they wind up losing money.

Why? Emotions run highest when you are in a losing position. But losing positions are an absolute certainty! So be prepared for them, or be prepared to make bad decisions, and lose capital.

Giving in to emotions, makes you one of the vast herd of followers, trying to out-think everyone else, but in reality you are just moving with the herd. And the herd always loses in the end.

To be successful at market timing, and in fact to be successful at any trading, you must follow a strategy that "removes" emotion from the equation.

This means your trading plan "must" be totally removed from any discretionary input.

If you can change the trade, you will!

And if you change the trades, eventually you will lose.

Choose strategies that match your emotional trading style, whether aggressive or conservative (and hopefully a diversified mix of both) and stay with them.

The market timer who stays the course, winds up with the gains we show on our trade history pages.

http://timing.typepad.com/timer/


Some Comments on Market Timing:

Most buy and hold folks just dont have what it takes to be a Market Timer, they have tried and more then likely did poorly. They will tell you they are smarter then the Newsletter folks and the Shark. If you don't believe me just ask them? I also did poorly when I first tried Market Timing!


I wonder what Desperado's return was during the Bear. I was in the G Fund on Bob Brinker's recommendation.

How about FibTimer's returns during the Bear. I wonder if Birchtree was long.
Maybe that's why he likes the Bears to Bleed so much he his still trying to get even. How about you Desperado, did you go to cash those years? If you did you are a Market Timer, and if you did not you also are still trying to get even. Maybe next year in 2007 we can get back to 1550 in the S&P 500 and you and Birchtree will finally be even. NASDAQ 5000 is another story.

Untimed - December 31, 2001 - December 31, 2002
S&P 500 Index (SPX) - 23.4 %
Nasdaq 100 Index (NDX) - 37.7 %

** SPX + NDX Indices Return (SPX + NDX div'd by 2) - 30.6 %


FIBTIMER (Timed) - December 31, 2001 - December 31, 2002
Pro Timer (SPX - 50% of Portfolio) + 26.2 %
Pro Timer (NDX - 50% of Portfolio) + 44.2 %

FibTimer Bull & Bear Total Portfolio Return (SPX + NDX div'd by 2) + 35.2 %



I

 

[Birchtree]

Robo,

The Birchtree was the rider on the storm. Wounded but still alive to go another day. I rode 2000 down with the C fund buying with impunity utilizing the redeemer of DCA. Did an IFT to the S fund in 1/2001 and again was the rider on the storm buying with impunity causing pain and more pain all the way down into the bottom in 2002 - you learn to endure because the prices are wonderful and with a little faith the light will shine again. Rode the S fund up all of 2003 and kept on DCAing with impunity and made another IFT back to the C fund in 2/2004 and been on the train since. The redeemer is the DCA and having the courage to utilize to ones' benefit. But I don't plan to do it again when wave 4 kicks in in 2010. Wounded but a better investor for the experience. Ask me about 1987 sometime. Noel.

Dennis - permabull#1

 

[robo]

Birchtree,

Thanks for being honest. You are the Ultimate Permabull!

Sending you some Market Stuff. Enjoy your weekend my friend!

 

[fabijo]

Robo -

Thanks for the good read. It's encouraging because I keep doubting my strategy. It would have made great returns for the year, but it also would have had some losses. It's during those little dips that would make me doubt my plan. In the coming year, I'll be sticking to my strategy through the losses, because I'm in this thing for the long term. Once again, thanks.

 

[robo]

Hope May Spring Eternal, But It Won't Make You Money

As described in "Reminiscences of a Stock Operator" by Edwin Lefevre, "The speculator's deadly enemies are: Ignorance, Greed, Fear and Hope."

Each of us has a desire for success. It is why we here at Fibtimer.com use market timing to guide us to profitability. Market timing not only increases our gains in bull markets, but also protects our capital against loss in bear markets.

But if you are not careful, that same desire for success can stand in the way of your ability to recognize reality, even if it is right before your eyes.

Hoping For Success

All of us have a survival instinct that typically causes us to focus on good
news. Bad news is avoided, or at least put on the back burner.

