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Investment Strategies
   Market Timing
Improving on Buy and Hold: A Buy Signal
By Georg Vrba, P.E.
December 13, 2011

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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

In my August 2010 article I advocated a market timing strategy, to sell or significantly reduce one’s stock holdings in anticipation of a recession or slowdown in the economy and switch into cash or a low-beta Treasury bond fund, and then reverse the process ahead of a recovery. I presented a model to determine the timing of each move.
I have updated this model and a type-A buy signal was generated on December 9, as shown in figure 1.

Since publication of the original article two previous signals were generated: a buy signal in October 2010 and a sell signal in May 2011. Both signals provided the expected results. The S&P 500 index gained about 13% from the date of the buy signal to the date of the sell signal and has since lost about 7% to the date of the new buy signal.

I have made some changes to improve the model. Figures 1 and 2 incorporate these changes and have been updated to December 9, 2011.

2009-11 Fed Funds Rate

Figures 2 shows the returns for investments made using the starting value of the S&P in 1966 and 1980. Following the model’s signals, one would have obtained about double the average annual return than from a permanent investment in the S&P, and the value of one’s investments now would have been about 15 and 7 times higher than the current value of the S&P for each of the two starting dates, respectively.

Recessions, Weekly leading Index Growth

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