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October 10, 2006


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EMT says the value of an investment is its price, therefore market timing can't work. I think Buffet would disagree. If you can determine value distinct from price than market timing is not necessarily a lost cause. The advantage of market timing would be less one of increasing return than of diminishing risk though.

The above article gives absolutely no evidence that market timing does not work. Market timing based on Momentum has been shown by Eugene French to work for both stocks and mutual funds. The idea is not to predict the market. The idea is to watch it until a new trend or cycle is noted. Then the style or asset is purchased. It is an established fact that by looking back over the last 6 months future trends will tend to continue doing the same. It is also an established fact that there are distinct cycles which tend to last from months to years. Identifying the upward moving cycles and investing accordingly results in enhanced returns. Using such a system I have averaged over 18% return over the past 20 years.

Why does this continue to exist in spite of having wide understanding of the strategy? It is simple. Large investment firms cannot take advantage of the strategy as they can't shift millions and even billions from one asset to another without causing dire gyrations in the market. This type of timing will only work for the little guy. What a deal!

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