When we take a position in the market, whether bullish or bearish, we "hope" it will be successful. Hope can be such a powerful emotion, that when the same trading plan that told us to enter a position originally, reverses and tells us to exit immediately, our emotions may very well focus on the possibility that if we just hold on a bit longer, any loss might be erased.

Just give it another day. Just wait till it is back to break even.

The only way to avoid this is to recognize that hope can destroy our ability to profitably trade the markets.

Successful Market Timers Win Because...

Market timing, in fact all trading, cannot be successful without a "plan." Trading by emotion, by news events, or out of fear, is not very different than gambling. Successful market timers win because they follow a plan.

We all know that no person (trader or market timer) will be right all the time. Knowing this, we must accept that we will have losses. "...recognize that hope can destroy our ability to profitably trade the markets."

What separates the winning traders, from the losing traders, is their ability to recognize that when a trade turns bad, there is no emotion that can fix it. The only correct decision, is not really a decision at all. If you are following a good trading strategy, just follow the "plan." If the plan says reverse, then follow it. If the plan says to go to cash, then go to cash.

Simple? Not if you cannot accept a loss. Then hope springs eternal. You can find a hundred reasons not to execute a trade. Anything to delay so that "hope" can work miracles.

Winning market timers have their share of losses. But they keep the amount of those losses small. They follow their plan and "never" hold onto a losing position "hoping" it will break even or turn into a winner.

In Vegas The House Always Wins

When we go to Las Vegas, we know that the odds are stacked in favor of the house. But we gamble anyway in "hope" that we will leave a winner.

But market timing is not gambling. When you trade with a "plan" you have an edge that you know will win over time, as long as you use discipline and follow it. Just as "the house" knows it will win over time in Las Vegas, the trading plan provides the "edge" that makes us winners.

But once we lose that edge, and start hoping instead of following our plan, we become like the gambler in Vegas.

And in Vegas, the house always wins.

Hope and Your Ego

Hope is also closely tied to ego. We do not want to admit that we have made a mistake. Our ego wants success, and wants it immediately.

Losses do not feel very successful. Our ego can cost us a great deal of money.

In order to make money, we need to keep losses small, while letting our winning positions run. Neither hope nor ego has any place in market timing or in any form of trading.

Conclusion

When you trade with a "plan," it is in black and white. You know when to execute a buy or sell signal because the "plan" tells you when. A plan does not rely on hope. A plan has no ego. A plan gives us, as market timers, an "edge" over the market and other traders.

Each day we should examine ourselves. If we feel that hope is part of our trading plan, remember that hope is almost a guarantee of losses.

The only way we keep our "edge" over the stock market, is when we follow the plan.

http://timing.typepad.com/timer/

 

[Wheels]

Good stuff Robo, thanks.

 

[fabijo]

Most definitely good to read these things, Robo. Thanks!

 

[robo]

When Your Money Is On The Line... Market Timing And Emotions
The winning market timer is cold, calculating, and unemotional.

Sound a bit unreal? Maybe it is, but the reality is that it is important to control your emotions, rather than let them interfere with your trading decisions.

We have spoken many, many times about fear and greed and how they are the true motives behind market behavior. Fear and greed may control the masses, but if they are allowed to control you, you become one of the millions who can't understand why they cannot make a profit when, supposedly, everyone else is.

There are also other emotions, such as anger and disappointment, that can influence your decisions. Emotions may interfere with discipline and sound decision-making.

But, they are not "all-powerful". You CAN master and control them.

Fight Or Flight

It is reasonable to be fearful when your money is on the line.

That is why winning market timers protect themselves by trading with a detailed market timing strategy. Timing strategies are NOT affected by the emotions of the masses, and they are also designed to manage risk.

When you KNOW your strategy works over time and also is designed to minimize risk, you can execute the buy and sell signals effortlessly and with less fear. You do not fret over the inevitable losing trade.

Instead you are excited about the next trade. You KNOW that next big winning trend is coming. Whether it begins tomorrow or in several months you trade with the knowledge that when it begins, "you" will be one of the winners who capitalize on it!

This is why trading with a specific timing strategy is critical. The moment you deviate from the strategy, you become one of the masses. But if you stay with the plan, you USE those same masses to your advantage.

Anger And Disappointment

Anger and disappointment are two additional emotions that powerfully influence trading decisions.

