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ALL ABOUT MARKET TIMING the Easy Way to Get Started FM Masonson141331-6 8/27/03 10:24 AM Page Ii FM_Masonson141331-6 8/27/03 10:24 AM Page i ALL ABOUT MARKET TIMING The Easy Way to Get Started FM_Masonson141331-6 8/27/03 10:24 AM Page ii OTHER TITLES IN THE “ALL ABOUT . .” FINANCE SERIES All About Stocks, 2nd edition by Esme Faerber All About Bonds and Bond Mutual Funds, 2nd edition by Esme Faerber All About Options, 2nd edition by Thomas McCafferty All About Futures, 2nd edition by Russel Wasendorf All About Commodities by Thomas McCafferty and Russel Wasendorf All About Real Estate Investing, 2nd edition by William Benke and Joseph M. Fowler All About DRIPs and DSPs by George C. Fisher All About Mutual Funds, 2nd edition by Bruce Jacobs All About Stock Market Strategies by David Brown and Kassandra Bentley All About Index Funds by Richard Ferri All About Hedge Funds by Robert Jaegar All About Technical Analysis by Constance Brown All About Exchange-Traded Funds by Archie Richards FM_Masonson141331-6 8/27/03 10:24 AM Page iii ALL ABOUT MARKET TIMING The Easy Way to Get Started LESLIE N. MASONSON McGraw-Hill New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto ebook_copyright 6x9.qxd 10/21/03 11:43 AM Page 1 Copyright © 2004 by Leslie M. Masonson. All rights reserved. Manufactured in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. 0-07-143608-1 The material in this eBook also appears in the print version of this title: 0-07-141331-6 All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps. McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales pro- motions, or for use in corporate training programs. For more information, please contact George Hoare, Special Sales, at [email protected] or (212) 904-4069. TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc. (“McGraw-Hill”) and its licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill’s prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to comply with these terms. THE WORK IS PROVIDED “AS IS”. McGRAW-HILL AND ITS LICENSORS MAKE NO GUAR- ANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMA- TION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the func- tions contained in the work will meet your requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inac- curacy, error or omission, regardless of cause, in the work or for any damages resulting therefrom. McGraw-Hill has no responsibility for the content of any information accessed through the work. Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of lia- bility shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise. DOI: 10.1036/0071436081 DOI Page 6x9 10/2/02 1:33 PM Page 1 Want to learn more? , We hope you enjoy this McGraw-Hill eBook! If you d like more information about this book, its author, or related books and websites, please click here. FM_Masonson141331-6 8/27/03 10:24 AM Page v DEDICATION To my beautiful wife Marilyn, the love-of-my-life, who has brought out the best in me. To my wonderful children, Dan and Amy who have achieved their own successes. To my confident son-in-law, Seth Reese, who has brought dedication, skill, and perseverance to a challenging profession. To all investors all across America. May you all benefit from the research and strategies in this book to find a smarter way to invest. This page intentionally left blank. FM_Masonson141331-6 8/27/03 10:24 AM Page vii For more information about this title, click here. CONTENTS Foreword ix Acknowledgments xi Introduction xiii PART 1 MARKET-TIMING BASICS Chapter 1 The Stock Market = Bull Markets + Bear Markets 3 Chapter 2 The Buy-and-Hold Myth 23 Chapter 3 Market-Timing: What You Need to Know39 Chapter 4 Ten Indicators to Determine the Market’s Health 51 Chapter 5 Specialized Mutual Funds: Index, Sector, and Leveraged Funds 75 Chapter 6 Exchange-Traded Funds 89 PART 2 MARKET-TIMING STRATEGIES Chapter 7 Calendar-Based Investing: The Best Six Months Strategy 99 Copyright 2004 by Leslie M. Masonson. Click Here for Terms of Use. vii FM_Masonson141331-6 8/27/03 10:24 AM Page viii viii CONTENTS Chapter 8 Combining Presidential Cycle Years with Seasonality 119 Chapter 9 Using Moving Averages 131 Chapter 10 Value Line 4 Percent Strategy 153 Chapter 11 Nasdaq Composite 6 Percent Strategy 183 PART 3 MARKET-TIMING RESOURCES Chapter 12 Market-Timing Resources: Newsletters, Web Sites, and Advisors 193 Chapter 13 Market-Timing Software 217 Epilogue 227 Bibliography and Web Sites 231 Index 235 About the Author 245 FM_Masonson141331-6 8/27/03 10:24 AM Page ix FOREWORD Market timing is not a fun vocation or avocation. It is tough and ugly. I know this well, because I’ve been a market timer in the trenches since 1983, both as an investor and as an advisor. Timing requires thick skin and iron resolve. Because it is not understood, market timing is almost universally scorned on Wall Street. Yet market timing is an important tool for investors. When it is used consistently over long periods of time, timing can dramati- cally improve returns while it reduces risk, as Leslie Masonson has demonstrated repeatedly in this book. If this book is studied by the establishment financial media, it can help to reduce a tide of misguided negative articles about timing. Too many financial writers have discovered they can easily “prove” that timing doesn’t work and can’t possibly work. However, those authors rarely specify any measurable definition of what would be necessary for a strategy to qualify as one that “works.” I’ve found that timing is 100 percent successful at reducing market risk, by periodically getting investors out of the market. Every day your assets are in a money market fund, that’s a day they are not at risk in the market. If timing keeps you on the sidelines 25 percent of the time, timing has reduced your risk by 25 percent. Results from timing almost never look like returns from a buy- and-hold approach. This can be disconcerting and upsetting. But to a long-term investor, this noncorrelation amounts to a form of diversification. Why do so many people believe that timing doesn’t work? I believe the answer is twofold. First, most investors who undertake market timing are not prepared for the rigorous discipline it requires. They quickly become discouraged when they discover that timing systems are statistically “wrong” much more often than they are “right.” Copyright 2004 by Leslie M. Masonson. Click Here for Terms of Use. ix FM_Masonson141331-6 8/27/03 10:24 AM Page x x FOREWORD Second, market timing is misunderstood. No investing rule is more fundamental than this: Don’t invest in something unless you understand it. I think the reason timing disappoints so many investors is that they don’t understand it. Masonson’s book will help remedy that. He has put together the information and the tools that investors need to make timing work for them. He has taken a complex topic and made it accessi- ble for real people. The biggest problem facing most investors is that they need the potential growth they can get from owning equities—while at the same time equities are quite volatile—too much so, for most people. As far as I know, there are only two solutions that make sense. One is to allocate as much as necessary of a portfolio to fixed- income funds. This brings stability, but at the cost of the long-term returns of equities. The second solution, the topic of this book, is market timing. As this book shows, mechanical market timing makes it pos- sible for investors to achieve the returns they need at lower volatil- ity.
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