Is Buy and Hold Dead? Part III

Part I - May 13, 2009
Part II - July 6, 2009

Can you name the 10 most successful market-timers? No, how about the top 5? One?

I can't and it's not for lack of searching. Market timing is a very attractive idea that has seen quite a resurgence due to this dreadful bear market. It's attractive and impossible.

As proof, I offer Joseph Granville who was considered to be the market guru of the 1980s. He made some very impressive market timing calls and at one point could actually move the market in one direction or another based on what he said that day. Joe sold his market timing advice via a newsletter.

Mark Hulbert publishes the well researched, Hulbert Financial Digest where he monitors the performance of 100s of investment newsletters. I've used the Digest to get an independent assessment of a newsletter's quality and I respect the data Mark provides.

Go read what Wikipedia has to say about Joseph Granville. Hulbert Digest data is mentioned there.
http://en.wikipedia.org/wiki/Joseph_Granville

Well -20% per year is so awful that it is not to be believed. So I looked it up in the Digest for myself and Granville's Traders Portfolio achieved -0.2% per year since mid 1980 (still awful). If you invested in the Wilshire 5000 (all domestic stocks) you earned +10.3% per year.

Starting with $1,000,000 29 years ago and compounding it at -0.2% annually, you end up with $943,595. In contrast, the Wilshire 5000 investment is worth $17,166,820.

You would think at least the Granville portfolio was less risky than the Wilshire 5000, but no, Hulbert says the Trader's Portfolio was 5% more risky.

Conclusions:
1) Market timing doesn't work and never will.
2) The only people who made money on the Trader's Portfolio were the people selling the newsletter!

P. S. if you compound $1M at -20% for 20 years you have all of $1,547 left.

Thanks to Harold Evensky and Financial Advisor Magazine for the idea for this article.