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Anytime the going gets rough, the institutions trot this little chestnut
out as proof that passivity and dollar cost averaging are the best
strategies. Line those sheep up for the fleecing.
This study is deceptive for two reasons:
1) Dollar cost averaging can do no better than the timing model in hitting
those "1% sweet spot trading days" simply because it is a random timing
model. Theoretically ANY reasonably prudent timing model should do better
than random dollar cost averaging.
2) My suspicion is that the timing strategy they used was naive... making
all or nothing trades at supposed "tops" and "bottoms". Of course the
timing model will fail if it is a bad model. So will the DCA model if it
doesn't hit on all cylinders.
And of COURSE you're going to look golden by investing in a 30 year
secular uptrend. Would they have looked as good in a secular bear? I
don't think so. Even a prudent timing model can outperform DCA in up
markets and avoid massive dissapointments in down markets.
-- John
On Wed, 4 Apr 2001 robert.cummings@xxxxxxxxxxxxxxxx wrote:
> This will make you think when trying to time the market with a mutual fund.
>
> Robert
>
>
> "A University of Michigan study found that an investor trying to time the
> market between 1963 and 1993 who happened to miss the best 90 days, or a
> little more than 1% of trading days, would miss out on 95% of the gains".
> Financial reporter Mary Rowland
--
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John T. Nelson | John's Trading Journal
trader@xxxxxxxxxxxxxxx | http://trader.computation.org/
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