Both emotions concern expectations about our market timing performance and how we expect the market to behave.

We become angry when things don't go our way. Because we want to win, we hope that the market will behave in a manner consistent with our timing strategy.

When we feel that fate, or some unidentified external forces (i.e. news events) have created a situation that thwarts our plans, we become angry.

When we think we ruined our own plans because of our incompetence, we feel disappointed.

Regardless, there's a natural inclination to want to control our destiny, and when it comes to market timing, we want to control the market.

We may want to impose our will onto the market.

The market, however, can not be controlled. One must accept what the market has to offer. You cannot make the market do what you want it to do.

Acceptance Is Key

If you accept that you are powerless over market action, you will be less angry or disappointed. If you anticipate and truly accept the fact that the market can, and often will, go against your timing strategy, and that it isn't personal, you will not be fazed by it when it happens.

You will just accept it, and move on.

If, on the other hand, you expect the market to move in your favor, you will feel angry and disappointed, which often leads to feelings of revenge or despair.

These emotions can be paralyzing. It is better to accept the market for what it is. Accept the results you achieve, good or bad, and just move on to the next trade. A good timing strategy is not profitable on every trade. No strategy is.

But if you quit because you are angry or disappointed, think how you will feel when the next trade is the start of the next big and profitable trend!

Emotions are a natural part of trading. The markets don't always meet our expectations. If you accept this fact, you will be able to minimize the influence of emotions.

You will then follow your timing strategy and over time, will achieve the results you desire.

Those Who Leave Never Achieve

Those who leave never achieve. All they do is chase the promises of supposed market experts who will take their money, but seldom ("never" is a more accurate word) give them the profitable results they desire. There are hundreds of them out there making promises so ridiculous we are embarrassed to even print them.

FibTimer does not post inflated timing results like so many of our competitors do. We have years of trading behind us as well as years of posted trading history. All subscribers have full access to all trades and years of trading history.

Stick with the plan and you will succeed.

http://timing.typepad.com/timer/

 

[sugarandspice]

This bodes well for the No-brainer investment strategy.

.....of which you are fully qualified for Sugar.

 

[Birchtree]

It simply makes total sense. The problem is many members will take years before they realize what has been happening to them. Such as life in the markets. For me most technical analysis is irrelevant bullhockey.

 

[fabijo]

Stick with the plan and you will succeed.

http://timing.typepad.com/timer/

The problem is that the plan keeps changing.

 

[robo]

« Bearish Outside Reversal | Main

Following The Crowd... To Conform Or Not To Conform?
Humans have a natural tendency to follow the crowd, but when timing the markets, following the crowd can often result in losses.

Unless you are in the middle of a long term trend, it usually doesn't work to conform to the masses.

Expert market timers know how to spot trends and they make sure to climb on board and profit. But often, the very same buy and sell decisions, which must be executed to jump on board that trend, are in direct conflict with current market sentiment.

It is not easy to make that trade when it conflicts with what seemingly everyone else is doing.

Interestingly, your ability to break away from what the masses are doing, from current sentiment, may have a lot to do with your personality.

Following The Crowd

There is safety and comfort in numbers. In following the crowd. Across the generations, people learned that survival depended on banding together and working as a group.

All humans inherited this legacy, and it is shown in the security we feel when we follow the crowd.

The most successful members of society have seen the virtues in following the crowd. They have learned to look for rules to follow and to decide which standards to strive for. Blind obedience to authority may not be beneficial but compromise is.

"Trends are created by the masses. Those same masses who are buying stocks at the top of a rally, and selling stocks at the bottom of a correction."
To be successful, it was vital to protect one's self interests yet also stay within the bounds of acceptable behavior.

Although you've been frequently warned about the pitfalls of following the crowd, it's important to recognize that it is a survival instinct that is ingrained not only in humans, but in most animals too. Think of herds of deer, flocks of birds, swarms of insects, schools of fish. There is safety in numbers.

Going Our Own Way

Although following the crowd isn't bad all the time, such as during a long term rally, there are times when a market timer should not follow the crowd.

If all we had to do to be profitable was follow our instincts, we would likely be making the same buy and sell decisions as the vast majority of traders. But just as the vast majority of traders are NOT profitable... as market timers we want to "break away" from their emotional trading and BE profitable.

