Incredible return with simple market timing

This table is similar to the table in the Chapter 5 on A Tale of Two Plunges. The dates are set up to be the first of the month to get the monthly data instead of daily data from Yahoo!Finance. In addition, I add one more exit and reenter point for the blur.

Detecting market plunges (Chapter 6) detects the exit point and reentry points from 2000 to 9-2013 as follows.

Table: Vital Dates

Market Plunge	Peak	Bottom	Indicator Exit	Indicator Reenter
2000	08/28/00	09/20/02	10/01/00	06/01/03
2007	10/12/07	03/06/09	02/01/08	09/01/09
			08/01/11	11/01/11

As of 09/03/2013, my chart (simple to get from Yahoo!Finance) still indicates to invest fully in the market from 09/03/2013 on. Run the simple chart once a month. When it indicates a potential market plunge is closer, run the chart (Chapter 6) once a week.

It is based on stock prices so it may not identify the peaks and bottoms precisely, but so far it has never failed to avoid big losses and ensure big gains. Hope it will give us enough time to act in the next market plunge as the last two.

Unbelievable return with market timing

Calculate how much you made if you followed the above exit points and reenter points from 2000 to today. I bet you will make a good fortune. 

I calculated the return of S&P 500 with and S&P 500 without market timing from 1-2000 to 9-2013 to test the effect of market timing. There are many assumptions due to considering the compound effect for a fairer comparison. In general, dividends are not considered.

I was shocked by the incredible return by using simple market timing (exit and reenter the market only 3 times from 2000 to 2013. Actually it is far better than 500% by buying contra ETFs in existing the stock market.

Summary info:

S&P 500 1-2000 to 9-2013	With Market Timing	Without Market Timing
Better	500%
Gain	1,000	167
Gain %	68%	11%
Annualized gained	5%	1%
Days	4,959	4,959

Calculations:

S & P 500	With Market Timing	Without Market Timing
1-2000	1,4691	1,4691
Exit    10/01/00	1,0412	1,041
Enter 06/01/00	1,041	9644
Exit    02/01/08	1,4893	1,3794
Enter 09/01/09	1489	1,0205
Exit    08/01/11	1,888	1,293
Enter 11/01/11	1,888	1,251
09/03/13	2,469	1.638
Gained	2,469 – 1,469=1,000	1,638-1,469=167
Gain %	1000/1469 = 68%	167/1469 = 11%
Annualized gained	68% * 365/4959=5%	11%*365/4959=1%
Better	(1,000-167)/167 = 500%

Portfolio with Market Timing:

¹ Both starts with S&P 500 of 1,469 on 1-3-2000.

² 10/01/00. The market timing portfolio exits the market and remains same value of 1,041 until 6/1/00.

³ 02/01/08. The market timing portfolio exits the market and remains same value of 1,489 until 9/1/09.

    1,489 is calculated as follows:

    1,041 * (1 + Rate) = 1,041 * (1 + 1,379-964)/964) = 1,489

    where S&P 500 is 964 on 6/1/00 and 1,379 on 2/1/08.

The other calculations are based on S&P 500 is 1,020 on 9/1/9, 1,293 on 8/1/11, 1,251 on 11/1/11 and 1,636 on 9/3/13.

Portfolio without Market Timing:

¹ Both starts with S&P 500 of 1,469 on 1-3-2000. We could use the 9/3/13 S&P 500 value, but it will not account on some compounded interest consideration.

⁴ S&P 500 is 964 in 6/1/00 and 1,379 on 2/1/08.

⁵ 02/01/08. The portfolio value is calculated to be 1,020 as follows:

    1,379 * (1 + Rate) = 1,379 * (1 + (1020-1379)/1379) = 1,020

    where S&P 500 is 1,379 on 2/1/08 and 1,020 on 9/1/09.

The other calculations are based on S&P 500 is 1,293 on 8/1/11, 1,251 on 11/1/11 and 1,636 on 9/3/13.

I cannot believe the shocking return with market timing. I checked my calculation and there was nothing wrong but do not hold me on this. The compound rate of return not considered in all periods should be minor. If you have time, send me your e-mail address to pow_tony@yahoo.com, so I can send you the spreadsheet to check any error.

Even if I made a mistake somehow and got 100% instead of 500%, it still doubles the return without market timing! Ask any fund manager what it means to his or her fund performance and his / her career.

The values of S&P 500 are obtained from Yahoo!Finance. The entry and exit points are obtained from my simple chart from Yahoo!Finance described in Chapter 4-6 and subject to my interpretation.  

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My e-book Debunk the Myths of Investing could save you a lot of money in investing. The above is one chapter out of 133 and some important chapters will not be included in the blog.
  http://ebtonypow.blogspot.com/2012/12/special-debunk-myths-of-buffett.html

Sample portfolio for the book.
  http://stockportfolios.blogspot.com/2013/03/welcome.html

(c) 2013 Tony Pow

Disclaimer. I'm not responsible for your actions in your investment. Treat this as educational information and past performance does not guarantee future performance.