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I know that this topic may be an anathema to hardcore Buy-and-Holders, but since it is an academic investing topic and utilizes index funds, I thought it appropriate for discussion here.

Optional context: http://www.philosophicaleconomics.com/2015/12/backtesting/

Optional context: http://www.philosophicaleconomics.com/2015/10/bfskinner/

Required prerequisite: http://www.philosophicaleconomics.com/2016/01/movingaverage/

The actual strategy: http://www.philosophicaleconomics.com/2016/01/gtt/

It seems that macroeconomic theory, rather than back-testing or finding past anomalies via “psychological drivers”, drives this method seemingly similar to Dual Momentum - similar since it uses Moving Averages, but different since it really has little to do with testing one fund against another. In fact in the required prerequisite reading the author indicates why moving average methods are preferable to momentum (despite performance being roughly equivalent).

It is truly a long read, especially if you “learn yourself” through both entries. Based on a few looks over Jesse’s graphs, it appears not to have outperformed a Buy-and-Hold portfolio of the S&P 500 index in all periods though… thoughts?

TL; DR: 170 bps over Buy&Hold over the last 100 years - is that enough for you to switch?


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    Folks, market timing works until is doesn’t. Or, along the same vein, here’s a story about Bob, the world’s worst market timer.

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      The problem is that there are two very different types of market timing. The one that I think that almost everyone here agrees is that subjective, emotional driven market timing is a very poor strategy. And this is the type of market timing done by most who aren’t buy-and-holders.

      The other type is objective, rules-based market timing, better known as trend following. It is certainly a controversial topic around here, but it’s not held in nearly the same level of disdain by most as the other type.

      I am a trend follower. I have clearly laid out, objective rules for when and what I will trade, and I follow them. It is ‘mechanical’; no subjectivity or even ‘following the markets’ is required. I trade no more than once per month at the end of the month, and determining whether and what I need to trade takes under two minutes. No muss, no fuss, no stress. I suspect that I’m actually less concerned about the markets than many, perhaps most, buy-and-holders.

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      Like most of the market timing stategies this one worked in the previous bear markets, those that did not are not discussed anywhere. But what if the next downturn is different? In a hypothetical example, if a stategy does well in 4 out of 5 next market crashes, but the one it fails is the first one, would you still stick to it?

      My concern is that there is no proof of anyone who did so, no proof of real world successful performance.

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        Every major market timing strategy (e.g. 200MA, momentum rotation, dual momentum) I’ve seen sailed through 2008 far better than buy-and-hold. From 2009 until now, virtually all of them have had lower returns and bigger drawdowns. So if you’re only examining the ‘good times’, buy-and-hold certainly seems optimal. But when you examine the ‘bad times’, market timing strategies far outperform buy-and-hold in pretty much every way.

        There is no more or less ‘proof’ that anyone did better with buy-and-hold than market timing apart from examining what would have happened had either followed their strategy (i.e. backtesting). But for the record, Paul Merriman has been successfully using market timing for over 35 years. He says that he doesn’t do so to achieve higher returns but to minimize his downside risk. After having gone through several bear markets, he says that it’s worked very well for him.