Jumat, 09 Desember 2011

Market Timing Vs Holding

A recent article in a noted financial magazine discussed the folly of market timing versus buying and holding good stocks. The author pointed out how a ten year investment in a strong stock could produce substantial gains, while admitting that buying and selling the same stock a few times during the 10 years produced almost twice the results...but only if you timed the purchase-sale correctly. In essence, with many examples and reasons, he shot down the concept of market timing while making his case for buy & hold.
The true folly of anti-market timing arguments is that they always focus on tracking particular tickers symbols and questioning the ability to buy or sell at the right time. You could argue that all programs that give buy-sell recommendations are market timing programs, but that would be stretching the argument way out. The advantage with some software is that they can tell you when a ticker is going down and when another ticker is outperforming your current holding, even if your current holding is still going up. This power means that losses are limited by your sell rules and gains become cumulative so as to far surpass results from simply holding an individual ticker.
The folly with taking a buy/hold approach has been fully illustrated with our recent recession and again with the recent turmoil and drops in the markets. News headlines during the recession pointed out how retirees had lost 40-60% of the value of their portfolios. The latest market swings have been almost as dramatic.
While many portfolios recouped a lot of their value when the markets swung up from the recession lows few, if any, fully recovered and then surpassed their pre-recession level to the same degree as the markets climbed out of the recession if they were still holding the same positions.
I know the recession hit my portfolio - but not nearly as bad as most because the software I was using told me to sell and move to cash. The same software then told me to buy just as the markets were swinging up so my gains were based on about the same value as before the crash.
The recent decline in the markets also triggered the software I use to sell and I moved 80% of my portfolio value into cash, placing me in an excellent position to obtain future gains as the market rebounds.
In other words, buy and hold means your stocks and your portfolio are going to jump upon a roller coaster ride. While I like riding the Space Mountain roller coaster at Disney World, I would rather my portfolio traced a route more like going on a scenic drive along a valley floor that has a few ups and down but is basically moving on a constant upward path - kind of like following the Missouri up river to its high mountain peak origins.
The key is not simply market timing, but rather to picking positions that are moving ahead better than others, even better than what your current holding is doing. This is accomplished by implementing:
• Relative strength analysis using alpha or relative strength momentum
• Implementing sell signals based on stops, ranking level and market movement - just to mention a few.
By selling to strength, limiting losses and exiting the market when risk becomes too great, your portfolio has a better chance for substantial gains with minimum losses.
Author Raymond Dominick is the designer of Dynamic Investor Pro investment software for stocks, ETFs and mutual funds. He has been investing in the markets since his teenage years. An experienced business manager and journalist, he has been a registered investment advisor representative, also a professional photographer who loves escaping to the wonders of Glacier National Park in Montana. View his software at: http://www.dynamicinvestorpro.com
Article Source: http://EzineArticles.com/?expert=Raymond_Dominick

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