Riding the Bull, Beating the Bear: Market Timing for the Long-Term Investor

Rating:
Summary: Sorry, but the strategy is flawed
Review: I read the book with great interest and I was initially really excited about the trading strategy proposed, i.e. to use a exponential moving average to trade S&P 500 (i.e. SPY, which is listed on AMEX). The author concludes that the strategy will help you to increase returns AND reduce risk. The problem is that the author has made, explicitly or implicitly, a couple of crucial simplifying assumptions that are flawed, e.g. no transaction costs, prices move in a straight line from one Friday to the next (the author backtested his method only on weekly data although the strategy should be executed on a daily basis), no intraday or intraweek whipsaws, no spreads, perfect market liquidity etc.

I backtested the strategy on a daily basis (using the daily closing prices) for the last 62 years and concluded that even with no transaction costs/spreads you cannot increase your return compared to the buy and hold strategy. However you can reduce your risk by being out of stock market roughly 1/3 of the time. I also backtested the strategy for the last 14 years taking into account the opening, high, low and closing prices during the day to better account for intra-day swings. The conclusion was the same.

To sum it all up - it seems to be possible to reduce the risk of your SPY holding (i.e. the S&P 500 ETF listed on AMEX) if you are prepared to do extensive trading (i.e. at least one trade a month, which is twice as many trades as the author predicts is necessary), but do not expect any extra returns. In fact, I conclude it's more likely that you'll achieve slightly lower returns than a buy and hold investor over the long term.

Rating:
Summary: Basic Book on Market Timing Using Moving Average Approach
Review: Market timing is a subject of great controversy among investment professionals. Over 98% of these individuals profess that market timing is useless and that no one can do it profitably on a consistent basis. They continue to push the buy-and-hold mantra that has failed miserably since March 2000.

This book by Edward Yanis takes on the subject by offering up a mechanical approach (dubbed the �Y-Process�) to timing using a 16-week exponential moving average of the S&P 500 Index to make weekly buy and sell decisions. Moving averages have been used for many years and there are many newsletters and market timing services that use this approach as part of or as the main element of their timing service. Yanis has back-tested his results for 71 years and concludes that the 16-week exponential average has the best results compared to other time periods. For the year ending 2000, according to Yanis, his approach has yielded an annualized return of 20.7% compared to 11.8% for the buy-and-hold approach. Moreover, this performance reduced risk by 28% of the time since the investor is in cash after a sell signal is given.

Yanis provides extensive information on his moving average approach including the formulas to obtain the weekly average and a risk level, spreadsheets of data to work on to test your ability to work the numbers, appendices of past results of 6 decade years (1940, 1950, etc), and a 23 page glossary of investment terms. The author also provides a forecast formula for the upcoming week that tells the investor the exact point at which a signal change will at hand.

Although the Y-Process is the focus of the book, other topics covered include:
- basic tenets of accumulating wealth
- comparison of stocks to bonds
- why mutual funds are ideal for beginners
- importance of psychology
- finding the appropriate benchmark
- advantages of using index funds
- statistics on prior bear markets
- brief discussion of fundamental and technical analysis
- how to profit from Exchange Traded Funds (ETFs)

In summary, this book is suitable for novice investors who need a non-emotional mechanical approach to investing that requires little time or effort. The moving average approach is not unique to this book, and investors can find and test their own moving averages on charting software or view them on charts (daily, weekly, and monthly) on such sites as [website] and [website]. Also, investors can subscribe to a market timing newsletter that using this approach. Check out [website] for potential newsletters. The book�s author also provides an investment letter to provide signals for the market and sectors, if the investor does not want to do his own calculations.

Rating:
Summary: A Simple and Useful methodology
Review: My background is as an auditor and computer programmer. I read every book I find on stock market timing and run them through personal computerized back testing. Very few market timing systems work - at least the ones that are published.

Mr. Yanis uses a simple moving average to time the market but with a couple technique twists. Most moving average systems used by themselves cause excessive trades and false signals. The Y-Process system also suffers from that but to a lesser extent. The meat of this book is all in one chapter.

The book is well written and the system's weaknesses honestly reported. The actual returns are documented. He uses a hard to understand method to show buy/sell points and to calculate returns - it should have been done differently.

The timing process requires tracking a few numbers but nothing complicated and it has beaten buy and hold by avoiding major downturns. What's more, this book was published in 2000 prior to the worst of the market collapse and would have gotten you out close to the top. As of September 2002 it's still signaling to stay clear of stocks. If nothing else, this may provide a way to determine when the current bear market has spent most its energy. I'd say that's worth the price of admission, wouldn't you?

Rating:
Summary: Fudging the numbers
Review: Yanis, with an impressive bio listing time at GE on defense contracts and the Navy's AEGIS system, pitches his personal (Y-anis) system to beat the market. Problem is, he is so focused on backtesting the system, he fails to realize that he never defines the rules for using his system in real time. Y-factor is an exponential moving average of Friday's closing price for the S&P500 for the last 16 Fridays. Yanis finds buy and sell signals when the daily S&P index crosses the interpolated moving average between Fridays. Of course, the investor will not be able to compute the buy or sell signal until the following Friday's numbers are posted! Yanis never says how the real time investor is supposed to get his buy/sell signals. If Yanis's buy and sell signals are used when they can actually be computed, that is after the following Friday's numbers are in, the backtested results lose major money. One wonders how this got past the editor and publisher.

Net result? This book makes me wonder what has been going on between GE and the Navy with all that defense money during the author's career there.