Market Timing Suks?

Stocks on The Move

@Andreas Clenow . After some unsuccessful attempts to develop market timing models for investing my wealth I finally turned to passive investing and specifically to Vanguard funds. I do not particularly regret the money I spent to buy your books but little or nothing in them has worked in the last 5 or even more years. Your volatility targeting method generated large losses and was a disaster. I followed your fund in Bloomberg (Yes, I have a terminal in my office still) but now it is not listed after several years of negative returns as shown in attached.  My question to you: do you believe after your failures that market timing is still viable?

What was this method? I ask because I am a believer in tactical asset allocation. And Markowitz seems a pretty good route (by way of example).
Markowitz Portfolio

As to buy and hold of Vanguard Funds, yes indeed. Except there is no such thing as “buy and hold”. With the S&P 500 ETF by way of example you only hold stocks so long as they remain in the S&P. You are buying, effectively, a trend following system on US economic growth. As to whether you should add a timing mechanism on top of that ETF is a further question but one that is by no means as simple as it seems. A 60/40 equity bond split works on “market timing” in a sense – you are profit taking and re-allocating to the losing side on a regular basis.

Where criticism of trading sites is justified is to the extent that participants are fooling themselves with ludicrously optimistic back tests based mostly on leverage and or curve fitting.

Quantopian itself can not be criticised on these grounds. All they do is to provide a top notch platform which gives the inexperienced, the gullible and the foolish enough rope to hang themselves. I am not a believer in their approach of gearing a “market neutral” approach to the eyeballs but I am a HUGE fan of the research they produce (the above link being a prime example).

Most people become disappointed because they are enticed by impossible returns marketed in many cases by cynical rogues with phrases like “make millions from scratch by doing bu**er all.”  I don’t think Mr Clenow is guilty of that.

There have been many intelligent comments here on Quantopian in particular by Michael Harris who has severe doubts about market timing – or at least the trend following variety. Fair enough and who knows he may well be right. But if you don’t operate SOME form of decision making on when to enter and or exit you will end up owning the future equivalent of Weimar Germany bonds and a bunch of bankrupt economies.


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