all about market timing 2e - masonson 2011

All About
MARKET
TIMING
THE EASY WAY TO GET STARTED
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All About
MARKET
TIMING
THE EASY WAY TO GET STARTED
Second Edition
LESLIE N. MASONSON
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To my parents and grandparents, who instilled in me
the appropriate values and a thirst for learning that
has helped me succeed in this challenging world.
To my beloved and incredible family.
And to all investors all across America: May you all benefit
from the research and strategies in this book to find a smarter and
safer way to invest and preserve your hard-earned money.
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CONTENTS
Foreword ix
Acknowledgments xi
Introduction 1
PART 1: MARKET TIMING BASICS
Chapter 1
The Stock Market = Bull Markets + Bear Markets 19
Chapter 2
The Buy-and-Hold Myth 41
Chapter 3
Market Timing: What You Need to Know 59
Chapter 4
Determing the Market’s Trend 71
Chapter 5
No-Load Mutual Funds: Index, Sector, and Leveraged Funds 83
Chapter 6
Exchange-Traded Funds 97

PART 2: MARKET TIMING STRATEGIES AND RESOURCES
Chapter 7
Calendar-Based Investing: The Best Six Months Strategy 119
vii
Chapter 8
Combining Presidential Cycle Years with Seasonality 141
Chapter 9
Using Simple Moving Averages to Time the Market 157
Chapter 10
The Value Line 4 Percent Strategy versus
the Value Line 3 Percent Strategy 185
Chapter 11
Nasdaq Composite 6 Percent Strategy 213
Chapter 12
Market Timing Resources: Newsletters, Web Sites, and Advisors 225
Epilogue 245
Appendix: The Capitalism Distribution 249
Bibliography and Web Sites 257
Index 263
viii Contents
FOREWORD
Market timing may be the most challenging approach to suc-
cessful long-term investing. It can be tough and ugly. I know this
well because I’ve been a market-timer in the trenches since 1983
both as an investor and as an advisor.
Timing requires thick skin and iron resolve. Because it is gen-
erally misunderstood, market timing is almost universally scorned
on Wall Street.
Yet market timing can be an important tool for risk-averse
investors. When it is used consistently over long periods of time,

timing can improve returns dramati cally while reducing risk, as
Les Masonson has demonstrated repeatedly in this book.
If those in the establishment financial media were to study
this book, they would be better able to reduce a tide of misguided
negative articles about timing. Too many financial writers have dis-
covered that they can easily “prove” that timing doesn’t work and
can’t possibly work. However, those authors rarely specify any
measurable definition of what would be necessary for a strategy to
qualify as one that “works.”
I’ve found that timing is 100 percent successful at reducing
market risk by periodically getting investors out of the market.
Every day that your assets are in a money-market fund is a day they
are not at risk in the market. If timing keeps you on the sidelines 25
percent of the time, timing has reduced your risk by 25 percent.
Portfolios governed by timing often outperform buy-and-
hold portfolios with similar assets during major market declines.
To a long-term investor who holds some assets without timing—
and this includes almost everyone—this lack of correlation
amounts to a form of diversification.
However, timing will often underperform buy-and-hold dur-
ing major market advances, sometimes for long periods. This can
be disconcerting and upsetting to impatient investors.
ix
Why do so many people believe that timing doesn’t work? I
believe the answer is twofold. First, most investors who undertake
market timing are not prepared for the rigorous discipline it
requires. Second, because they don’t understand timing, they don’t
know what to expect from it.
Les Masonson’s book will help to remedy this. He has put
together the information and tools that investors need to make tim-

ing work for them. He has taken a complex topic and made it acces-
si ble for real people.
The biggest problem facing most investors is that they need
the potential growth they can get from owning equities—yet equi-
ties are too volatile for most investors, as millions of buy-and-hold-
ers discovered in 2008 and early 2009.
As far as I know, there are only two solutions that make sense.
One is to buy and hold a portfolio with an ample allocation of
fixed-income funds. This brings stability, but at the same time, it
reduces long-term returns. The second solution, the topic of this
book, is to employ a disciplined market timing approach—which,
by the way, can include fixed-income assets as well as equities.
As this book shows, mechanical market timing makes it pos -
sible for investors to achieve the returns they need at lower volatil -
ity. Investors who do this are much more likely to stay the course.
For various reasons that are detailed in this book, timing is not
the best approach for every investor. Many people will be more
successful with a buy-and-hold approach. However, most of my
own investments are governed by market timing, and this suits me
well. I have worked hard all my life to accumulate assets, and I’m
most comfortable having an active defense against bear markets.
This book is for investors who share my conservative
approach, who believe, as I do, that hanging onto their money is as
important as making it grow. In this excellent guide, such investors
will find everything they need to determine whether or not market
timing is for them—and whether or not they have what it takes to
be successful.
Paul Merriman
Founder, Merriman, Inc.,
Seattle, Washington, and author of

