Why market timing can beat Buy and Hold

Market timing captures the bull markets and

sidesteps the bear markets

Longer-term methods of market timing the stock market work because:

Longer-term trends in the stock market tend to persist.

Individual stocks ... and mutual funds tracking the stock market ... show strong, persistent trending behavior when viewed on a chart (see Figure I). Stock market timing is all about following the long term trends. When trends persist, they are relatively easy to identify, particularly with computer market timing models.

Figure I

Figure I above demonstrates a simple market timing system.  Notice how the blue moving average line could make a decent market timing tool for your mutual fund or stock portfolio. The line nicely identifies the bull and bear trends. You could have bought and sold a diversified mutual fund using this simple stock market timing methodology and done very nicely.

Our market timing model captures

Intermediate Trends to enhance returns

Even better, there are more sophisticated models for mutual fund market timing, and stock market timing, that more accurately identify intermediate trend changes in the stock market. Look closely at the track record of Confident Strategies’® stock market timing model in Figure II. It more accurately identifies the intermediate trends of about six months or longer. If you had used this model for market timing a mutual fund or your own stock market portfolio, you would have done better than if you had followed a simple moving average.

Figure II

Market timing models are inherently trend-following systems. While some stock market timing systems use predictive logic, they can never exactly pinpoint a top or bottom in the stock market or mutual fund. Market timing models’ buy and sell signals typically lag tops and bottoms in the stock market.

Therefore, mutual fund and stock market timing systems usually lose a little at each top or bottom. And, they periodically get whipsawed by short-term zigs and zags in the stock market.

• But a good market timing system will not miss the big, extended bull trends—the ones you don’t want to miss.

A "World of Difference"

Beating a Buy and Hold strategy (such as simply holding a stock market mutual fund) is relatively straightforward when you have a decent market timing system. By avoiding major losses during bear markets and capturing most of the bull markets, you can more successfully compound profits over time. A good market timing model can literally make a "World of Difference" in the long-term growth of your investment portfolio.

What does a "World of Difference" look like?  Figure III shows the hypothetical growth of a $10,000 investment over seven years in each of our Model Portfolio strategies (versus Buy and Hold).  Each strategy has asset allocation logic driven by our stock market timing model.  Figure III dramatically demonstrates the potential benefits from market timing the stock market. That's why we call this our "World of Difference" chart...

Figure III

The World of Difference Chart

Try out our Model Portfolio strategies for yourself. See what a difference they could make for you. Of course, it is your responsibility to determine the suitability of any of our strategies for your own particular situation. So, we recommend that you consult with a licensed investment advisor before investing. Check out Which Strategy is Best for Me? for information that should assist you and your advisor determine the suitability of any of our Model Portfolios.