Timing models that follow price trends are technical timing models. When your religion commands you to hold stocks even when the market is behaving self-destructively, it's time to find a new faith.
But neither do I buy the random-walk theory, because my Holy Grail verifies the existence of trends.
I am not a market timer, because I can't foretell the future. Reading tea leaves is acceptable as long as the tea has a "fundamental analysis" label, but market timing is treated as voodoo because it offends the academic elite, whose devotion to the notion of random walk is almost religious. Perhaps what sparks resentment toward market timers is not their predictions, but how they make their predictions. Financial analysts forecast earnings and economists make recession calls routinely, yet academics ridicule market timers as fortunetellers, and market timers resort to labeling themselves as tactical investors to avoid the stigma. The EMH does not automatically endorse buy-and-hold, nor does it compel investors to endure losses in bear markets. Now it’s time to extend my approach by showing how this methodology can be applied to fundamental indicators to further improve performance. Rather than endure losses in bear markets – as passive investors must – I have shown that a simple trend-following model dramatically improves results, most recently in an Advisor Perspectives article last month. It violates the efficient market hypothesis (EMH), they say, and it is nothing more than market-timing in disguise.īut they are wrong. Originally Published Apin Advisor Perspectivesīuy-and-hold advocates cite two reasons why tactical investing should fail.
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