Customer Reviews

Buy--DON'T Hold: Investing with ETFs Using Relative Strength to Increase Returns with Less Risk

5 star:		(16)
4 star:		(13)
3 star:		(12)
2 star:		(8)
1 star:		(1)

 

 

As an avid stock investor for 15 years, I can testify that these are treacherous times for individuals in the market, and it's getting worse. There are many factors working against mom and pop in the stock market. One is globalization. Yes, I can invest easily in the economy of Vietnam if I wish. But the downside is that my position in a manufacturing company located next door to my home has somehow become sensitive to a debt crisis in Greece or Portugal. These destabilizing factors make it less relevant which stocks or ETF's I pick. A second development working against the self-managed IRA is computer trading, which today accounts for 70% of all trades and soon may be 99%. It used to be that the market was made of human beings; now it's you against inscrutable robots running computer algorithms. In this environment, absolutely no one - none of the highly paid so-called experts - has been able to plot a rational course for success in equities. Otherwise, the endowment funds of Harvard, Princeton and Yale universities, which hire the most highly trained full-time professionals in the world, would not have plunged in 2008 along with my IRA and yours. If the head of the Harvard endowment, supported by the best available advice and analysis, can't figure it out, how can an ordinary civilian? The truth is that depending on the stock market for your retirement through a self-managed IRA has become highly dubious. Most folks, especially those with limited time to devote, would do better buying CD's even though the yield is low. At least you won't lose your money.

Against this dismaying background, there are nevertheless hundreds of books, websites, newsletters, and TV shows which purport to offer hot advice on how to invest successfully. The existence of so many diverse approaches to one problem tends to suggest that there is little agreement and no sure path. And there isn't. Ask about proof of efficacy for any of these principles or algorithms, and one tends to hear a deafening silence.

So now comes Mr. Masonson. His recommendations sound cautious, sensible and rational, and he seems like a nice, fatherly sort of man. His main point is that the classic advice of buy and hold is no longer tenable in today's crazy market. He believes we should invest in ETF's instead of individual stocks, and above all guard our principal by selling out of the market when certain bear market warning indicators light up. He then introduces two technical components; the first is the use of 'relative strength analysis' to rank ETF's. Fine. It all seems conservative and intelligent. And the second innovation is eight technical bull/bear signals, including Moving Average Convergence-Divergence and seven other technical indicators, which he calls his "Dashboard" suite which will predict when the market will go up or down for a long period.

Wait a minute. What was that? He has discovered technical signals that PREDICT when the market is entering a prolonged bear phase?? Wow, the holy grail of stock investing? This guy has done it!

Or has he. Folks, please remember this: all theories sound good. The only meaningful question is: Do they work? And not everyone agrees with the "Buy - Don't Hold" approach. The main sticking point is the accuracy of the buy/sell indicators. Many stock analysts will say it is impossible to time the market accurately enough, and that jumping out to cash when sell indications cross thresholds will also mean missing upward moves, which can happen in hours. So we have the usual dueling theories in one of those ongoing debates which are more like theology than engineering. Is it obvious which approach is correct? No, it is not obvious. This is quantitative; if the eight indicators give perfectly reliable signals, then yes, such a system will work - as will many others. But results very quickly deteriorate if the signals are off by even a little bit. Somewhere in the middle, there is a crossover point vis a vis buy-and-hold. So where, Mr. Masonson, is the statistical data that supports your strategy? How exactly did you identify these eight signals versus others? How did you verify they should have equal weights? Where is your proof? Is your book a report of painstaking research, or just a 'feeling' you have? I would be so much more impressed the author offered not anecdotes but evidence.

The book should at least have shown this was effective by back-testing. This means that the author would pick a date (say in 2005), use his relative strength rules to select a portfolio of ETF's, and then propagate the simulated portfolio forward using his stated sell and buy indicators at every stage. All the hindsight data is publicly available, and the analysis, although tedious, is not hard to carry out with a few big spreadsheets. The results should then be compared with buy-and-hold for the same portfolio, and perhaps other slightly variant strategies. Also, Masonson would then have a computer model and could study variations as well as the all-important question how sensitive the results are to the accuracy of the 'Dashboard.' (No doubt the answer is: very sensitive.) Without this research data Masonson has nothing. He is just a kibitzer, like all the others.

