John and Bill

Depends…did John start with $25.00 or $100,000?  If $25, then I vote for Buy and Hold.

How many phone calls did John make to his broker during that time frame?  Is John now on the list of future GKN candidates?   What did Bill and his advisor do with the money when they weren’t in the market?   
My guess would be if you questioned John and Bill, Bill would speak more highly of his advisor and believe he did a better job during the up and down markets of the last decade.  Clients often confuse activity with success.  What he saw was that his advisor correctly identified and kept him safe from the 2000-2002 downturn.  They did it again in 2007.  Bill is probably wondering right how, however, why he missed the big rally last year and wishing his advisor would have seen that coming as well. 
John is wondering why his EDJ FA didn’t sell him CAIBX instead. 

[quote]How many phone calls did John make to his broker during that time frame?  Is John now on the list of future GKN candidates?   What did Bill and his advisor do with the money when they weren’t in the market?   
My guess would be if you questioned John and Bill, Bill would speak more highly of his advisor and believe he did a better job during the up and down markets of the last decade.  Clients often confuse activity with success.  What he saw was that his advisor correctly identified and kept him safe from the 2000-2002 downturn.  They did it again in 2007.  Bill is probably wondering right how, however, why he missed the big rally last year and wishing his advisor would have seen that coming as well. 
John is wondering why his EDJ FA didn’t sell him CAIBX instead. [/quote] 
 
Bill and his advisor were in cash getting 2% and that is included in account value. Your other questions completely miss the point.

John’s advisor collected about 10K in 12-b-1 fee’s so he is the smarter broker by far.

[quote]John does a 100k rollover with his advisor in February of 2000. Advisor immediately puts him in JPMorgan Investor Balanced fund Class C. Advisor coaches John to stay in during the 2001, 2002 and 2008 decline. His account value is now $135,500.
 
Bill does a 401k rollover with his advisor in February of 2000. Advisor tells Bill the market is overvalued right now and they should sit in cash (2%) until a better entry point. Exactly 2 years later the Advisor tells Bill the worst has passed and we should get in. They purchase 100k of JPMorgan Investor Balanced fund Class C and ride the wave north until Feb of 2007. At this time the advisor tells Bill to move to cash because uncertainty is on the horizon. They do so and they remain in cash today. His account value is $139,598.
 
Buy and Hold vs In and Out ? Hmm…[/quote] 
 
Where are you getting your numbers from?  Something doesn’t look right.

[quote]John does a 100k rollover with his advisor in February of 2000. Advisor immediately puts him in JPMorgan Investor Balanced fund Class C. Advisor coaches John to stay in during the 2001, 2002 and 2008 decline. His account value is now $135,500.
 
Bill does a 401k rollover with his advisor in February of 2000. Advisor tells Bill the market is overvalued right now and they should sit in cash (2%) until a better entry point. Exactly 2 years later the Advisor tells Bill the worst has passed and we should get in. They purchase 100k of JPMorgan Investor Balanced fund Class C and ride the wave north until Feb of 2007. At this time the advisor tells Bill to move to cash because uncertainty is on the horizon. They do so and they remain in cash today. His account value is $139,598.
 
Buy and Hold vs In and Out ? Hmm…[/quote] 
 
Ron…are you writing Series 7 questions in your free time???

[quote][quote]How many phone calls did John make to his broker during that time frame?  Is John now on the list of future GKN candidates?   What did Bill and his advisor do with the money when they weren’t in the market?   
My guess would be if you questioned John and Bill, Bill would speak more highly of his advisor and believe he did a better job during the up and down markets of the last decade.  Clients often confuse activity with success.  What he saw was that his advisor correctly identified and kept him safe from the 2000-2002 downturn.  They did it again in 2007.  Bill is probably wondering right how, however, why he missed the big rally last year and wishing his advisor would have seen that coming as well. 
John is wondering why his EDJ FA didn’t sell him CAIBX instead. [/quote]   
 
Bill and his advisor were in cash getting 2% and that is included in account value. Your other questions completely miss the point.[/quote]
I realize that you were wanting to discuss the differences between buy and hold and market timing.  I don’t believe it’s that simple.  Thus the other questions.
My guess would be that you run that specific scenario on may funds out there today and the numbers would be similar.  Market timing, if done with absolute accuracy, can be a great thing.  It’s that absolute accuracy that troubles most of us.  What would the difference have been if Bill’s advisor had invested back into the fund in March of 2009? 