Market timers trade market trends. Trends are created by the masses. Those same masses who are buying stocks at the top of a rally, and selling stocks at the bottom of a correction.

This means that most of the time, as market timers, we must go our own way. And right there is the crux of the problem.

As soon as our timing strategy, which is NOT based on the emotions of the masses, issues a buy or sell signal contrary to the current sentiment, our very human survival instincts kick in. We want to STAY with the crowd. It is hard to do what your instincts tell you not to do.

But those market timers who are successful, have learned to do just that.

Breaking Away From The Masses

We WANT to follow the masses. It is comforting.

But if we want to profit when the masses do not, we must learn to push down those same instincts which have made us successful in life, and refuse to allow them to control our buy and sell decisions.

It is true that the crowd is often right... until a turning point occurs. But when the markets turn, the crowd holds on, often until most if not all their gains have evaporated.

Going against the crowd takes a special kind of person, a person who isn't afraid of risk but doesn't seek it out, a person who looks inward only, and doesn't need reassurance from others.

FibTimer has spent years developing and fine tuning market timing strategies that are profitable. Look at the historical trading results of individual trading strategies. These results can be yours, but you must commit to trading the strategies for the months and years necessary to realize them.

Break away from the masses and you too can realize the profits that we have achieved over the years.

Posted on January 26, 2007 in Market Timing Commentary


http://timing.typepad.com/timer/

 

[robo]

From Euphoria To Despair, How Market Moods Effect Your Trading
Markets go up. Markets go down.

It shouldn't matter much, but many new market timers find that their own personal mood fluctuates with the markets, moving from extreme euphoria as the markets soar to new heights to deep despair when the markets plunge to abysmal lows.

Why do market trends have such power over emotions?

Moods And Decisions

They don't need to, but many new market timers have difficulty keeping an objective mindset. They allow fear and greed to influence their trading decisions. They tend to follow the masses, and when they go with the crowd, they soon find that market trends not only influence their moods but their account balance as well.

There's a strong tendency to follow the crowd. There is a feeling of safety in numbers.

When you see a steady upward trend, you feel secure. Everyone is buying. They are all doing the same thing. When other people offer confirmation of your decisions, you feel safe and assured.

In a bull market, it isn't so bad to follow the crowd. When it's a strong bull market, the crowd is often right, and it makes sense to follow them. However, when the market turns around, feelings of safety and security can turn instantly into fear and panic.

Disappointment And Despair

Why? An obvious reason is that many new market timers don't have the ability or financial resources to sell short, and take advantage of a bear market. Using bear funds does level the playing field, but there is a psychological issue as well. It is difficult to know how to handle falling prices.

""Trading by the seat of your pants is NOT the way to profits. It is, however, the way to ruin."

For example, humans tend to be risk averse. When one is in a long (bullish) position and the markets suddenly turn, it's hard to accept losses, and even harder to execute a sell signal to protect capital before more damage is done.

Denial and avoidance set in. At that point, a market timer with a losing position panics, hopes that things will turn around, and waits for events that are unlikely to happen.

Usually market prices continues to fall, heavy losses are incurred, and as expected, disappointment and despair set in.

Think Of The Big Picture

It's critical to your survival as a market timer to stay calm and objective. Don't let your emotions interfere with your decision-making.

How do you stay detached and relaxed?

First, it's important to accept the fact that you will likely see many small losses as a market timer and that you should "expect" to see the markets turn against you.

Second, it's important to manage risk. Assume that the markets are likely to go against you occasionally. Don't risk too much on a single trade. Diversity has a place in market timing as well as all trading. Most of FibTimer's strategies have diversity built into them. Be sure to follow them as they were designed to be followed.

Think of the big picture; the long-term profits across a series of trades are all that matters, not the result of a single trade.

Third, follow a timing strategy with discipline. Trading by the seat of your pants is NOT the way to profits. It is, however, the way to ruin.

Conclusion

Don't allow your moods to fluctuate with the ups and downs of the markets. By trading in a disciplined manner, you can cultivate an unemotional, logical mindset that isn't overly influenced by market moods.

