I have found many readers on this site to be very sophisticated financially. You all do the homework, read and learn, and try to make the best decisions you can.

Many of you on this site believe and understand that a stock picking mutual fund usually can't outperform the S&P 500 index and charges higher fees than a standard index fund.

I was able to outperform the S&P 500 by over 7% in the last month by just rotating out of the S&P 500 index as the market looked like it was topping out. Its a very simple program that involves buying an index fund as the market begins moving higher and rotating into other bond funds that move higher as the market sells off. These bond funds also pay MONTHLY dividends. You stay diversified at all times and keep your fees as low as possible.

This is a program we offer at Goldberg Financial.
You can follow my blog here: http://financeinlife.blogspot.com/2012/ ... -time.html

I find it laughable that your time frame for comparison is one month.

Agreed that a one-month comparison is silly. Anyone can beat the market over one month. Let's see how this strategy of market timing fares over 20 years.

Many investors have little trouble beating the market over short time horizons (a few months to a few years) with managed funds, and triple-digit returns are not uncommon for people who buy individual stocks. What's harder is maintaining those leads over periods of decades, which for most individual investors is the time horizon that matters because they're investing for retirement.

There are, of course, some investors who buy individual stocks, assemble their own portfolios, and have beaten the market over long periods (30 years or more). I know a couple of them, and their net worth is well into the millions, but they work at it full time. I spend about four hours per year managing my investments, and that's about how much time I want to spend. I'll never be as wealthy as my acquaintances, but that's fine with me: getting rich is not my priority. For those of us who don't work at investing full time but want to maximize our potential return by avoiding the drag caused by fund fees and financial advisors, a regularly rebalanced portfolio of index funds and bonds is still likely to be the best choice. You might be successful in timing your rebalancing so that you lock in your gains, but most people can't time the market consistently over long periods of time.

While I (mostly) agree with your post, you raise some interesting ideas for discussion. So many statements like the above have been repeated so often that we accept them as fact. But I'm not sure they are the "givens" that many people make them.

I think the market is generally efficient but that does not mean the efficiency is perfect. I also tend to think that timing works over some time periods, mostly medium term. But that does not mean I believe it is effective enough to add more than modestly to returns.

It was fairly obvious to me in September that the market had gone up really fast and we were facing major uncertainty toward the end of the year over the fiscal cliff. So, I made some major stock sales. This was partly driven by a desire to shift asset allocation but I most certainly accelerated when I did it for timing purposes and I noted that publicly here. That timing save me about 1000 Dow points.

I agree that in general a one month period is way too short to matter and I also agree that reducing fees is one of the most critically important things any investor should focus on. But I have personally benefited over the years by making a few timing moves - but these are infrequent, about 3 major ones in the last dozen or do years.

Mr. Goldberg,

You say you outperformed the S&P500. If that after fees? Before or after risk adjustment? And more importantly, let's hear some actionable suggestions about the future. For all we know you held 10 different portfolios and are only mentioning the winning one. How about telling us what to do tomorrow, next week, and so forth over the next month. I'm not asking you to give away the recipe for your secret sauce. Just tell us some things in advance so we can confirm you are not simply cherry picking after the fact.

I think the question is: if you see strong signals for a downward shift ahead and you sell off shares to lock in your gains, would your gains have ultimately been even greater if you'd held onto those shares and rode out the trough?

I've often thought about pursuing this kind of timing strategy: to use stocks to bring in large short-term returns, sell them once their growth crosses a percentage threshold and buy bond funds in their place, then repeat that process to lock in more gains. But I'm not convinced I'd be any better off than if I'd simply bought and held for 30 years.

Like I said, the timing moves I've made have been infrequent, every 4 years on average. I am not advocating it as a normal strategy for most people. But the market essentially exhibits crowd behavior. Just like if you watch a large protest or celebration you can make certain predictions, I think most people with a little bit of common sense can do the same with major market moves if they pay attention. In the late 90s everyone was so hung up on the y2k problems and everything else related to the end of the millenium that no one was really paying much attention to anything else. At the same time EVERYONE was an expert on stocks and was giving stock tips.

It really didn't take a genius to predict that the party was coming to an end and there would be a lot of hangovers in the morning. That's not just hindsight on my part, I actually did sell much of my stocks on about January 10 of 2000. That was my first major timing move. I gradually went back in then sold another huge chunk in early September 2008 after making modest sales throughout 2007 and early 2008.

I don't think I applied any particular genius in any of these cases. It was just observing that the crowd was becoming seriously irrational and was not likely to continue that way.

Right now I don't think we are at a major crossroads. I think we have a lot of BS to get through including the fiscal cliff and political gridlock/ineffectiveness in general. Those things, along with the debt, deficit and bloated Fed balance sheet, are going to be a drag on growth for several years. In spite of that the market was approaching all time highs recently (but never got there of course). I expected a 10%ish cooling off and I think we are in the middle of that. So my decision was whether to sell, wait for a correction then go back in at a lower point or sit tight and right out the trough. The risk in selling was missing a big gain but the market was up about 15% for teh year so a 10-20% gain would be truly historic. The risk in staying put was experiencing a deeper trough (say 20%) and I could easily see that happening. I simply made a decision based on relative risk.

For what it's worth I've thought about going back in now but will probably wait until early next year or when the 2013 tax rules are known. I fully expect the fiscal cliff to be avoided and realize that by waiting until next year I will miss the celebratory relief rally. I'll also predict that December 29 and 30 will be truly brutal and very heavy volume days if there is no signed deal by then on capital gains. Why? Because anyone with a taxable portfolio is going to want to lock in the low tax rate rather than take a chance. When the discount rate for paying things early is miniscule as it is now, even if I don't think taxes are going up, the cost of avoiding even that small chance is very low. So I will probably sell a few days ahead of that if we don't get a nice Christmas present from our politicians. That's timing but if I sell I will probably buy again very soon so I expect a rally in early 2013, assuming there is a deal.

I would also point out that people make timing decisions all the time. Dollar cost averaging is a timing decision for example.

The speculative portion of my portfolio* is up more than 12% just today, completely destroying the measly +0.23% gain for the S&P. And much better than GF's measly S&P +7% over a whole month.

You should all line up to start giving me money for market advice.










*Currently that portion is one single stock

What's your website? Do you accept online transfers? Even on holidays like today?


So that's the secret. Does it matter which stock I pick?

You have to send me money first... I accept paypal

Do you accept leftover turkey?

Of course.

And I'm up another 7.5% today... I must be the next Warren Buffett

Wow. But I've decided turkey leftovers have more value to me than stock tips...


I think I'd be hitting the sell button

I'm evaluating that option now. I bought the stock recently because I thought it hah been beaten down too much and had a good chance of doubling or better over the next year. It jumped quicker than I thought. I need to determine whether its still a good hold.