If I sound irritated it's because I am irritated. We are now five hundred years into the scientific revolution - and have learned that progress comes not from 'holding philosophies' however plausible they may sound, but from testing our ideas objectively and mathematically. And the whole subject of financial strategies is riddled with failure, serious failure causing great personal pain - even the Harvard Endowment Fund can't get it right. Even the CEO of Lehman Bros can't get it right. Even the Chairman of the Fed can't get it right. In this environment, investment advisors who offer philosophies but not real research, not even minimal back-testing studies, are just plain lazy. Two stars.

Personally, I am skeptical whether in today's environment an individual can succeed with any 'system.' Investing is about predicting the future, for which there can be no system. There is a universal mathematical truth about trading strategies; because the market is constantly scrutinized by large numbers of participants, any 'edge' which is discovered will over time become ineffective because it will be arbitraged by the market and washed out. In other words, if it works, everyone will soon be doing it and it will come to equilibrium and stop working. The time constant over which this can be expected to happen varies from days to months in most cases. I don't see how any short or medium term rules found in a book can carry meaningful 'secrets.'

Personal investors have only one edge over computers; long term judgement. Use your personal human judgement to identify long term trends and promising companies, and then - buy and hold.

(Note added later: After posting this I noticed that Masonson has a blog or website where he does report some preliminary back-testing (with mixed results). That's good but where I come from, people do the research BEFORE publishing the book.)

The book is a not a good use of money. I just finished the book and realized some things:

1. Much of the first half of the book explains mundane things that anybody buying the book would already know.

2. RS investing in ETFs is nothing new and there are several free sites (like ETFscreen.com) that already make that method of investing very accessible to anybody. I was already doing that. Bring something new to the table.

3. Anybody can cook up an investment theory. His "dashboard" is just a hodge-podge collection of technical indicators that has no substantive acedemic research or backtesting that validates them. Plus, all elements are given equal weighting no matter what is happening in the economy. Really? REALLY? If it were that simple, I wonder why an investment bank, a mutual fund company, or a hedge fund wouldn't have developed this years ago. Fidelity with thousands of equity analysts and strategists toiling day in and day out that can't come up with a model that works, but he can? hmmmmmmm

4. Even if the magic dashboard worked, you would need to collect the data from a multitude of different sites, plug it into Excel and get an indicator value. If the author had done any due diligence and had a site that actually collected these values for you and you could just look easily look at the historical value of the dashboard indicator compared to actual market performance or backtest it over a specific period of time, well - I would be interested in seeing that. As it is, this is just some guy with excess time on his hands just goofing around trying to come up with material to fill out a book.

Bottom line - if you are still curious, go to Borders and buy some coffee and skip the first half of the book. Put the book back on the shelf and let somebody else buy it. This would take you about an hour.

If you want to invest using ETFs and you are willing to spend a few minutes every week reviewing the conditions of the market and performing a relative strength ranking for 66 ETFs, this book is for you. I have read several other books on investing using ETFs, but none of them are as practical or cover all the key points like this book does. In this book, the author describes in detail a 6 step approach which includes key items such as determining your risk level, assessing the market's condition, ranking the ETFs, and using stops. The book includes specific instructions on how to perform each of these steps using free web sites where you can implement this approach. He has asset allocation recommendations for 4 types of investors based on your risk tolerance. If you no longer believe in the "buy and hold" approach, you owe it to yourself to read this book.

This book is excellent in its ability to show investors how to replace buy and hold investing with a more technical approach that reads the markets actual direction and puts you in diversified investments through ETFs based on your own personal risk tolerance. I have been an active and successful investor for well over a decade and can say the methods in this book quantify many of the trend following techniques that I have used very successfully. While I was able to go to cash before the market meltdown in 2008 and avoid any loss of capital, I had trouble reading when to get back in to the market as it rallied off its lows. This book would have given me many tools to capture more of the uptrend than I did. Here is the basic system presented in this book:

1. Determine your risk tolerance. How aggressive or conservative are you? This will determine how much of your capital enters the market as this system gives buy signals on the way up. Also it will determine the percentage of money you invest in stock ETFs versus bond ETFs.

