About a month ago, the beginning of January, a reader contacted me to comment on my Trend Tracking Indexes (TTIs).
He liked the idea of following trends, but believed that the potential buy signal back into bullish territory was not happening fast enough. So he designed his own accelerated system, which indicated a move back into equities at that time. His reasoning was that, since he had lost a lot of money in the past he had a lot of making up to do, so he couldn’t waste anymore time waiting for my “slow” TTI to generate a new buy signal.
This is simply a bad idea for several reasons:
1. Looking back at January, we now know that the S&P; 500 lost some 8.5% and, most likely, this reader lost a similar amount with his new strategy.
2. Being aggressive by moving into the market based on “having to make up losses” is simply being ignorant and/or desperate. That idea alone will produce more losses more often than not.
3. The reader is trying to do what is commonly referred to as “curve fitting,” which means tightly adjusting an investment method to current circumstances. When the circumstances change, he needs to make adjustments again and again.
An investment method should be tailored like a comfortable suit. Not too tight and not too loose so that a couple of pounds either way won’t require you to constantly have to make alterations.
Comments 3
Dangerous move by your reader, IMHO. This is simply “market timing” and has little basis in reality. What if the market keeps heading down (as predicted by many)? This is no time to be “guessing” with a new system.
Your TTI works very well, Ulli. Thanks for keeping us solvent.
I agree…. I tried that last year and lost an additional 5%. Best to stick with Ulli’s TTI and exercise some discipline
I can see someone maybe investing a very small amount in a bottom-fishing attempt, but in doing so the odds are that you become the fish and the bottom is still a long way off.
Following a trend works better, but unless the S&P; crosses the 100 day moving average on the upside, there is very little likelihood of a trend change. The 50-day moving average is often the bouncing back point and might indicate a good entry point for shorting the market.
I'm sticking to cash and very short-term bonds at present.