Live It Up Without Outliving Your Money
x Foreword
ACKNOWLEDGMENTS
Writing a comprehensive book on market timing would not be
possible without the expertise and assistance of many individuals
and firms. Even with their help, I take full responsibility for any
inadvertent factual errors in this book.
The following individuals provided significant input, and to
them I first want to offer special thanks:
■
Herb Weissman devoted many painstaking hours
reviewing, editing, and providing critical input to the
original manuscript. His clarity makes this a more readable
book.
■
Robert W. Colby, CMT and author of The Encyclopedia of
Technical Market Indicators, Second Edition, provided the
use of his research on timing strategies from his landmark
book and also provided critical comments on the
manuscript.
■
Morgan Ertel, associate editor at McGraw-Hill Professional,
and the entire McGraw-Hill publishing team for their hard
work on producing this second edition.
■
Nelson Freeburg, editor and publisher of FORMULA
RESEARCH, provided the use of his research on calendar-
based and presidential cycle strategies and insights on the
subject of backtesting.
■

Sy Harding, editor of www.streetsmartreport.com and
president of Asset Management Research Corp., shared
extensive information on his seasonal timing strategy
using the MACD indicator.
■
Paul Merriman, president of Merriman, Inc., wrote the
Foreword and his firm provided market timing insights,
research, and commentary.
xi
I also want to thank the following organizations and individ -
uals for their assistance, expertise, and information provided:
■
Active Trader magazine and Mark Etzkorn, editor-in-chief
■
DecisionPoint.com and Carl Swenlin, founder and publisher
■
Eric Crittenden, research director, and Cole Wilcox,
managing director at Blackstar Funds, LLC
■
Hays Advisory Group, LLC, and Don R. Hays, president,
and Mark Dodson
■
The Hirsch Organization and Stock Traders Almanac, along
with Jeffrey A. Hirsch, president, and Judd Brown, vice
president
■
Matt Hougan, president, ETF Analytics, global head of
Editorial, Index Universe
■
Investor’s Intelligence and Michael L. Burke, editor, and

John E. Gray, president
■
Michael Johnston, ETF Database, for tables of ETF data
■
Patrick Rygiel, president, MTR Investors Group
■
David Korn’s Advisory Service and David Korn
■
Merriman, Inc., and Dennis Tilley, director of research
■
Dr. Jerome Minton, president, Alpha Investment
Management, Inc.
■
Proshares
■
Rydex-SGI
■
Sam Stovall, chief investment strategist, Standard & Poor’s
■
StockCharts.com
■
Technical Analysis of Stocks & Commodities and Jack K.
Hutson, publisher
■
Timer Digest and James Schmidt, editor and publisher
■
Towneley Capital Management, Inc., and Wesley G.
McCain, chairman, and Gretchen Hartman
■
TradeStation (registered trademark of the TradeStation

Group, Inc.) and Michael Burke, product manager
xii Acknowledgments
All About
MARKET
TIMING
THE EASY WAY TO GET STARTED
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INTRODUCTION
1
If you don’t know who you are, the stock market is an expensive place
to find out.
—George Goodman
Did your investments get crushed in the last two stock market
crashes in 2000–2002 but also the more recent one from October
2007 to early March 2009? If you are a buy-and-hold investor, you
probably did get hit hard. I had no idea that we would witness a
worse crash than the 2000–2002 crash just six years later. This is
why the topic of market timing should be more in favor than ever.
Sadly, this is not the case and probably will never be the case
because of the Wall Street aversion to the topic. Moreover, the end-
less barrage of buy-and-hold banter continues unabated.
Surprisingly, the Wall Street Journal had a November 13, 2010, arti-
cle entitled, “How to Play Market Rally,” written by Ben Levisohn
and Jane J. Kim, whose first sentence was, “Forget ‘buy and hold.’
It is time to time the stock market.” So maybe now financial jour-
nalists and perhaps financial advisors and others have realized that
they need to promote a smarter way to invest instead of pushing
the buy-and-hold mantra, which has failed investors big time.
Such well-known and well-respected individuals as John C.
Bogle, founder and retired CEO of The Vanguard Group and