I’m sure we can find a 10 year time frame when Market Timing wins by a long shot.

Are your numbers even right?  Something seems wrong with the timing piece.

This biggest problem with the scenario… you guessed it, both advisors used MUTUAL FUNDS!

The numbers are right. They look like they should be wrong and that is what caught my eye. It seems like if any 10yr period would point to the benefits of market timing it would be the last 10. The investment used is an average asset allocation fund and if the advisor sold near the top in 2000, bought near the bottom in 2002, sold near the top in 2007, but missed the bottom in 09. He would have timed correctly 3 out of 4 times and still provided little benefit to client.

The numbers look to be close to accurate…give or take a few thousand, which could change based on what exact date in February the buys or sells were made…Plus, the JP Morgan funds website will only go until 1/31/2010…instead of through February…
The fund in question is a fund of funds…which only lost 20% in 2008, and gained 22% in 2009…which was less volatile than most individual funds…so, the example is definitely skewed to show a good result…
Using the JP Morgan Equity Index Fund, which tracks the S&P:
Buy 100K on 2/29/00…value on 1/31/10 is $88,500…
Earn 2% for 2 years on 100K…call it $104K…Buy $104K on 2/28/02…grows to $138,302 on 2/28/07…add what you want for 3 years worth of cash (2% total?)…Call it $141,500…
Big Difference…whatever that means…
I think if one feels the market is overvalued, it would affect equity exposure more than fixed income exposure…I think…

I actually came across this randomly by talking to a guy who will not move out of cash and was bragging to me about how his other advisor gets him in and out with accuracy. He actually had this exact investment, didn’t tell his advisor and was pulling the strings by using our 1-800 number and not the rep of record before me. I couldn’t believe the numbers were this close. Without earning 2% on the cash portion the buy and hold guy would actually have $600 more ! 2/28 are the entry and exit dates for each transaction.

Why not click that back a couple of months to where the end date is Feb 2009?

Ok. Account value in Feb 2009 is 102k.  That is exactly where the advisor earned his value! Coaching him to stay in and not move to a fixed annuity or gov bond fund or cash.

"At this time the advisor tells Bill to move to cash because uncertainty is on the horizon."
Yep, even the best quantitative hedge fund managers foresaw that!

Actually, it looks like both advisors showed their value from the clients’ standpoint. 
From my standpoint, I can’t understand an idiot trading in and out with a mutual fund.  Not to mention the fact that he watched the S&P lose half of it’s value, and didn’t think that it MIGHT be a good entry point?
His other advisor is a clown.

[quote]John does a 100k rollover with his advisor in February of 2000. Advisor immediately puts him in JPMorgan Investor Balanced fund Class C. Advisor coaches John to stay in during the 2001, 2002 and 2008 decline. His account value is now $135,500.
 
Bill does a 401k rollover with his advisor in February of 2000. Advisor tells Bill the market is overvalued right now and they should sit in cash (2%) until a better entry point. Exactly 2 years later the Advisor tells Bill the worst has passed and we should get in. They purchase 100k of JPMorgan Investor Balanced fund Class C and ride the wave north until Feb of 2007. At this time the advisor tells Bill to move to cash because uncertainty is on the horizon. They do so and they remain in cash today. His account value is $139,598.
 