Armed with the right mindset and a disciplined timing strategy, you will be able to realize the huge profits that winning market timers achieve over time.

http://timing.typepad.com/timer/

 

[robo]

Buy-And-Hold? It Works If You Have 40 Years Or So
In business schools, the buy-and-hold strategy is still viewed by the majority as the most viable investing strategy for the financial markets.

It is hard to change old beliefs. I often wonder if those who teach such strategies have their own money invested according to their teachings.

"Buy-And-Hold" In The 90s

Most people invested using the buy-and-hold strategy in the 1990s, and as we all know, they lost a bundle when the dot-com bubble burst and we entered the 2000-2002 bear market with losses of 50% to 80%.

Many investment professionals now admit that stock prices are based on the beliefs of the masses. Assets of a company may play a role in the stock price, but the bulk of the price is influenced by popular opinion.

It's hard for many new market timers to accept the idea that prices are based on beliefs of the masses and little more.

But in the acceptance of this truth lies the path to profits.

"Buy-And-Hold" In The 70s

Have you ever talked to people who traded stocks in the 1970s? Many will tell you, "I learned my lesson a long time ago. I put my money in the markets and lost it. Never again."

In the 1970s, just about all investors used a buy-and-hold strategy.

They searched for "undervalued" stocks, purchased shares, held them, and waited for them to increase in value.

Sometimes it worked, but many times it didn't. And even when it did work, profits weren't anything near what an active, market timer or trader can make.

The buy-and-hold strategy misleads investors. The markets don't go in one direction forever, whether the trend is bullish or bearish.

Only by trading the ups and downs of the market can you make significant profits. If you are striving to become a profitable market timer, it is vital that you cast aside the buy-and-hold mindset of the long-term investor, and learn to "think" like a market timer.

The "Trading Edge"

Without a crystal ball, you can't know the future direction of stock prices with any amount of certainty, regardless of whether you use fundamental or technical analysis.

However, once you recognize the market prices are the result of thousands of investors who "believe" they know the direction prices are going to take, you have the "key" to beating the markets.

Knowing that prices are based on the beliefs of the masses is your "trading edge."

If you look at any long term chart of the financial markets, you will see that "most" of the time, the markets are moving up or down in trends that last many months, and sometimes years.

These "trends" reflect the "beliefs" of all those investors. And those "beliefs" are controlled by the "emotions" of fear and greed.

While prices are rising, the majority of investors "believe" they will "continue" to rise.

While prices are "falling" the majority of investors "believe" they will "continue" to fall.

Because emotions are involved, you will see more investors buying near tops and pushing prices higher than anyone expected they would go.

And of course, because emotions are involved, you will also see more investors selling near bottoms, pushing prices lower than anyone expected they would go.

This has been going on since the beginning of free market trading.

Conclusion

FibTimer uses that "trading edge." We know that the "masses" will push the financial markets in big up and down moves. Not all the time, but most of the time. That "trading edge" is our key to profits.

FibTimer does not try to "predict" where the market is going. We trade market "trends." Those very same trends that are created by the masses of investors who are buying into rallies and selling into declines.

We also know that trends will last longer than most expect and that is why we stay "with" the trend all the way.

Over time, the "knowledge" that the masses will push the markets up and down in huge trends, and trading those trends, results in huge profits.

Posted on February 09, 2007 in Market Timing Commentary | Permalink | Comments (0) | TrackBack (0)
http://timing.typepad.com/timer/

 

[rokid]

Appropriate name, "FibTimer".

Any data to back up their claims?

I know, it proprietary.

 

[robo]

Appropriate name, "FibTimer".

Any data to back up their claims?

I know, it proprietary.

Yes.

 

[robo]

BEING STREET SMART

by Sy Harding

WARREN BUFFET'S WISDOM! Feb. 9, 2007.

Warren Buffett, billionaire chairman of Berkshire Hathaway, says some neat things in his annual reports to his investors. Some of my favorites over the years:

· Of the rich people I’ve known, money just amplifies their basic traits. If they were jerks before they had money, they simply become jerks with a lot of money.

