Conference nyoss1::market_investing

991.0. "1995: Buy and hold beats market timing" by EVMS::HALLYB (Fish have no concept of fire) Tue Apr 09 1996 19:39

As promised, herewith the results of trading via market timing vs.
classic buy-and-hold. This experiment has been running since the start
of 1993. See also notes 689 and 820.

	SPX at end of 1995:	615.93
	SPX at end of 1994:	459.27
	SPX capital gain	 34.11 %
	SPX dividend		  2.30 %
	SPX dividend after taxes: 1.47 %  assuming 36% tax rate
*	SPX total return:	 35.58 %  "It was a very good year"

We compare the above SPX return with the return from my timing system. This is
NOT theory; the results below come from real trading in and out of the market
in real time, using an account I set up specifically to do market timing.
The fund I use is the Rydex Nova fund, an S&P 500 clone[1] with unlimited 
free fund switching privileges. (1-800-820-0888, +1.301.652.4402)

	My gross capital gain:	     14.14 %
	My capital gain after taxes:  9.05 %
	My dividends:		      4.10 %
	My dividend after taxes:      2.62 %
*	My total return:	     11.67 % 

This 11.67% profit, net of all fund expenses and taxes owed, is substantially 
less than the S&P 500 buy'n'hold return of ~36%. It was achieved with only 
85 market days invested, indicating a fairly linear relationship between
days invested and total return. (The rest of the time the account funds were
safely parked in a money market fund.)

So is it time to give up on market timing and switch to buy-and-hold?
Probably not, just as in prior years it wasn't time to give up on buy-and-hold
and switch to market timing. Last year was the market's best year in the
strongest bull market ever, so one should be exceptionally leery of expecting
the future to be as promising. I'll keep tracking this for a while longer yet.

    John
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[1] Originally the goals of the fund were to match S&P performance. As of
    sometime in 1995 the goals changed to perform at 1.5x the S&P 500, both
    on the upside as well as the downside. The fund uses a small amount of
    leverage to accomplish this.

    
. So is it time to give up on market timing and switch to buy-and-hold?
. Probably not, just as in prior years it wasn't time to give up on buy-and-hold
. and switch to market timing. Last year was the market's best year in the
. strongest bull market ever, so one should be exceptionally leery of expecting
. the future to be as promising. I'll keep tracking this for a while longer yet.

    It seems to me if you are "winning" at market timing you are doing two
    things
    
    1) Avoiding the market during big downttrns
    2) Being in the market during big upswings
    
    It looked to me that you missed a #2 last year.  Timing works well of
    you can do #1 and #2. Holding works well if your ability to predict #1
    and #2 is limited.
    
    Greg