The Case For Market
Definition: "Diversification" - a
portfolio strategy designed to reduce exposure to risk
by combining a variety of investments which are unlikely
to all move in the same direction.
Market Timers Pay Little Attention
As we have written before, "market timing is the following
of a long term strategy to profit from the financial
markets, that also protects us from the inevitable down
trends that occur."
Many investors who understand the potential of market
timing, pay little attention to the potential of diversification.
Many jump right into an aggressive timing strategy with
little thought about how they will handle a loss.
But there is a way to jump right in, and also realize
the long term potential of even the most aggressive strategies.
It does require a bit more work, but not all that much.
Just a few minutes a day to check for changes and make
Market Timers Can Benefit
Many market timers already follow well defined investment
plans that include diversification. But as we just discussed
above, some do not.
If you are one of those who do not, consider changing.
Diversification is not only for those who are afraid
of volatility. It has an important place in even the
most aggressive of portfolios.
We have been market timing since the early 1980s and
although we are aggressive, we diversify our timing funds,
not just for safety, but also to "enhance" our profit
a bull market, you will be fully invested most
of the time, except in those few industry sectors
that are not doing well."
Those who follow our Aggressive Bull & Bear Pro Timer
strategy will profit over one to two year time
Because the markets tend to trend most of the time and
the aggressive strategies will catch the major part of
all long-term trends in "both" directions.
But non-trending markets can be quite frustrating and aggressive
market timers, in our experience, become frustrated more
quickly than most.
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timers.... try this strategy: Use the Aggressive Bull & Bear
Pro Timer strategy for 20% of your timing portfolio.
Use the Sector Fund Strategy for 50%. Divide the rest
between Bond Timing, Small Cap Timing and Dollar Timing
Although the sector funds go to cash on sell signals,
these industry specific funds are big winners when
they trend. Often they will trend much further, by
100% to 200%, than the rest of the market.
with the sector funds that follow major industries,
such as Health, Technology, Internet, Energy, Financial
Services. Most of the sectors we follow are major sectors.
Pick five that are affected differently by the economy.
Example; do not choose Health and Biotech which have
When the bear growls, you will have 20-50% of your
portfolio profiting on the short side, or in cash,
plus those sector funds that are profitable even
during a bear market (there are always some).
You will make money, but have only a small percentage
of your timing portfolio at risk.
During a bull market, you will be fully invested
most of the time, except in those few industry sectors
that are not doing well.
Diversified portfolios have a dramatic effect in
controlling volatility and drawdowns. Yet can be
extremely profitable over time. The best of all worlds.
already has a Diversified Portfolio Strategy that can
also be used. It divides your timing into five distinct
investment areas. Interested subscribers should check
it out. It does not include the sector funds but it
is a well diversified strategy.
Conservative Market Timers Can Benefit
Those conservative market timers who are willing
to devote at least a little extra time, can enhance
their profits by adding the Sector Timer strategy
as a percentage of their timing portfolio.
Being conservative does not mean you cannot be active.
Using the Conservative S&P Timer strategy will
always do well over the years because it is designed
for long trending markets, and makes changes infrequently.
market timer will have his or her own style.
Even a very basic plan can be made more
stable with diversification."
if you used it as a base for your timing portfolio,
say for 50% to 60% of it, you can easily be more active
with the other 40% to 50%, and still be well within
the guidelines of "conservative" investing.
Again we suggest using the Sector timer. In this
case "because" it goes to cash during sell signals,
and because it follows a diversified strategy of
its own (multiple positions are always used), it
can add considerably to your profit potential (sectors
tend to trend longer and higher during bull markets).
those who prefer using ETFs, use the major industry
sectors in our EFT strategy.
His Own Style
Diversification can obviously be quite varied. Each
market timer will have his or her own style. Even
a very basic plan can be made more stable with diversification.
For example, if your core timing account follows
the Conservative S&P Timer strategy with 70%
of its funds, allocating 15% for the aggressive Pro
Timer strategy and 15% for the Bond Timer strategy
will cover most bases, and yet still offer an additional
level of safety.
Consider at least some diversification for your market
We mention the Sector Timer in several the diversification
scenarios above. This is because it is "already" well
diversified (at least five different industry sectors
should be used by subscribers who use this strategy),
yet has the tremendous profit potential inherent
in industry specific funds (sector funds usually
trend farther, percentage wise, than the general
market). The ETF Strategy can also be used of course.
Diversification can dramatically help control volatility
Diversification, when properly applied to your portfolio,
will actually enhance your profit potential over
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Disclaimer: The financial markets are risky. Investing is
risky. Past performance does not guarantee future performance.
The foregoing has been prepared solely for informational
purposes and is not a solicitation, or an offer to buy or
sell any security. Opinions are based on historical research
and data believed reliable, but there is no guarantee that
future results will be profitable.