Market timing systems must include Buy and Hold as a timing strategy. When we provide rankings of trading systems, we always include Buy and Hold as a trading system. There are still many investors that believe Buy and Hold is the right strategy for investing. Trading System research needs to compare not only a variety of trading systems, but also how any trading system used to time the market compares. We always include Buy and Hold in our rankings. For some indexes and ETF’s, Buy and Hold may perform well for periods of time.
The recent rally in the stock market from the exact time frame of March 6, 2009 to December 31, 2009 would see Buy and Hold as the best market timing strategy to use. Most trend following systems did not switch from short positions to long positions until late March or April of 2009. Longer term trend following systems, like the 200 day moving average market timing system did not change from a short position to a long position until July 2009.The Buy and Hold proponents, argue that Buy and Hold works! They forget about the previous 14 months which saw declines in those same indexes. None of the indexes exceed the highs of October 2007.
Let’s look at the Dow Jones U.S. Financial Sector Index® as represented by the IShares IYF.
I have provided readers a chart of Plan Trend 3, the 200 day moving average market timing signals delivered daily in our Daily Trading Signals Service for the IShares IYF.
The IYF, Dow Jones U.S. Financial Sector Index® more than doubled from March 6, 2009 through December 31, 2009. Does Buy and Hold work? If you look at the longer term chart below, the IYF is still down more than 50% from 2007 price levels.
If your view of market timing is to look at short periods of time to determine which market timing system performs best, you may be disappointed over other periods of time. Market timing strategies, including Buy and Hold, need to be viewed over a longer period of time. A broken clock is right twice a day. Buy and Hold will also be right at certain times. When considering any market timing or systematic trading plan, I believe that looking at various market cycles and how any market timing method fared during Bull and Bear markets.
Portfolio management is not easy! If you are not a financial professional, please obtain advice from a financial professional before engaging in any investment strategy. Be sure to know the risks of market timing or Buy and Hold strategies.
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