Buy and Hold vs In and Out ? Hmm…[/quote] 
 
First of all How is 2 years later a better entry point, even by meager Technical analysis, it says stay out til april of 2003… Lets say you paid $10/share(around april 23rd ish…and you sell Dec 17@ $12.74… so not including dividends you are uto 127,400…(crappy fund but you picked it)…
Also not sure how buy and hold grew to 135K, when anytime in february you paid higher than $12/share and curren share price is $11.31???

[quote]This biggest problem with the scenario… you guessed it, both advisors used MUTUAL FUNDS![/quote] 
Another very good point… and a bad one at that…

[quote][quote]John does a 100k rollover with his advisor in February of 2000. Advisor immediately puts him in JPMorgan Investor Balanced fund Class C. Advisor coaches John to stay in during the 2001, 2002 and 2008 decline. His account value is now $135,500.
 
Bill does a 401k rollover with his advisor in February of 2000. Advisor tells Bill the market is overvalued right now and they should sit in cash (2%) until a better entry point. Exactly 2 years later the Advisor tells Bill the worst has passed and we should get in. They purchase 100k of JPMorgan Investor Balanced fund Class C and ride the wave north until Feb of 2007. At this time the advisor tells Bill to move to cash because uncertainty is on the horizon. They do so and they remain in cash today. His account value is $139,598.
 
Buy and Hold vs In and Out ? Hmm…[/quote]  
 
First of all How is 2 years later a better entry point, even by meager Technical analysis, it says stay out til april of 2003… Lets say you paid $10/share(around april 23rd ish…and you sell Dec 17@ $12.74… so not including dividends you are uto 127,400…(crappy fund but you picked it)…
Also not sure how buy and hold grew to 135K, when anytime in february you paid higher than $12/share and curren share price is $11.31???[/quote]

Dividends?

[quote][quote][quote]John does a 100k rollover with his advisor in February of 2000. Advisor immediately puts him in JPMorgan Investor Balanced fund Class C. Advisor coaches John to stay in during the 2001, 2002 and 2008 decline. His account value is now $135,500.
 
Bill does a 401k rollover with his advisor in February of 2000. Advisor tells Bill the market is overvalued right now and they should sit in cash (2%) until a better entry point. Exactly 2 years later the Advisor tells Bill the worst has passed and we should get in. They purchase 100k of JPMorgan Investor Balanced fund Class C and ride the wave north until Feb of 2007. At this time the advisor tells Bill to move to cash because uncertainty is on the horizon. They do so and they remain in cash today. His account value is $139,598.
 
Buy and Hold vs In and Out ? Hmm…[/quote]    
 
First of all How is 2 years later a better entry point, even by meager Technical analysis, it says stay out til april of 2003… Lets say you paid $10/share(around april 23rd ish…and you sell Dec 17@ $12.74… so not including dividends you are uto 127,400…(crappy fund but you picked it)…
Also not sure how buy and hold grew to 135K, when anytime in february you paid higher than $12/share and curren share price is $11.31???[/quote]

Dividends?[/quote]
Maybe but that is close to a 5% dividend yield average for 9 years from a fund that is now yielding 2%

I said a better entry point not the BEST entry point. Meager technical analysis ? You would have bought in after Sept 11th and missed 2 years of a straight down market. If someone had called that at the time it would have been an excellent call. 
I could care less about the fund. I am not touting the fund by any stretch. It is a middle of the road asset allocation fund. The account values are correct. Run it for yourself on morningstar.
This is the typical response though with everyone missing the point. Bottom line is some guru was taking his clients in and out of the market with broad sweeps to cash and because he missed one entry point badly (mar 09) it destroyed everything he had done before. Enjoy.