author of Common Sense on Mutual Funds; Charles D. Ellis, consul-
tant in investing, former managing partner of Greenwich
Associates, and author of Winning the Loser’s Game; and Burton G.
Malkiel, Princeton economics professor and author of A Random
Walk Down Wall Street, all believe that buy-and-hold is the most
appropriate strategy for most investors. I respectfully disagree, and
this book provides data and strategies that show that numerous
market timing strategies can beat buy-and-hold with less risk.
Investors got a rude awakening when they opened their year-
end 2008 brokerage statements (if they had the guts to do so) and
viewed the devastation caused by the second bear market in the
past decade. Investors who did not sell during the decline did
make up much lost ground as the stock market bottomed on March
9, 2009, and rebounded about 90 percent by the end of 2010, but
still below the prior highs of October 9, 2007.
Are you confused by the daily gyrations of the stock market
and the contradictory financial, economic, and global news? Are
you upset that you lost a bundle in those stock market crashes?
Have you given up on the stock market? If so, then join the club,
because almost all investors are in the same boat and diving for
cover by diverting billions of dollars of their equity investments to
low-paying money-market funds and all types of bond funds.
The vast majority of the “talking heads” on the business shows
continually profess a bull ish stance, no matter what the market is
doing. Ignore their opin ions. No one knows where the market is
going tomorrow, let alone in the months and years ahead. Just
because the stock market (as measured by the Standard & Poor’s
500) has averaged an annual return of 10.1 percent from 1926 to
2010 (with dividends included) does not mean that you can count
on that rate of return to continue in the coming year or the next five

years. Just because you may not be retiring soon does not mean that
you can afford to ignore what is going on in the stock market.
If you have been investing since 2003, you were probably
ecstatic with your returns through the third quarter of 2007.
However, the market plunged for the next 15 months, and it
dropped at a much faster pace than it rose. Did you sell at or near
the top in October 2007 and put the proceeds into cash? You prob-
ably did not. Did you sell after your stocks, mutual funds, or
exchange-traded funds (ETFs) fell 10 percent, then 20 percent, then
30 percent, and perhaps 50 percent in some cases? Probably not,
2 Introduction
because you thought the market would come back, as it always
has. Well, this time the market did came roaring back with a huge
rally from the bottom through 2010, but it was still about 20 percent
off the October 2007 high.
Most likely, you follow the widely touted buy-and-hold
approach. And if you are like most investors, you have no game
plan for cutting your losses or taking your profits. Lacking an
investing strategy and blindly following the buy-and-hold
approach can lead to financial ruin. It can wipe out years of invest -
ment profits in a short time, and it can take years for your portfo -
lio to recover, if ever. Don’t fall for the buy-and-hold ruse, even
though 99.9 percent of financial professionals tout it as the only
way to invest for the long term. This is the same crowd that tells
you that dollar-cost averaging is a sound invest ment approach.
This approach advocates investing equal amounts periodically, for
example, monthly, no matter what the stock market is doing. The
supposed logic is that you will buy some shares at market lows,
thereby reducing your average cost of the investment and thus pro-
ducing better overall returns.

Check it out for yourself. If you’ve used this approach, has it
worked for you? The approach is great when stock prices are rising
but not so great when they continue to fall. One of the most critical
rules of smart investing is never average down in individual stocks.
It is a loser’s game. Think about all the unfor tunate and uninformed
investors who owned JDS Uniphase, Dell, Cisco, EMC, AT&T,
Eastman Kodak, Xerox, AIG, Bear Stearns, Lehman Brothers,
Citibank, General Motors, and many more. Those investors got
killed by continually buying more shares on the way down—or by
holding onto their original shares bought at much higher prices.
Eventually, investors got nothing or very little back, and many lost
most of their capital invested in many of these stocks.
IS THERE A BETTER APPROACH
THAN BUY-AND-HOLD?
Is there a smarter way to handle your investments, to protect your
profits, and to steer clear of bear markets before they decimate your
portfolio? Yes. That approach is called market timing, and it works,
no matter what you’ve heard or read to the contrary. This book
Introduction 3
contains compelling data on successful market timing approaches
that beat the market indexes over decades. The strategies are sim -
ple to follow and implement, so you can use them yourself. And for
those of you who prefer to have a market-timer do the work for
you, you’ll be interested in the information provided on top-per-
forming market timing newsletters and services that have been
monitored by independent evaluation firms that have been around
for decades.
After reading this book, you will understand the buy-and-
hold myth and why market timing is a more sensible, risk-averse,
and unemotional approach to investing.

