Stock Market Timing vs. Buy and Hold:

The question related to using a market timing approach to growing your assets is whether or not market timing has the potential to give you a greater return over time than simply "buying the market" and holding your investment far into the future.

• If buying and simply holding "the market"--which you can do using Indexed funds--provides greater returns, then there’s no reason to look at other approaches.
• If market timing can significantly improve returns, then market timing is something to explore very seriously.

We will compare potential returns using a buy and hold strategy with potential results from market timing approaches using several of our Price Wave Analysis programs.  The parameters for the following studies are;

• Each will start on January 1, 2001 and extend through December 31, 2010.
• Each will start with a hypothetical initial investment of $10,000 and show growth, or lack of growth, for the entire ten years.
• Each study uses the same S&P 500 Index price data and the same time span.
• Taxes, brokerage fees, and interest earned when assets are not invested in the market are not taken into account since those factors are too complex to calculate and vary widely.

Buy and Hold:

Using a buy and hold strategy you would have watched your investment grow three times, shrink twice, and you would have ended up with less value than you started with over a ten year period.

You would have bought an S&P 500 Index fund on January 2, 2001 with the price level at 1283 and sold on December 31, 2010 at 1257.  The result is a 2.0% loss after ten years.  The table below shows the growth and loss steps.

Notice that there were significant gains to be captured, and serious losses to be avoided, but an investor using a buy and hold approach would have ignored those and settled for the 2% loss mentioned above.

So our buy and hold bench mark is a negative two percent for ten years of investing effort.  Next we will see if PWA market timing programs can improve on the bench mark

PWA Market Timing

Price Wave Analysis (PWA) stock market timing involves using our charts as tools for making buying and selling decisions.  Our computer uses daily closing price data to build charts that have several unique characteristics.

• Charts are constructed using a centered moving average that permits the program to show buy, neutral and sell price range bands.
• Over time price oscillates in the range bands and the bands themselves oscillate according to longer term trend.
• When the price line is in an appropriate band, a buying or selling opportunity is highlighted.
• The charts also have a stop-loss line feature a person can use to protect against serious loss.
•  PWA Online Analyzer chart parameters can be adjusted by users to suit their own preferences, but the 500 Timer chart is fixed.

The first table (linked to below) shows back testing results for the 500 Timer program.  The others show results using the Online Analyzer program with different chart parameter settings. 

When you review the step by step tables and outcomes, you will quickly see the advantage of PWA market timing over a buy and hold strategy.

PWA Results

The results from the 500 Timer and Online Analyzer can be seen below. For more information, including a table breaking down exactly how these results were found, follow the link after each result.

• Using the 500 timer, a $10,000 investment in 2001 could result in an ending value of $84,172 in 2010. To see our analysis, click here.
• Using the Online Analyzer at default settings, a $10,000 investment in 2001 could result in an ending value of $68,542 in 2010. To see this analysis, click here.
• Using the Online Analyzer at a 40 Day Moving Average, a $10,000 investment in 2001 could result in an ending value of $127,545 in 2010. To see this analysis, click here.
• Using the Online Analyzer at a 20 Day Moving Average, a $10,000 investment in 2001 could result in an ending value of $331,575 in 2010. To see this analysis, click here.