[quote]I said a better entry point not the BEST entry point. Meager technical analysis ? You would have bought in after Sept 11th and missed 2 years of a straight down market. If someone had called that at the time it would have been an excellent call. 
I could care less about the fund. I am not touting the fund by any stretch. It is a middle of the road asset allocation fund. The account values are correct. Run it for yourself on morningstar.
This is the typical response though with everyone missing the point. Bottom line is some guru was taking his clients in and out of the market with broad sweeps to cash and because he missed one entry point badly (mar 09) it destroyed everything he had done before. Enjoy.[/quote] 
 
You can’t win them all and you can’t be right all the time.  Perception is reality.  The client probably perceives his advisor to be looking out for his best interests by moving in and out, whereas the client may feel “unimportant” in a buy and hold strategy (probably depends on the advisor’s communication effort to the client).
If you want to do some research on market timing, look up Hanlon Investments.  I can’t remember their exact criteria, but there is a case to be made.  There is also a case to be made for buy and hold.  No way is right 100% of the time and no way is wrong 100% of the time.

[quote]I said a better entry point not the BEST entry point. Meager technical analysis ? You would have bought in after Sept 11th and missed 2 years of a straight down market. If someone had called that at the time it would have been an excellent call. 
I could care less about the fund. I am not touting the fund by any stretch. It is a middle of the road asset allocation fund. The account values are correct. Run it for yourself on morningstar.
This is the typical response though with everyone missing the point. Bottom line is some guru was taking his clients in and out of the market with broad sweeps to cash and because he missed one entry point badly (mar 09) it destroyed everything he had done before. Enjoy.[/quote] 
 
You can’t win them all and you can’t be right all the time.  Perception is reality.  The client probably perceives his advisor to be looking out for his best interests by moving in and out, whereas the client may feel “unimportant” in a buy and hold strategy (probably depends on the advisor’s communication effort to the client).
If you want to do some research on market timing, look up Hanlon Investments.  I can’t remember their exact criteria, but there is a case to be made.  There is also a case to be made for buy and hold.  No way is right 100% of the time and no way is wrong 100% of the time.

Ron,
I understand your point, but as I posted earlier, the same comparison using the JP Morgan Equity Index fund yielded a much different result…
The buy and hold netted a return of about -11.5%, while the market timing strategy yielded a result of +41.5%…
If we wanted to see a fair result, you’d have to run it on several different asset allocation mixes, probably using different indices…
Interesting finding though…it was surprising to see…so much so, that I did the numbers myself…

[quote]I said a better entry point not the BEST entry point. Meager technical analysis ? You would have bought in after Sept 11th and missed 2 years of a straight down market. If someone had called that at the time it would have been an excellent call. 
I could care less about the fund. I am not touting the fund by any stretch. It is a middle of the road asset allocation fund. The account values are correct. Run it for yourself on morningstar.
This is the typical response though with everyone missing the point. Bottom line is some guru was taking his clients in and out of the market with broad sweeps to cash and because he missed one entry point badly (mar 09) it destroyed everything he had done before. Enjoy.[/quote]
 

Ron, I was just saying you need to tell this client that his other advisor is a clown.  And you are right, broad sweeps to cash is pretty dumb.

[quote]I said a better entry point not the BEST entry point. Meager technical analysis ? You would have bought in after Sept 11th and missed 2 years of a straight down market. If someone had called that at the time it would have been an excellent call. 
I could care less about the fund. I am not touting the fund by any stretch. It is a middle of the road asset allocation fund. The account values are correct. Run it for yourself on morningstar.
This is the typical response though with everyone missing the point. Bottom line is some guru was taking his clients in and out of the market with broad sweeps to cash and because he missed one entry point badly (mar 09) it destroyed everything he had done before. Enjoy.[/quote] 
 
By meager I mean just following the 200day MA… don’t have to be a guru…
I agree with some comments here that balanced funds (and that is a category that needs some further explanations) would have faired better vs timing however, we are just looking at end of the day money… Not drawdowns, risk, risk adjusted returns, etc… 

Ron’s using bad comparisons.  As someone mentioned, he needs to comapre all-equity to the timing model.  He is using a balanced allocation fund, so his timing example does not really make sense.  If he had compared using a balanced fund (or balanced portfolio) buy-and-hold, to a timed all-equity portfolio, then the comparison would be valuable.  The point of a balanced fund is to NOT have to time the market.  It’s simply a bad example.