I do not recommend that the average investor buy individual stocks,
ever! Stocks are simply too risky for the average investor. With the
continued accounting scandals, Securities and Exchange
Commission (SEC) investigations, crooked corporate officers, and
managed earnings, why should you take a chance on picking the
wrong stock or the right stock at the wrong time and taking a big
hit? It is much more prudent and far less risky to invest in appro-
priate index funds or ETFs to spread your risk within a larger bas-
ket of securities.
To give you a unique insight into the actual performance of
individual stocks during a big bull market, consider the research
performed by Eric Crittenden and Cole Wilcox of Blackstar Funds
(refer to the Appendix on page 249 to see their full research paper).
In a nutshell, they analyzed the price performance of all common
stocks trading on the New York Stock Exchange (NYSE), the
American Stock Exchange (AMEX), and the Nasdaq (National
Association of Securities Dealers Automated Quotations System)
from 1983 to 2006. There were approximately 8,000 securities in the
sample. Here are their key findings for the lifetime return of stocks
for the 23-year period:
■
39.4 percent of stocks had losses, and 60.6 percent had
positive returns.
■
18.5 percent lost a minimum of three-quarters of their
value, and about the same number gained an average of
300 percent or more.
■
64 percent of the stocks underperformed the Russell 3000
Index, and 36 percent had higher returns.

4 Introduction
■
25 percent of stocks (about 2,000) provided 100 percent of
all the stock market’s gains; worst-performing stocks (75
percent) collectively had a total return of 0 percent.
■
The average annualized stock’s return was –1.06 percent
compared with the median annualized return of 5.1 percent.
I’m sure you are astounded by the poor performance of the
majority of stocks during one of the biggest bull markets in history.
And the stocks that had the greatest performance (see the
Appendix) cratered the most. In conclusion, stocks are riskier than
you probably imagined, and I urge you to stay away from them
unless you want to take the risk for the potential reward of the few
real big winners.
WHAT IS MARKET TIMING?
market timing is defined as making investment buy-and-sell deci-
sions using a mechanical trading strategy with specific rules or indi-
cators. The objective is to be invested in stocks during an uptrend
and to be either in cash (or in a short position) when the stock mar-
ket starts to decline. market timing can be applied to all types of
investments, including stocks, stock and index options, mutual
funds, ETFs, bonds, and futures. This book recommends using tim-
ing with index funds, sector funds, leveraged funds, and ETFs.
Market timing is aimed at taking your emotions out of the invest-
ing equation—or at least minimizing their impact. This objective is
critical to your success. Investor psychology has been studied for
years, and the “herd instinct” is rampant. The urge to follow the herd
can play right into your hands because the crowd (whether individual
investors or investment advisors) is character istically wrong at major

stock market tops and bottoms. This situa tion always will be with us
because the emotions of dealing with investing—fear and greed—will
never change. Therefore, we can invest opposite the crowd’s actions.
Market timing is not a perfect investing approach; there is no
such thing, just as there is no Holy Grail. Market timing cannot pre-
dict in advance when the market will change direction, but if you
use a reliable, time-tested market timing system and follow all its
signals, you will exit the market after it begins to turn down and
you will reenter the market after it begins to turn up, all in time to
Introduction 5
make nice gains. Market timing will never pick the exact bottom or
top of the market, but it will, nevertheless, provide useful signals
after the trend has changed direction. Market timing signals are
usually correct only 40 to 50 percent of the time, but that is good
enough to make you money because small losses are more than
made up for by the big gains. Anyone who claims 80 percent or
more profitable trades should be checked out carefully because this
is a very difficult feat to accomplish, especially with a timing
approach that has many signals during a year.
My objective in writing All About Market Timing was fourfold.
First, I wanted to provide the rationale and facts behind my assertion
that market timing is a superior investment strategy to the ever-pop-
ular buy-and-hold strategy. Second, I wanted to provide a handful of
easy-to-understand, easy-to-implement, and profitable market tim-
ing strategies. Third, I wanted to help you to avoid the brunt of
future bear markets and protect your principal. And last, I wanted to
provide additional insight into how difficult it is to make consistent
profits in the stock market unless you have a specific time-tested
approach that you engage in with discipline and patience.
BEAR MARKETS ARE RECURRING—YOU