· Investing is the greatest business in the world because you never have to swing. You stand at the plate, the pitcher pitches you General Motors at 47. Then Disney at 40. You don’t have to swing. Nobody calls a strike on you. You can wait as long as you need to for the pitch you like. . . . . . But the problem when you’re a money manager is that, as in baseball, your fans keep yelling, “Swing, you bum!”

I also like his usually ignored comments on market-timing.

Most readers will probably wonder how I could refer to Warren Buffett as a market-timer. After all, his most famous quote of all is, “My favorite holding period is forever.”

But the truth is that, as much as Wall Street and Buffett himself would like investors to believe otherwise, much of his success has been the result of his exquisite ability to time markets.

For example, Buffett’s father owned a brokerage firm in Omaha , Nebraska . After graduating from Columbia with a Masters degree in economics, and working as a market analyst in New York for a couple of years, Buffett returned to Omaha to launch Buffett Partnership, Ltd. It was a private investment company, with mostly friends and clients of his father’s as its investors.

He managed that private fund with great success from 1957 to 1969. Given the secrecy of private investment companies, it’s impossible to know to what degree he engaged in portfolio-turnover and market-timing. But we do know he pulled off one of the most dramatic market-timing moves of all time. While the exciting bull market of the late 1960s had investors still piling into the stock market in 1969, Buffett walked totally away from it. He liquidated his investment company, telling his investors they would probably be better off in tax-exempt bonds for awhile. Exquisite market-timing? The 1969-70 bear market began within months. Even the blue chip stocks of the Dow plunged 36% in that bear market.

Buffett stayed away from the stock market for several years. Then after yet another bear market, that of 1973-74, in which the Dow plunged 45%, Buffett thought prices were low enough, and returned to the market. In a famous 1974 interview he said, “This is the time to start investing again.” And he did, using his control of publicly traded Berkshire Hathaway as the holding company for his investments.

Over the years Berkshire Hathaway has grown into a huge conglomerate of forty wholly owned subsidiaries, including Geico Insurance, Acme Bricks, Benjamin Moore Paints, Clayton Homes, Nebraska Furniture Mart, Borshein’s Jewelry, See’s Candies, World Book Encyclopedias, Fruit of the Loom, General Re Insurance, Johns Manville, Dairy Queen, Shaw Industries, NetJets, Flight Safety International, and twenty-five others. That these companies were acquired in total, to become wholly-owned operating subsidiaries of Berkshire Hathaway, gave rise to the myth that Buffett buys and holds all investments for the very long-term.

However, when it comes to Buffett’s (Berkshire Hathaway’s) investments in the stock market, only a very few stocks have been long-term holdings. Even during the long one-sided 1990s bull market, which favored buy and hold investing, Buffett traded in and out of huge holdings in Salomon Bros., U.S. Air Group, McDonald’s, zero coupon bonds, silver, the U.S. dollar, foreign bonds, currencies, etc.

When Buffett thought (and said publicly) that market risk was getting too high in 1999, he raised Berkshire Hathaway’s cash levels to a huge $50 billion. It was a bit early, but excellent timing, since the serious 2000-2002 bear market was soon underway.

In 2005, SEC filings showed he had taken positions ($20 billion) in huge bets against the U.S. dollar, which had been plunging, while buying foreign currencies.

Also in 2005, after participating in the new bull market that began in 2002, Buffett again moved $40 billion into cash, shying away from the U.S. stock market and U.S. bonds.

If one pays attention to what he says, he does advocate market-timing even publicly, making no bones about advice to get out early when risk becomes high. Some of his quotes in that regard include:

· At the start of the party the punch is flowing and everything’s going well, but you know at midnight it’s all going to turn into pumpkins and mice. People think they’ll be able to get out just before midnight, but everyone else thinks that too.

· What the wise man does at the beginning [of a rising market] the fool does at the end. Once a price history [rising market] develops enough for other people to see it and get envious, greed takes over markets.

· We simply attempt to be fearful when others are greedy, and greedy when others are fearful.

The way I read Buffett is that he says (and puts into practice) that there are indeed times to buy and hold, but also times when risk becomes high and it’s just as important to hit the exit before the crowd.


http://www.streetsmartreport.com/comm3.html

 

[robo]

Trading With Discipline Key To Market Timing Success
It is not enough to have a successful market timing strategy if that strategy is not traded with discipline. It is also not enough to trade with discipline if you are overly aggressive with those funds allocated to market timing, and cannot handle the resulting volatility.

