A Secret Simple Stock Market Timing System

Baby Boomers here is more proof market timing works by protecting your nest egg from severe bear markets and thus avoiding large losses. Repetition is the way to learning so I will keep hammering this point – when in retirement we must find ways to minimize stock market losses.

I was half way through a post on Marketing Timing vs. Asset Allocation and Diversification when I came across a report written by Mebane T. Faber. I believe this report is so important that I need to bring it to every Baby Boomer’s attention. I found the 10 page report by going several pages deep in Google. Most people don’t do this. You cannot even get to this report from the site itself. That’s why I call it a secret report.

I’m hoping this report will convince Baby Boomers once and for all that Buy and Hold is flawed and should not be used in retirement.

How would you like a Portfolio of Publicly Trading indexes giving:Buy and Hold can destroy a retirement nest egg

  • Equity-like Returns
  • Bond-like Volatility and Drawdown
  • Over 30 years consecutive positive returns

If only that were possible I hear you say?

According to Mebane T. Faber it is certainly possible with a 10 month simple moving average market timing system. It can’t get any simpler than buy when the price for an index crosses above the 10 month SMA and sell when it crosses below it.

Take a quick look at the table above. The S&P 500 is the Buy and Hold results. The maximum drawdown occurred in the 1920-1930 stock market crash. The Buy and Hold lost 83.66% of your nest egg. The market timing system lost money too, but only about half of the buy and hold version. It was probably due to being whip-sawed out of the market during that period. Nevertheless you still had 50% of your money left to invest and remember the market was down over 80% according to the S&P 500 index results. The other important result for Baby Boomers is the single worst years results. Again the Timing results were significantly lower than the Buy and Hold S&P 500 result. Yet both had similar results for their best year.

Mebane used the S&P 500 results from 1900 to 2005 for the test. Please note it covers the 2000-2003 bear market too. This is most important for Baby Boomers. Real historical data was used NOT assumptions about average returns or average inflation as used by the Buy and Hold believers. Initial observations showed this market timing system improved market returns, reduced risk which includes size of losses, is only in the market 70% of the time and makes only one investment a year.

Too good to be true you say?

The evidence is in the report. I urge you to print it off, read it several times and keep it safe. This is a great find.

The report goes on to show the results of Asset Class total returns vs. timing total returns from 1972 to 2005. Each of the five asset classes is compared for Buy and Hold vs. Timing. The results showed maximum drawdown and worst year results were reduced in every case. This is what Baby Boomers must aim for. We cannot always avoid losses but we must try to minimize them.

The writer does say you need to consider some practical considerations before following this strategy. These include management fees, taxes, commissions and slippage.

But the results are so significant over a 30 year period that if you intend to manage your own portfolio in retirement, this may help you decide that market timing is the best strategy. You may be able to locate a financial planner who will help you implement such a system if you don’t want to do it by yourself. Since it uses timing signals for entry and exit it can be set up and then managed by your financial planner, while you enjoy your retirement. Another benefit is you will be in control of your nest egg.

4 Responses to “A Secret Simple Stock Market Timing System”

  1. […] unknown wrote an interesting post today onHere’s a quick excerptBut the results are so significant over a 30 year period that if you intend to manage your own portfolio in retirement, this may help you decide that market timing is the best strategy. You may be able to locate a financial planner who … […]

  2. Rita says:

    Hi David,

    Interesting system. Do financial planners like it when it’s presented to them or do they like to do things their own way?


    In addition to my blot The Survive and Thrive Boomer Guide at http://boomersurvive-thriveguide.typepad.com, I’m writing a new blog called the Boomer Consumer for the Seattle Post Intelligencer at http://blog.seattlepi.nwsource.com/boomerconsumer/.

  3. admin says:

    Hi Rita,

    I have some friends who are financial planners (yes even after all that I say on this site). I will ask for their comments and post them on a later blog if they are agreeable.


  4. […] you read my article on A Secret Simple Stock Market Timing System you would note that the writer there used data from 1972 to 2005 and invested in broad based […]

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