So you are telling me that advisors who move clients to cash and look at “market indicators” are doing so with only equity holdings and nothing else ?
I actually came across this because I am looking at myself and seeing how I can add more value to clients then just putting them in a “balanced” allocation and coaching them to stay in. A lot of good points have been made on this site about this and I am looking to improve upon what I am doing. People are tired of being told to hold on blah blah blah. They are looking for something else. I don’t necessarily feel comfortable “selling” something to a client that I can’t consistently provide. Coaching them to stay in is something I can provide and that I why I lean that way.

I am not trying to get into an Asset Allocation / Timing battle here. I come from a trading background, but to this point my advisory value has been strictly asset allocation and rebalancing. I am picking things up from you guys on this site (Morean, B24, Bondguy, Gaddock, Chief123, Icecold,etc) and I want to improve upon how I do things.
Here is a better example of my initial post…

In February of 2000 Bill goes to his Merrill Lynch advisor, who wears top notch suits and drives a benz, with a 100k rollover. They don’t invest it for over 3 years,  Apr 1st 2003 ,because  “indicators” tell the advisor a shit storm is on the horizon. His indicators also predict a terrorist attack in 2001. The investment is JPMorgan US Equity Fund C Share which is basically an S&P tracker. They ride the wave north and then exit Feb of 2007 and remain in cash today. Investment Value is 171, 838 + 2% each year while in cash 12,873 = $184,711.

In January of 2000 John hears a knock at his door. It is an EJ FA who will keep him informed when good ideas come available. John receives a thank you card two days later from the FA. John is so amazed at the work ethic of the young man that he calls him immediately to give him his 401k from a previous job. The advisor profiles John as a growth and income investor and shows him the investment triangle that Jones invented. He invests the funds as follows on Feb 28, 2000:

20k  Franklin Flex Cap Gr Class C / 20k  Mutual Shares Class C / 10k Mutual Global Discovery C / 10k Sm Cap Val C / 10k Templeton Foreign C / 15k Temp Global Bond C / 15k Franklin US Gov C

The advisor says they will meet annually to rebalance the account to these original percentages, sticking to these allocations. The advisor holds John’s hand and other things through market ups and downs encouraging him to stick with the plan .The account currently stands at $169,546.

This example is more realistic and it shows a similar result. The first advisor made 3 AWESOME calls in a row. The only additional value he added was really the 2% earnings on the cash. Who can honestly say they made those calls ? Who wants their practice to be reliant on making those type of calls ? Thoughts?

your examples are way off… This time you are comparing a US equity fund, to a combo of fund that would have at least 30% of the portfolio in int’l in one of the largest int’l bull markets…
Compare this… IVV, IEF, EFA, DBC, IYR and put 20% in each… then compare to your portfolio, then we will move on to market timing… 

[quote]So you are telling me that advisors who move clients to cash and look at “market indicators” are doing so with only equity holdings and nothing else ?
I actually came across this because I am looking at myself and seeing how I can add more value to clients then just putting them in a “balanced” allocation and coaching them to stay in. A lot of good points have been made on this site about this and I am looking to improve upon what I am doing. People are tired of being told to hold on blah blah blah. They are looking for something else. I don’t necessarily feel comfortable “selling” something to a client that I can’t consistently provide. Coaching them to stay in is something I can provide and that I why I lean that way.[/quote] 
I don’t feel like debating investment philosophy right now - I think you know where I am on that anyway.  BUT, if you are a true believer in buy-and-hold (no matter what), then make great asset allocation your “thing”.  Come up with asset allocations that are “weather-proof”.  But my own personal opinion is that you better learn to error on the side of caution and learn to be very conservative.  Come up with great “you-can’t-time-the-market” stories, with charts or whatever.  But you need to believe that what you are doing is the best thing for your client, not just “this is the best that I can do”.  Frankly, most major firms all have their own schtick on buy and hold and not market timing.  So half the investors in America are hearing the same old song (“just hang in there, you can’t time the market, blah, blah”).  And one last thing - you may also want to have a good plan for what you are going to say and do when times get real bad (ala 2008) or when the market starts screaming (so they think they aren’t entirely missing the boat). 
Point is, you have to have a compelling story and stand behind it.  Don’t just stand behind some bad fund company cliche’ or whatever.