MUST BE PREPARED TO DEAL WITH THEM
Future bear markets will arrive like clockwork, every three to six
years, on average. Avoiding the brunt of these slumps is the key to
protecting your hard-earned capital. Unfortunately, most investors
have no clue as to how the stock market really works. Therefore, it
is not surpris ing that they suffer the consequences when a bear
market sneaks up and mauls them.
From 1950 to 1999, there were over a dozen bear markets, with
the average one lasting 397 days, resulting in a loss in value of 30.9
percent based on the Standard & Poor’s (S&P) 500 Index. The aver-
age recovery period to reach the previous high was about 622 days
(1.7 years).
1
The first bear market of the past decade ended on
October 9, 2002, when the S&P 500 Index dropped 49.1 percent
from its peak on March 24, 2000, and lasted 941 days (2.6 years).
6 Introduction
1
“The Upside of Down Market: What Investors Can Learn From Volatility.” Of
Mutual Interest (Invesco Funds), Summer 2001.
Similarly, the Dow Jones Industrial Average dropped 37.8 per-
cent (the actual top was January 14, 2000), and the Nasdaq
Composite Index cratered a whopping 77.9 percent. In the most
recent bear market from October 9, 2007, through March 9, 2010,
the S&P 500 Index tanked 56.8 percent before recovering 23.4 per-
cent in 2009, and 15 percent in 2010, but it was still 28 percent
below its last market top.
There definitely will be future bear markets, and if we are in a
secular (long-term) bear market, then this current bear market may
not end until 2015 or 2016, based on the length of other secular bear

markets. Therefore, the key to investing is to pre serve your capital.
This means that you should take prudent actions to avoid bear
markets and not be invested in the stock market when they occur.
If you do not exit the market, then your profits (if there are any)
and even your principal will quickly shrink. How much can you
lose in the next bear market? The crash of 1929 wiped out 86 per-
cent of the value of investors’ portfolios, and the investors required
25.2 years to break even (not counting dividend reinvestment).
The experts tell you that no one can time the markets with
consistency. Guess what? The experts are wrong again, as you shall
see when you read about newsletters and timing services that beat
the market over decades in Chapter 12. This book also provides
you with the strategies that work so that you don’t have to guess
or make an invest ing decision based on emotion or someone else’s
opinion of where the market is headed.
In late July 2002, Lawrence Kudlow, cohost of Kudlow &
Cramer on CNBC, jokingly said that he and cohost Jim Cramer had
called the 2001–2002 bear market bottom seven times and that they
will eventually get it right! But this is no joke. You can’t afford to
depend on someone else’s guesses. You need to make your own
investment decisions, which you can do if you stick with the time-
tested indicators and strategies presented in this book.
FORGET ABOUT DOLLAR-COST
AVERAGING IN A BEAR MARKET
Dollar-cost averaging is another popular investing strategy
bandied about in the canyons of Wall Street. This approach advo-
cates making investments of a fixed amount every month or quar-
Introduction 7
ter no matter what the stock market is doing. The rationale is that
during bear markets, you are buying more shares at lower prices

and thus will benefit when the market rises.
Catherine Voss Sanders wrote an article entitled “The Plight of
the Fickle Investor” in the Morningstar Investor (December 1997),
and she stated: “Because emotions and hype can get in the way of
smart investing, systematic dollar-cost averaging is a sound strate-
gy. . . . [I]n most cases, the dollar-cost aver ager is going to beat the
willy-nilly investor.”
On the contrary, never use dollar-cost averaging to buy stocks
or equity ETFs in a bear market because it puts you on the wrong
side of the trade when the market is tanking. It is the traders who
are right when they say never average down. Take the advice of long-
time market newsletter writer Richard Russell (Dow Theory Letters,
1984): “Averaging down in a bear market is tantamount to taking a
seat on the down escalator at Macy’s.”
Imagine buying Corning at 113 (split-adjusted) on September
1, 2000, and buying more shares each month as it tanked so that
you could lower your cost basis. Corning hit a low of $1.10 on
October 8, 2002. Guess what? How in the world can you ever
recoup that kind of a loss?
Dollar-cost averaging in a bear market is a strategy for dum-
mies, not for intelligent investors. There is no guarantee that your
stocks, mutual funds, and ETFs will return to their October 2007
highs any time soon, and throwing good money into a declining fund
makes no sense to me. Remember that hundreds of mutual funds
have gone out of existence or have merged into other funds simply
because of their embarrassingly poor investment performance.
MOST INVESTORS ARE NOT REALISTS
Most investors have a similar view of the investing scene. They
hold the following beliefs:
■

