Market Timing is Not a Joke
I feel like MF author Rex Moore has picked an opportune time to bash market timing as we are moving higher in the teeth of heavy bearish sentiment. http://www.fool.com/investing/general/2011/09/15/why-market-timing-is-a-joke.aspx?source=ihpsitth0000003
I feel strongly that this is one of the most dangerous market's we have seen in the last 20 years. Lets check back in 1 year on Sept 15, 2012 and see if the bears were wrong about being bearish during the second half of 2011 and first half of 2012. As we speak, Europe is scrambling to prevent a break up of their economic union. The spreading contagion is a natural consequence of trying to unite and hold together several independent and unique economies under one common currency with one interest rate. It was bound to fail.
But back to the main point. I disagree that market timing is a joke. There is a time and place for market timing as a strategy in a portfolio. During times of great uncertainty it is irresponsible to be fully invested in the market all of the time. I don't care how great your individual stocks are. The Coca-Colas and Philip Morris' of the world can tank just as much as poorly run franchises. When there are structural problems in the market individual stocks always display some degree of correlation to the market as a whole. People raise cash during times of fear and bid down even the best companies to move into Treasuries, PM, and cash. (Oct 2008, Now) In troubled times, if you don't want to lighten up on names that sport a competitive advantage, you should atleast lighten up on equity mutual funds or "high beta names," hold some cash, gold, or use a hedge. This is being responsible, not a simpleton.
Now is one such time to avoid a heavily weighted equity allocation with no hedges. As we speak, central banks are trying to preserve liquidity in markets through massive dollar borrowing. In this turbulent environment, you are basically crawling through a mine-field waiting for the grenade to go off if you own a basket of simpleton names.
In a sideways market, like we have had for the past 20 years I contend you could have made just as much using a simple moving average to protect your gains/cut your losses and outperform a basket of top dividend payers. All you had to do was buy a S&P 500 index fund on any break above the 200 ma in the SPX and sell on any break below the 200 ma in the SPX. If you didnt want to sell out of your whole position you could protect your gains by hedging atleast 25-50% of your portfolio with cash, treasuries, put options..etc. Right now we are below the 200 ma on the SPX. Having a hedge on is a must. Only If the S&P 500 breaks above the 200 ma of 1283 would I be a buyer.
I have done some market timing based on the news cycle with favorable results in August. http://caps.fool.com/Blogs/getting-defensive-here/626063
September has no been as successful http://caps.fool.com/Blogs/news-cycle-timing-september/639059 but the month is only half over and a 3-4%% underperformance this week does not defeat my thesis. The strategy is still outperforming the market by 5-6% since 8/1. We still have structural problems in Europe and a SPX below its 200 ma, reason enough to employ hedging, big cash positions, some gold, and a smaller equity allocation.