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Investing/Strategies / Mechanical Investing
|Subject: Re: Bear catchers||Date: 2/24/2013 9:19 AM|
|Author: mungofitch||Number: 241847 of 264770|
I'm still learning but I am not convinced by the use of market timing as a whole. I would be out of the market in fundamental periods, and often there when huge drawdowns occurred...
That's certainly a valid concern.
With or without using timing you are definitely going to be in the
market during a market fall from time to time.
With timing sometimes you'd be out of the market when thigs do well.
The bigger question is, is it a net benefit?
Imagine you're using an investment strategy similar to the MI practised hereabouts.
Your investing can be thought of as an unending stream of one month
investment periods. Imagine that on each monthly trading date you
simply decide whether or not to be in the market for the next month.
Either you invest according to your usual strategy, or you sit in cash for a month.
One must then decide whether the timing methods you have a good enough
to distinguish the high risk/reward months from the low risk/reward months.
It doesn't have to be right anywhere near all the time; the question
is whether or not you can identify some subset of months for which
the omens are bad enough that it's just not worth being in the market.
That's not really such a tall order.
If three hasn't been a new high in a long time, and breadth is bad
and deteriorating, and the market is falling, and valuations are high,
and interest rates are rising fast, is it really worth betting on a rising market this month?
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