To time or not to time? That’s the question. Too often investors’ expectations of the perfect market timing model aren’t rooted in reality.
“Market noise,” is alive and well today, thanks to Wall Street and mainstream media, but it rarely paints reality for investors.
If you keep the timing discussion super simple, and believe me it can get super complicated, investors should employ timing strategies for ONE reason and one reason alone: to avoid major market corrections.
Well take the last market timing NOISE head-fake in October, a mere 30 days ago (ahem, the market is up between 8-10% since then). Pundits and media were calling for a major market correction, so how did you know it wasn’t so? Noise proliferated about the 200 day moving average and deflation and fears of a recession in Europe. How was an investor to know that this was not a time to sell?
Welcome (drum roll): Stop, Drop and RULE.
That’s right, not “stop, drop and roll,” but “stop, drop and RULE.”
When you hear fear and loathing in the media, stop listening, drop the remote and go to the rules.
While we have our own set of vetted, time-tested investment rules and are willing to share, you or your advisor may have a handy set that has withstood decades of Wall Street and the media’s shenanigans. Use them!
Eliminating the emotion by employing rules, will assist you in avoiding major market corrections by timing correctly, in the right landscape.
Lets dive deeper.
The number one go-to for avoiding a head fake such as what happened to investors in October of this year (and every year, really) is the all-confidence-instilling, relative strength asset scale line-up.
If you simplify all assets into six major categories, from Stocks to Bonds to Cash, for example, you can take a look at these asset classes and get a great feel for the investing landscape. Timing is all about the risk level of the investing environment.
If the landscape is rosey (low risk), and the media wants to sell you a market correction, “stop, drop and rule”.
Conversely, if the lineup is quite bearish, with say, Commodities as the #1 performing asset class, our rules would call for serious risk-taking measures. Rest assured that now, despite what you hear in the media, it probably came to you too late. But let’s just say that whatever the media is reporting in a landscape that is NOT so rosey, they’re probably right (gloom).
Again, lets go deeper.
What does “rosey” look like? It (still) looks like it did a month ago. For many of the many investors who sold into the media noise last month it hurts, but the truth is that the current landscape couldn’t be ANY ROSIER.
Our friends at Dorsey Wright & Associates publish the relative strength of the Asset Classes listed vis-à-vis how they are performing to Cash. Here’s what the line-up looks like right now in order of best to worst performing:
- Domestic equity
- International equity
- Fixed income
- Foreign currency
A line-up offers great returns, here. You see, the most Bullish landscape we as investors can be offered is above, with US stocks or domestic equities in the #1 spot, followed by international equities.
Conversely, in January 2008 (the market lost 37% in 2008) the above line-up was completely REVERSED (remembering that the 2008 crash happened in SEPTEMBER, so this tool steered us clear very early). Domestic and international equities were at #5 and #6, and Commodities at #1. THAT landscape is one to listen to the “noise.” Our quarterly newsletter also reports the line-up, if you’re interested in keeping up with the investing landscape.
If you expect to time your investments and come out on top, then get a disciplined plan that offers time-tested rules. Listening to CNBC warn of the S&P dropping below the 200-day moving average isn’t enough to act upon.
And may we suggest – let some relative strength guide you to the reality playground. If your sandbox of choice is the relative strength sandbox, then it’s possible your timing expectations may meet with reality.
Above all – quiet the noise and “stop, drop and RULE”.