On Stock Market [Mis]Timing Strategies

Do They Come Up Short?

Dr. David Edward Marcinko MBA CMP™

www.CertifiedMedicalPlanner.com

[Publisher-in-Chief]

Stock market investment rules are notorious for showing profit when tested on the same sample period from which they were developed, and then failing when applied to a new period. According to Professor Roger C. Vergin, it’s dangerous to use the same data to both discover and test the rules.

Of Marty Zweig

Using the “Zweig Strategies” developed by Martin Zweig and published back in 1986 in Winning on Wall Street (WOWS), Professor Vergin shoots some rather sizable holes in Zweig’s indicators by testing them against the 10-year period since WOWS was published. Zweig’s models are applied to various periods from 19 to 33 years, ending in 1985, and they claim to outperform a buy-and-hold strategy with annual rates of return as much as eight times as large, according to some measures. When the author ran these strategies for the 10-year period ending Dec. 5, 1995, not only did they not outperform a buy-and-hold strategy, but they trailed the market averages by a significant amount—9% vs. 14.4% for buy-and-hold.

The “Z” Indicators

Zweig’s indicators include a prime rate indicator, a Federal Reserve indicator, an installment debt indicator, a 4% indicator (market momentum), a monetary model, and a “super” model, which Zweig referred to as “the only investment model you will ever need.” 

Vergin corrects for inconsistencies in the evaluation criteria from one strategy to the next in WOWS and runs the numbers for the original test period first. Zweig’s strategies still outperform buy-and-hold. But, when run against an independent time period, as the author has done, the wheels fall off. Vergin runs the Zweig Strategies against the S&P 500, the Value Line Index, and an index developed by Zweig called ZUPI (all NYSE stocks).

Assessment

Over the 10-year period, none of the six Zweig Strategies outperformed a simple buy-and-hold strategy when compared against any of the three indexes mentioned above. They produced an average return of 9% compared to 14.4% for buy-and-hold.

In fact, Dr. Burton Malkiel’s [personal communication] conclusion in his book A Random Walk Down Wall Street, was that: “market timing is likely, not only to not add value, but to be counterproductive” seems to have borne out again.”

Note: “Market-Timing Strategies: Can You Get Rich?” by Roger C. Vergin. The Journal of Investing, Winter 1996, pp. 79–85, Institutional Investor, Inc. [212] 224-3185)

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. By trying enough patterns against past events, one can always find simple rules that “would have” worked well in the past. But, do they hold up against differing periods of time; like say 2008-09? … At least not yet! What do you think?

Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com and http://www.springerpub.com/Search/marcinko

Get our Widget: Get this widget!

Our Other Print Books and Related Information Sources:

Health Dictionary Series: http://www.springerpub.com/Search/marcinko 

Practice Management: http://www.springerpub.com/product/9780826105752

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Subscribe Now: Did you like this Medical Executive-Post, or find it helpful, interesting and informative? Want to get the latest ME-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Sponsors Welcomed: And, credible sponsors and like-minded advertisers are always welcomed.

Link: https://healthcarefinancials.wordpress.com/2007/11/11/advertise

Product DetailsProduct DetailsProduct Details       

Product Details  Product Details

2 Responses

  1. Earnings Season is Upon Us
    [Fall 2011]

    “We’ve seen a lot of bear markets hit bottom and turn in October”

    Having studied the markets for over 30 years, I am aware of many nuances that can affect the direction of overall sentiment. And, after evaluating all available data, I have concluded that I have absolutely no idea what is going to happen!

    Bear or Bull?

    http://money.msn.com/stock-broker-guided/article.aspx?post=0309042b-0fe7-4b58-940f-7b66c4b2a718

    And, no one else does either.

    Dr. David Edward Marcinko MBA CMP
    http://www.CertifiedMedicalPlanner.com

    Like

  2. Dr. Marcinko,

    Interesting thoughts, and comments.

    But, there’s no crystal ball when it comes to timing the market. As a financial advisor, I tell my clients that a sound, diversified investment strategy is still relevant, particularly during volatile times.

    Duke

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: