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Can Active Management
Save Your Portfolio?
Active
Management increases gains and safety.
Would
you like to see your mutual funds grow with less market volatility?
Do you desire real growth but can't stand market volatility?
Would you like to get off the roller coaster ride?
You Can! Here's the Secret ....
... avoid the down days.
In the fall of 2001, Barrons magazine published an article showing
that if a $1000 investment was bought in February of 1966 and held
through October 2001 that it would have grown to $11,710. Then it cited
a study done by Birinyi Associates, a Connecticut investment firm,
stating that during the 36-year period if an investor had been out
of the market and missed the 5 best days each year, then only $150
of the $1,000 would remain.
On the surface, this study should make any investor swear off market
timing. But, successful long term investors know to dig below what
appears on the surface.
Recognizing the impossibility of a theoretical active timing system that would
cause an investor to miss only the best 5 days of the year, the Birinyi
study went a step further and explored if a timing system could be
invested all but the worst 5 days of the year. In this scenario the
$1,000 would have grown to whopping $987,120.
This theoretical system is just as impossible; but, it does suggests
that there is greater reward over the long run by missing the worst
days even at the risk of missing the best days.
Missing the worst days is what market timing is all about. While I
don't think a perfect market timing system exists that will miss all
of the worst days every year. And I don't think that there ever will
be. But, I have discovered that the system does not have to be perfect.
In the scenarios above, the perfect market timing system returned 8,000
percent more than the buy-and-hold. A good market timing system can
capture a large part of that 8000 percent. A great market timing system
can capture even more and it does this with less overall market risk
and greater portfolio liquidity. This is the great secret of Market
Timing.
Guerrilla Tactics:
Winning in the investment trenches
one battle at a time.
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