Timing the markets improves performance.
Market timing can really increase performance. If you had a crystal ball and got out of the stock market early 2000 and reinvested in late 2002 and did the same by getting out of the market in late 2007 and back in again in early 2009 your investments would be up nearly ten fold. To our knowledge no one was able to do this but some came close. The illustration here is to show the tremendous potential power of market timing.
Opponents of market timing will tell you that it cannot be done. We agree that it cannot be done every time. Opponents will tell you that it takes two correct decisions one when to sell and the other when to buy. We contend that to gain a significant advantage one must only sell when the market is high and buy back when it is lower.
We do not offer a market timing service at this time. Some of our affiliates do a very fine job of timing the market.
A few of out market timing strategies are further outlined:
Rebalancing even if you dont realize it when you rebalance you are timing the market. You are putting money into weaker performing investments from those that have performed better. Assuming you rebalance on an annual basis and the market has had a nice rally over the past year select a day when the market has been going up for several days and rebalance. Conversely if the market has been dropping for the past year pick a day when the market is really tanking. These strategies can increase your returns by a few percent per year but even a two percent gain per year over 10 years is over 20 percent.
Without to much research an investor can simply take small amounts of money out of the market during multiyear highs and put it back in when the market drops below that that level. Conversely when the market is at a 52 week low an investor can increase their percentage of money in the market.
In normal times the market goes up. There are some signs that a bear market is about to occur.
Tight money: Many market timers use the money supply as a basis for getting in or out of the market. As the Federal Reserve tightens money the stock market tends to stagnate or drop. In 2008 the Federal Reserve did not tighten money but the supply of money did get scarce. The stock market dropped like a rock. Many timers who looked at the Federal Reserve money supply did not see this credit crunch coming.
Inverted yield curve. There are a lot of sources on the net to find out about the yield curve. In a nutshell when the 30 year Treasury bond yields less than the 90 day Treasury note there is an inverted yield curve. While an inverted yield curve does not always lead to a bear market it often indicates less than average growth is ahead.
Over valuation: This is a tricky one. Most investors look at PE ratio. Even if you are looking at PE ratio only you must consider present interest rates and future earnings of the market. Price to book value is another measure of the markets valuation. For most investors market valuation can be a hornets nest.
High inflation: During the 1970s inflation was out of control and the US stock markets suffered as a result.