PAINE FINANCIAL SERVICES
FOCUSING ON TACTICAL INVESTMENT ADVISORY SERVICES
Attempting to time the market is not new. However, the idea has been maligned by Wall Street and large mutual funds which have an interest in keeping you invested at all times regardless of the markets ups and downs. In its simplest form, timing the market involves using some type of signal or combination of signals to determine whether to be in cash or to buy a bond or stock or mutual fund. The signals could be moving averages, volume, MACD lines, various trend lines, "reversion to the mean" or any of a number of statistical measures of the market. Strategies created by these signals take out the emotion of investing, although in a certain sense some are based on market emotions. Tactical strategies are differentiated in several ways from typical mutual funds or managers. Traditional "asset allocation" will typically create a blend of stocks and bonds (or mutual funds) based on one’s risk profile and use traditional fundamental analysis of companies in order to make buying or selling decisions. Additionally, traditional mutual funds/management will normally always be invested regardless of market conditions.
There are many different types of tactical strategies and some have no correlation with the regular markets while others have modest correlation. To understand "correlation" click here. Tactical strategies may buy and sell government bond funds, market index funds, sector funds, or high yield bond funds. In addition, some of funds traded might use leverage which typically doubles any gains or losses. Some strategies may incorporate inverse funds, which move in the opposite direction of the related index. Strategies might trade almost every day while others that use longer market statistics may trade infrequently. The graph below* shows a simple method of timing the market using a 300 day moving average. The idea is that when the market falls below the average to sell and when it rises above the average to buy. As one can see, if one had used this simple model, much of the volatility of the market would have been eliminated. Please know this does not guarantee a profit.
This is meant to be a rudimentary discussion of tactical strategies and is not a complete description. Tactical strategies can lose money. All investing involves risk.
*The graph represents back-tested data derived from the retroactive application of a model developed with the benefit of hindsight. There are inherent limitations in showing data derived from the retroactive application of a model. Unlike actual performance, these results may not accurately reflect the effect of certain material economic or market factors, and therefore, results may be over or under-stated due to the impact of these factors. Since the graph does not represent actual trading, it is unknown what effects these factors might have had on our decision-making if it were actually managing the client’s money during the entire time period. There is no guarantee that positive results can be achieved using the model in the future. Losses can be incurred.
Securities offered through Centaurus Financial, Inc. a registered broker/dealer and registered investment advisor,
member FINRA and SIPC.
Advisory services offered through Carey James and Associates, Inc.
1186 E. Grand Ave., Arroyo Grande, CA 93420
Phone: 805-473-6670 Fax: 805-473-0751
CA Insurance License #0703952