Stock Market Extremes and Portfolio Performance

Friday, March 25, 2005 | 06:04 AM

John Kuran points us to a study on Stock Market Extremes and Portfolio Performance.

click for larger graphic


Graphic courtesy Towneley Market Timing Study

While one frequently hears T-Heads mentioning how performance drops if/when investors miss the best periods in the market, one rarely hears mention of missing the worst. I recall Tom Dorsey (of DWA) discussing this some years ago.

Note that same market index performance of 12% per year (discussed prior via Jeremy Siegel) requires a very long duration to assure that level of performance.

Stock Market Extremes and Portfolio Performance
Professor H. Nejat Seyhun, University of  Michigan
(commissioned by Towneley Capital Management)

Friday, March 25, 2005 | 06:04 AM | Permalink | Comments (8) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Very interesting and timely posts, but what is the average investor to do?

The University of Michigan paper indicate the results are "virtually unreachable. In terms of the monthly data, for example, if a market timer is right 50% of the time, the probability of executing a perfectly timed investment strategy is 0.5 raised to the 816th power -- or nearly zero."

I know some portfolio managers who move into cash and defensive positions when particular thresholds are met in the market. I also loved the critique of Segiel's book. I've heard too many people (myself included) use the rationale if you miss the best days you are in trouble, they don't mention missing the worst days. Do you know any good sources of information regarding to actionable portfolio timing/allocation techniques?

Thanks for all you do with your blog!


Posted by: Lisa | Mar 25, 2005 8:55:30 AM

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