[quote]your examples are way off… This time you are comparing a US equity fund, to a combo of fund that would have at least 30% of the portfolio in int’l in one of the largest int’l bull markets…
Compare this… IVV, IEF, EFA, DBC, IYR and put 20% in each… then compare to your portfolio, then we will move on to market timing… [/quote] 
What don’t you understand ? No shit the comparisons aren’t exactly matched up. I am comparing a boring asset allocation mix with broad sweeps to and from the US benchmark. The more “tactical” moves you make in the “timing” portfolio the more chances for error. So you are telling me advisors are not only getting in and out of the US benchmark in a timely fashion but also the other asset classes like small cap, bonds, international, etc. ? No fucking way.

[quote][quote]your examples are way off… This time you are comparing a US equity fund, to a combo of fund that would have at least 30% of the portfolio in int’l in one of the largest int’l bull markets…
Compare this… IVV, IEF, EFA, DBC, IYR and put 20% in each… then compare to your portfolio, then we will move on to market timing… [/quote]  
What don’t you understand ? No shit the comparisons aren’t exactly matched up. I am comparing a boring asset allocation mix with broad sweeps to and from the US benchmark. The more “tactical” moves you make in the “timing” portfolio the more chances for error. So you are telling me advisors are not only getting in and out of the US benchmark in a timely fashion but also the other asset classes like small cap, bonds, international, etc. ? No fucking way.[/quote]
I think its safe to say if you had those kind of mad crazy skills, you wouldn’t be rolling around in the mud with the rest of us, but running a hedge fund off a laptop sipping cocktails on an exotic beach somewhere.

Ok. Joe Blow walks into Chief 123 Investments with 100k in Feb 2000. Chief advises we will sit in cash until a good entry point and we will go all in to an international fund because they are going to rocket after the market bottoms. In Apr 2003 Chief buys Templeton World fund with every dollar. The account is worth $219, 500 in Feb of 07 and Chiefguru pulls it all out and goes to cash. He then puts it all back in Mar 09, but this time into an emerging markets fund at the absolute bottom. The account is now worth $375,000 and Chief is now on the board at Berkshire Hathaway. I guess this is how you guys do it.

Ron,
I hear your frustration.  But let’s not forget one of the major points of using a specific timing model ( as opposed to “gut instinct”, as I think you are assuming).  The point is NOT to get crazy outsized returns.  The point is to avoid major losses.  Period.  You avoid major losses, your clients are happy, and you don’t need nearly as much on the upside.  For example, you lose 10% on an investment in 2008, you need like an 11.2% return in 2009 to get back to even.  You lose 40% in 2008, you need a 67% return in 2009 to get back to even.  See my point?  You don’t need to hit the top and bottoms correctly to be a “market timer”.  You just need to avoid the major drops.  It’s all about compound annual growth rate (CAGR).  The bigger the losses you incur, the bigger the gains need to be.  You’d be better off (as you previously illustrated) in a very moderate balanced fund, and buying-and-holding, than in a 100% equity fund and doing the same thing.  Typically, with equity funds, it’s tough to incur huge losses and make it up real quickly.  That only typically happens with the riskiest (most volatile) of asset classes (i.e. emerging markets, commodities, etc.).  It’s tough for equities to make up for a 30%+ loss in a short period of time.
Even the hedge funds and tactical asset allocation funds will typically not have huge annual gains.  But they also won’t typically have big losses either.  You ever see Bernie Madoff’s returns?  Smooth, Baby, real smooth.