Buy a diversified basket of stocks and bonds or equivalent
mutual funds and hold them for the long run.
■
Buy-and-hold is the best approach to investing.
■
Market timing is for losers.
■
Dollar-cost averaging is a good strategy.
8 Introduction
■
Financial advisors, brokers, and so-called stock market
gurus should be consulted or followed to obtain the best
possible investment advice and investment results.
■
Tax consequences are critical in making investment
decisions.
Believe it or not, all these beliefs are false! Many intelligent
individuals are not intelligent investors. In making their investment
decisions, too many investors rely only on fundamental research
and totally ignore the technical indicators of stock market investing.
Investors must understand that their thinking may be neither real-
istic nor accurate and that they probably won’t be successful
investors by viewing the world through “rose-colored glasses.”
Neither should investors let tax consequences interfere with
sensi ble stock market strategies. Otherwise, they will end up para-
lyzed and confused, and they will never sell the small losers until
they become big losers. Of course, market timing strategies can be
used in tax-deferred retirement accounts because there are no tax
conse quences. However, don’t assume that taking profits in regu-
lar accounts will work against you. It may or may not. Think about

it for a minute. Would you rather let a profit of 50 percent on a
stock stop you from selling it because of the taxes? A bear market
can wipe out this entire profit if you never sell. Your primary concern
should be to protect your profits and preserve your capital. Tax consid-
erations are only a secondary concern, not a primary one.
You may be intrigued by some of the statements and findings
presented in this book. This is to be expected because the financial
media do not spend any time on these views. One of my major
premises is that buy-and-hold is a loser’s strategy—that’s right, a
loser’s strategy. You won’t see that statement very often in the
financial media. During the past decade ending in 2009, the S&P
500 Index lost an annualized 0.95 percent. That’s the result of buy-
and-hold for 10 years—zilch! This is not the way to build wealth.
This is the reason that an entire chapter is devoted to debunk-
ing the buy-and-hold myth. Another one of my critical premises is
that the less time you stay invested in the stock market, the better. The
rationale is that the longer you’re invested, the higher is the prob-
ability that the next bear market will take away your profits.
Therefore, make your money in the shortest time frame possible,
Introduction 9
based on the strategy you are using, and then cash in and reside in
the safety of cash until the next buying opportunity presents itself.
The safest way to invest in the stock market is to be out of the
market (in a cash account or short the market) during declin ing
periods and to be in the market only during the most favor able
time periods. This completely contradicts what some experts will
tell you. You will hear, “It’s time in the market that counts, not tim-
ing the market.” I will demonstrate that the opposite is true. It’s the
time out of the market that preserves your principal during bear
markets that really puts you on the right track for building and

keeping your wealth.
BE AWARE OF LACK OF CANDOR
IN SOME INVESTMENT AND
BROKERAGE FIRM LITERATURE
Unfortunately, too many investment and brokerage firms do not
provide fair and bal anced investing information to the public. For
example, I still come across incomplete information in investor
material from Northwestern Mutual Financial Network, Merrill
Lynch, Morgan Stanley, U.S. Global Investors, and Fidelity, to name
a few. In the literature they send to investors, I’ve found a chart or
table depicting the reduced annual returns if an investor had
“missed the 10 best days” compared with buy-and-hold.
Obviously, the return will be less if these days were missed. These
firms use this argument to emphasize the virtues of buy-and-hold
investing because they say that no one can predict when those days
will occur.
However, they conveniently forgot to provide the counterar-
gument that by missing the 10 worst days, the performance is much
better if you had been out of the market. Therefore, you are only
getting half the story because these firms want you to stay invest-
ed at all times. One reason is that it reduces their overhead expens-
es and costs of administering the fund to have you stay put.
Second, it eliminates any liquidity problems for the fund that could
be caused by a large number of fund holders liquidating at the
same time. If this hap pens, it could force the fund to sustain
unwanted market losses from selling off holdings in order to meet
the redemption needs of exiting fund holders.
10 Introduction