Share this
Twitter
Myspace
Digg
Del.icio.us
Reddit
Slashdot
Furl
Yahoo
Technorati
Newsvine
Facebook
Export PDF
Print
E-mail
Tags
Article Index
BY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
BOROSON ON MONEY
The fellow who knows the most about market-timing is, without doubt, Paul Merriman, a money manager in Seattle. And he informs me that the most common form of market-timing is called: ICSIA.
Which stands for: “I can’t stand it anymore.”
When the market goes down, gutless, lily-livered cowards sell out. (Like me.) They get out while they think the getting is good. Actually, they get out when the getting is terrible. That is actually a wretched form of market-timing – getting out at just the wrong time.
Market-timing means changing your investments both to avoid bear markets and to enjoy bull markets. (Bears drag you down, bulls lift you up.) Very nice indeed, if you can manage it.
For more in finance, check out NJNR's new Personal Finance Page.
Merriman is the founder of Merriman Inc., which handles $1.6 billion, of which $300 million or so is subject to market-timing, the remainder to buy and hold.
He isn’t surprised that Vanguard Asset Allocation, a famous market-timing fund, has bitten the dust. “I see the Vanguard AA fund result as being a combination of picking the wrong asset class and applying market-timing decisions that are based on fundamental economic analysis,” he says. “In other words, trying to outsmart the market.
“As you know, they lost a lot of money in 2008, just what a market-timing client expects a manager to protect him against.”
He explains that the Vanguard fund didn’t do enough to protect people against the downside. It never went heavily into cash. The managers tried to predict which would do better, stocks or bonds; they were sector rotators. Whereas, if you had gone into cash, you wouldn’t have lost as much, or have lost anything at all.
Merriman, who has tracked the performances of professional market-timers for many years, believes in going to cash when the alarm bells are dinging, and returning to the fray when the alarm bells quiet down. He doesn’t fight the tape. (Ask your parents what the tape is.)
“The trend-following timing we use never attempts to predict whether the next signal is the start of a big bear or bull,” he says. “We have to assume that every change of trend is the start of something big on the upside or the downside. In 1987 we went entirely to cash a month before Black Monday. Although people tried to give me credit for calling the crash, we were simply out of the market when it crashed.”
No, he doesn’t pay attention to inflation levels, price-earnings ratios, investor sentiment, longs versus shorts, and other supposed clues to where the markets are going. “There are always lots of reasons for the market to go up or down. We let the price trend dictate what is most likely to happen next.”
But only 1 in 100 investors can actually do the market-timing that he does, he acknowledges. You’ve got to resist the all-too-human temptation to sell during any decline, to buy during any old rally. He himself has a mechanical model he follows. He doesn’t make the sell or buy decision. A computer does.
