Market Timing Verses Holding for Profitable Safe Investing

A recent article in a noted financial magazine discussed the folly of market timing verses buying good stocks.  The author pointed out how a ten year investment in a strong stock could produce substantial gains, but at the same time, he admitted that buying and selling the same stock a few times over the span of 10 years produced almost twice the results…if you timed the purchases/sales correctly.  In essence, giving many examples and reasons, the author shot down the concept of market timing while making a case for buy & hold.

The true folly of anti-market timing arguments is that they always focus on tracking particular ticker symbols and questioning the ability of the investor to buy or sell at the right time.  You could argue that all of the personal investment software programs that give buy/sell recommendations are market timing programs, but that would be stretching the argument way out of perspective.  The advantage with some investment software programs is that they can tell you when a ticker is going down and when another ticker is outperforming your current holdings, even if your current holdings are still going up. This added edge means that losses are limited by your sell rules, and gains become cumulative so as to far surpass results from simply holding an individual symbol long term…market timing verses holding for profitable safe investing.

The folly of taking a buy/hold approach has been fully illustrated through our recent recession, and again through 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, and the latest market swings have been almost as dramatic.  While many portfolios recouped a lot of their value when the market swung up from the recession lows, few, if any, fully recovered and then surpassed their pre-recession levels 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 to the extent that it hit many other people because my personal investment software first moved me out of the markets and then told me to buy just as the markets were swinging up so my gains were based on nearly the same value as before the crash.

A recent decline in the markets also triggered my personal investment software to advise me to sell, and I moved 80% of my portfolio value into cash, placing me in an excellent position to obtain future gains when the market rebounds.  In other words, buy and hold means your stocks and your portfolio are going to jump up and down like a roller coaster ride.  While I like riding the Space Mountain roller coaster at Disney World, I would rather my portfolio traced a route that resembled a scenic drive along a valley floor leading to a mountain top.  It might have a few ups and downs, but basically it’s moving along on a constant upward path – kind of like following the Missouri river to its mountain peak origins.

The key is not simply market timing, but it’s also picking positions (stocks, ETFs, or mutual funds) that are moving ahead better than others, even better than what your current holdings are doing.  This is accomplished by implementing:

  •  Relative strength analysis using alpha or relative strength momentum (RSM)
  • Implementing sell signals based on stops, ranking level, and market movement

Note: These aren’t your only options; they are just two examples of what’s possible.

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. This is what safe investing is all about.


Dominick is the designer of the investment program Dynamic Investor Pro, an investment software used by individual investors and professional investment advisors for stocks, ETFs or mutual funds

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