Stock Market Timing Study

The following stock market timing study focuses on how well market timing newsletters did getting into and out of equities between early 2000 and January 2016. This latter date was chosen because that’s when the Hulbert Financial Digest was closed by its then publisher, Dow Jones. The start date was chosen because it was the top of the Internet bubble, right before its bursting. The ensuing 16 years also included the 2007-2009 bear market, the worst since the Great Depression. This period therefore was tailor-made to showcase the value of market timing; if the stock market had instead gone straight up it would have been unreasonable to expect market timers to do any better.
     The returns in the table below reflect the performances of hypothetical portfolios that could alternate between just two investments: U.S. equities (as represented by the Wilshire 5000 Total Return Index) and cash (as represented by 90-day Treasury bills). These returns therefore ignore how good, or bad, a job a newsletter may have done picking individual securities. Transactions were allowed just once a day, at the close. Neither commissions nor taxes was debited.
Notice from the table below that, for some newsletters and timing strategies, two different track records are reported: One on the assumption that a portfolio goes short upon a sell signal, and the other on the assumption that the portfolio goes to cash. These dual records are presented because some investors are uncomfortable with going short.
     In addition to reporting the annualized gain of these hypothetical timing-only portfolios, the table also shows the maximum peak-to-trough loss of each strategy. This is a crucial statistic, since one of the benefits claimed for market timing is a reduction in the bear market risk.
     Note that, since the Hulbert Financial Digest was closed in January 2016, we have continued to calculate newsletters’ track records, though under a different business model than before. We now charge a flat fee to newsletters to have their returns audited, and we publish their current track records on our website, free of charge to the public. Those scoreboards are available here.
     We also publish a number of sentiment indices in the stock, gold and bond markets. Information about those indices, including how to subscribe, is available here.

Market Timing Study