I'm Absolutely Positive

Too Critical?
I know I sound critical of the financial services industry.  I've worked in the industry, I've watched it for years.  I've been there, done that, and got the T-shirt.  It is my personal experiences with the financial services industry that prevents me from believing their propaganda and the many cheerleaders who endorse their message (and receive compensation for doing so).  While critical of the financial services industry, I'm also very positive about our own ability, with the available technology today, to better the results of the average fund manager.  Remember, very few of them beat the market averages over the long term.

Tactics
I know people have difficulty believing they deserve better.  After all, the professionals are the best at doing what they do and I'm not disputing that.  That means, either I can settle for the bread crumbs they throw my way, or I can look for something better.  If we are trying for a different result, why would we try to mimic the professionals with their millions and billions of dollars for which they earn outlandish fees?  You and I have so much less.  I remain convinced that our primary advantage over the big professional fund managers is our ability to out-run them. That means being very tactical.  The philosophy of fund managers has always been to buy and hold.  I have said in this blog, and I've said for years, that buy-and-hold is a marketing strategy, not an investing strategy.

Trends
So, if we want to outperform buy-and-hold and run rings around these professional fund managers then how do we do it?   Many would tell me they don't have all day, every day, to sit in front of their computer watching markets, and playing with the numbers while trying to do better, especially when they don't even believe that timing the market is possible.  And that's fine.  People who don't believe it is possible will never be able to make it happen, anyway.  Faith is funny that way.  To outperform the average fund manager, people don't have to write a blog, they don't have to surf the internet every day, they don't have to crunch the numbers all the time.  We simply need to monitor trends; long or short, up or down.  I get confused as to why that is so hard to understand.  Just me?  I don't know.  Like I said, I don't understand why.

Profit
I'm not even saying we need to identify the very beginning of a trend.  Once the market confirms there is, in fact, a trend, then we can take part, and get out again when either the trend seems to be faltering, or when our profits are sufficient that we should take our money off the table.  Even if we get it right only fifty percent of the time, but cut our losses short, we still come out ahead.  So what if we can't identify how long the trend will actually continue?  I guarantee, another new one will shortly follow.

Charts
It doesn't take a huge amount of skill to read a chart.  People do it all the time.  We look at charts of the outdoor temperature, performance charts, health charts, progress charts, budgets, forecasts, to name a few.   Yes, it takes a little practice, it takes knowing what to look for and what to watch out for. In the end, anybody can do it, anybody who wants to, and has a little desire to spend a bit of time monitoring their investments in return for a greater than average payoff.  Again, I have to admit I don't know why more people don't take this approach.  I do know it's partly because people think it's too hard, and that it is a waste of time, especially since we are always told by the professionals we couldn't do it even if we tried, anyway.

Full Time Returns; Part Time Effort
As for me, I'm not giving up.  I will continue to blog.  I will continue to talk about the methods in which people can take control of their own destiny through just a little bit of time and a little bit of effort in order to make more money working part-time than any other part-time job would ever pay them, and even more than some full-time jobs.  It takes practice.  I'll grant the critics that, but it's neither too difficult, nor too time-consuming - let alone impossible - that most people shouldn't, at least, try.

What is your single biggest reason for not trying?  Care to share it?

November Returns

Click To Enlarge

"Stupid Is As Stupid Does"
Tired of hearing about the U.S. fiscal cliff, yet?  Never give a politician the spotlight.  They seem to think this is their 15 minutes of fame, and are going to use it for every last possible opportunity to make a point.  Because of that, I don't believe it is going to go away any time soon.  Dr. Phil would say the best indicator of future behaviour is recent past behaviour.  When it comes to dealing with this type of issue, they have shown in the past how much they will try to manipulate the situation in, what they think, is in their favour.