Many market timers think that the more they trade, the better they will do. But in reality, market timers do not need to trade aggressively to do well. There are four critical issues market timers must deal with; strategy, discipline, money management and diversification.

Market Timers Must Have An Edge

At FibTimer, our "edge" is trend trading. We know that the financial markets are usually in a trend, either up or down. In fact, our research, going back many years, tells us they are in trends over 80% of the time.

This knowledge is our edge. We know there are times that the markets are not trending, but that these times do not last long. We keep our losses small during non-trending markets using disciplined risk management. And, by trading every trend that occurs, we know absolutely that we will "never" miss a trend.

With the markets trending 80% of the time, we are profitable 80% of the time. This does not mean we are profitable on 80% of our trades. It means that because 80% of the time the markets are trending, and because we trade all trends, we will be making money in those trends.

By limiting losses, and allowing profits to ride, we use our edge to time the markets with great success.

Disciplined Execution

Once you have an edge, you have to be able to execute. Some common trading errors; not taking trades until you see if they are profitable, or jumping the gun and taking trades ahead of time because you "think" a signal will be issued soon, can be a disaster to your profitability.

By not sticking to a plan, you allow emotions to rule your finances, and that places you right in with the majority of investors. Those who are the cause of the market's volatility.

The "herd" followers.

At FibTimer, all of our strategies are non-discretionary. Emotions are not allowed. Our strategies offer disciplined execution of non-emotional buy and sell signals.

The reason for following any timing strategy is to remove yourself from making emotional trades. To remove yourself from the herd, which is often headed in the wrong direction. Towards the nearest cliff.

If you are concerned that following a disciplined non-discretionary timing strategy can result in small losses at times, just try trading the markets using your instincts. The deadly results of emotional trading are usually evident quickly.

A second reason for following a non-discretionary timing strategy is, it gets you out of losing buy and sell signals fast while limiting drawdowns. You are not subject to the emotional pitfalls of trading, such as holding onto a trade in hopes it will come back to profitability, then finally making a panic exit after taking a large loss.

The disciplined execution of a timing strategy avoids all of these pitfalls. You just follow the buy and sell signals with the absolute assurance that your losses will be limited and you will never miss a trend. Over any fair time frame, you will beat the markets.

Diversification... Not Just A Word

Many times impulses are difficult to control because of emotional states.

Overly aggressive investment allocations can ruin even a good timing strategy with excessive drawdowns, while overly conservative allocations of capital will not optimize your total returns.

If you are a conservative investor who wishes to use market timing to protect against losses in a bear markets, do NOT invest 100% of your funds in an aggressive bull and bear strategy that you are not prepared for. Yes, they make a great deal of money over time, but aggressive timing strategies do have more frequent buy and sell signals, and more frequent small losses.

If, as a conservative investor you are unable to handle those losses, you are likely to exit the trade, thus locking the losses in at just the wrong time!

Stick to strategies that fit your emotions. Market timers should know themselves and use timing strategies that they will be able to stick with over long time frames. Patience is the market timing key to success!

Even aggressive market timers should not time 100% of their funds in a single aggressive strategy. Diversification is not just a word, it is a prerequisite to having a successful timing strategy.

At Fibtimer, we rarely invest more than 20-30% of our own funds in bull and bear strategies. The rest is diversified in sector funds (Sector Timer), a small percentage in the Gold Timer, Bond Timer and Smallcap Timer.

Using at least some diversification takes the stress out of investing, and makes it much easier to follow buy and sell signals with discipline.

Conclusion

At FibTimer, we never question buy and sell signals and follow them faithfully. Over the years, our disciplined approach has resulted in excellent gains, year after year. We hope that we can instill this disciplined trading into all of our subscribers.

It does not take blind faith. What it takes is a realization that our own emotions and instincts are usually wrong, and that a non-discretionary timing strategy that trades all trends and limits losses in non-trending periods, is the most successful approach to profiting in the stock market.

Once you realize this, you will relax and allow the strategies to successfully grow your investments as they are designed to do.

http://timing.typepad.com/timer/