Today, I plan to share the investment insights Benjamin Graham, Warren Buffet’s mentor, gleane...
Is Market Timing Dead?
07/27/2012 7:30 am EST
Veteran market timer Jack Schannep, who developed the Schannep Timing Indicator, explains why it is difficult to time the stock market, and how his approach has worked.
Is market timing dead? We are here with Jack Schannep, who is going to tell us whether it is dead or not. Jack?
It’s certainly not dead, but it is certainly not easy. It’s difficult, primarily because there is only one way to beat buy and hold, and that is to buy back below where you sold.
If you sell and come back at a later level, you’ve lost out. And even knowing when to buy and sell at a higher level doesn’t necessarily beat buy and hold, because buy and hold is doing the same thing—going up at the same rate as you are invested. So there is only one way: you have to sell correctly and buy back correctly. And it is difficult, but it can be done.
In my market letter, Schannep Timing Indicator in thedowtheory.com, I actually have three indicators. One, of course, is the Schannep Timing Indicator, which is in the title. The other is the Dow Theory, which we have, of course, evolved into the 21st century...but nonetheless, it’s basic Dow Theory. And finally, a composite of the two.
Those three indicators have, according to Hobart Financial, beaten buy and hold in the most recent five and ten-year periods, which is as far back, frankly, as he has been able to follow my letter. But it can be done.
It has been done. Others do it, but it is very difficult to do on a consistent basis, and one of the premises of the Dow Theory itself was that it is not invincible, and there is no method that’s invincible. There are always errors made.
But we have been able to buy close to market bottoms because of a capitulation indicator that we have. Selling near the top is harder, and I won’t say it can be done...certainly cannot be done on a consistent basis. Anytime someone sells at the top, you can bet that’s his one call of his lifetime.
Right; right. Now, does the recent volatility in the markets affect your timing indicator, or the lack of volume that we’ve seen recently?
Well, it really doesn’t, because we are looking at the primary trend. The primary trend is the place to make money.
The secondary trends, intermediate trends, are OK for traders, but lots of luck even there. And of course the short-term trend, the daily fluctuations, are meaningless in the long run. The only ones interested in those are the 24-hour cable financial news, which has to talk about something every day.
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