Scoring vs. Winning
Sometimes, when we get too close to what is happening in the market, we can get caught up in short term thinking.  When we lose track of the bigger picture, our vision becomes too narrow, and we can miss obvious signs that we are putting our money at risk.  The U.S. fiscal cliff, to me, is a case of trying to score political points while totally ignoring the consequences of doing so.  Have you ever continued an argument past the point where you realized you were no longer making any sense, but continued, anyway, in trying to make the point?

The Power of Example
I wouldn't take much issue were it not for the fact we are talking about the decision makers affecting the largest economy in the world!  It only highlights all of our lack of ability to work together for the common good.  When did it become all about ME, and MINE, and the hell with everyone else?!?  As far as I am concerned, I wouldn't vote for a single one of them.  When we stop trying to serve the interests of the greater good, we have taken a face plant into greed and nastiness and self.  Have you ever seen a time in history when such behaviour ended well?

Real Consequences
The argument seems to be the real consequences of failing to do the right thing now are months, or years into the future.  That belief fails to acknowledge the market is already basing today's decisions on what is expected to happen months downs the road, and that indecision and infighting is not creating an environment conducive to investment and growth.  The longer this continues, unresolved, the greater the chance we face not only a economic recession, but the possibility of a market crash, as well.

23 month return for TSX @ November 30, 2012 =     -8.51 percent
Return for Basic Timing Model Using XIU =             11.82  percent
Return for Advanced Timing Model =                      -4.36 percent
Money for charity =                                              $0.00

Market Timing Myths

Not For Everyone
Another of the myths about market timing is, if market timing actually worked, then everybody would be doing it.  If you are familiar with my blog, then you know the main reason this is not true.  Personal investors do little to influence market direction.  It is the mega-sized orders of the large fund managers that determines the direction of the markets.  It is the very size of their positions that prevent them from jumping in and out of the markets.  It takes a period of days and weeks to either establish, or eliminate their market positions.  For them, market timing is not a viable option.

One Size Fits All?
So, if it doesn't work for the professionals, then it can't work for the little guys, right?  That is like saying the route I choose in a dinghy has to be the same as that of the captain of an aircraft carrier.  As for me, I would not attempt to cross the ocean in a dinghy, just as I would not try to pilot an aircraft carrier down the local river.  While the purpose of the boat determines its size and dimensions, the size and dimensions of the boat also limit how it can be used.  That is not to say professionals do not use charts to help them make portfolio decisions.  Fund managers use every tool in the shed, including technical analysis.   

How Popular?
If it works best for personal investors, then why don't more of them use it?  One reason is financial institutions want people to think they are unable to manage their own portfolios. If people believe they are unable to do it for themselves, then they have little choice but to hire a professional.  Yet, I am willing to bet practically every nurse on the planet can read a chart, so, why not a stock chart?   

References
Another reason people won't time the market is because is doesn't work for them.  While that may seem like a perfectly good reason, we have to wonder why it doesn't work.  It actually is not because timing the market does not work, it is because most people are, well, people.  Given to emotion, most people buy high, and sell low - just the opposite of what they should be doing.  As a result they label timing the market as being too hard, even impossible.  Their inability makes it clear to them that market timing, simply, does not work.

Denial
Yet another reason everyone does not try to time the market is because of something called denial.  Not a lot of people want to believe that group behaviour is, in some way, predictable.  We see ourselves as acting independently of those around us.  After all, we have a mind of our own.  How dare anyone suggest our decisions are similar to that of many others despite the fact their situation may be similar to our own.  Denial is far more than just a river in Egypt.

Either/Or
I have never understood why, but there is another whole segment of investors who believe technical analysis precludes any sort of fundamental analysis.  One taints the other.  I say, why work with only one hand, when we are perfectly capable of using two?  The result of using one technique should complement the use of the other, not contradict it.

Bottom Line
We can see there are all sorts of reasons why everyone will not embrace technical analysis and market timing.  The belief that everyone needs to is yet another example of the misinformation surrounding the real issues.

Convinced?  Should market timing be expected to work for everyone?