2. Review all your existing portfolios for possible reallocation based on the system in the book and the markets current buy or sell signal.

3. Evaluate the markets current buy or sell signal based on these eight indicators:

Percentage of stocks above their 50-day moving average. Less than 25% and rises buy, greater than 75% and falls sell.

Nasdaq composite stock index crosses 100-day moving average, from below buy, from above sell.

NYSE new daily highs minus new daily lows. -750 or more and recedes buy. 25% weekly high as % of total issues traded then declines sell.

NYSE bullish percentage

Nasdaq composite with MACD

AAII Weekly Investor Sentiment survey bullish percentage. Goes higher from 25% buy goes lower from 50% sell.

Best six months strategy with MACD. Buy with an MACD crossover up in the S&P index in November through April. Sell with an MACD crossover down from May through October.

Nasdaq summation index MA crossover with MACD confirmation. Using a 5 day ema and the MACD crossover at or near the same date..

4. When the system reads a +3 buy signal invest in the recommended ETF universe based on the best relative strength in each category the percentage of how much of your capital you put in each ETF group is based on your risk tolerance exact recommendations are given. The author gives many useful web sites to use to get the information for relative strength rankings.

Morningstar style (Value and growth, small, medium, and large cap).
SPDR Sectors (Financial, energy, consumer staples and discretionary, technology, industrial, utilities, health care, materials).
iShares countries (Brazil, China, India, Russia, etc.).
Fixed Income (Bond funds)
Specialty (Gold, Oul, Silver, agriculture, real estate, and solar energy).

5. Use stops to protect profits and avoid large losses. Sell when the system gives a sell signal.

The author explains how to measure the buy and sell signals given buy each of the indicators by assigning points. a -3 is a sell and a +3 is a buy. This system is one of the best alternatives I have seen to buy and hold investing. Over the past 30 years if you would have simply bought when the market went above its 200 day moving average and sold when it went below it, you would have doubled your returns. With such simple strategies that out perform why would anyone just buy and hold? The market moves in trends based on the momentum of buyers and sellers, this book will show you how to be on the right side of the move.

I am a long-time investor and found this book to have some excellent arguments against buy-and-hold investing and for a more active approach. The author seems to be an expert in relative strength indicators and their value in investment selection and he puts together a good system for rotating through a set of ETF's to maximize return based on relative strength. He provides links to good sources of information to help with this process which do not cost anything. So far so good. He also presents a dashboard of 8 indicators which he says will help time the market. The indicators are all commonly-followed technical indicators to which he assigns a scoring system which indicate buy and sell points. He presents two time frames in the book where he shows the indicators giving signals--sell in October 2007 and buy in March 2009--which would have been astoundingly accurate. What the author doesn't do is give any real back-testing data other than these two isolated examples. On his blog, he has provided more back-testing data that is not nearly as encouraging. His dashboard and ETF model had a decent return in the worst decade for the markets in a century, but it did not have investors safely in cash during the last bear market.

I think the book is a very good discussion of an investing philosophy that makes good sense, but it falls down in claiming to have found a "dashboard" that will give investors a reliable market indicator and providing only anecdotal and misleading "proof" of its effectiveness.

I am always on the lookout for better strategies for investing my money and so my interest was piqued when I came across the opportunity to read this book. The title is a clear play on one of the most comment investment strategies called "Buy And Hold". This book, of course, is labeled "Buy - Don't Hold" thereby making it seem like a complete reversal of the other strategy. Now that I have read it, I can tell you that there are two main parts to this book and its revealed strategy.

The first portion of the book is the obligatory set of words that warn you that you need to be careful and only invest within your risk tolerance as modified by how much time you have to invest in the stock market. There is rarely any stock investing book that does not cover this material so I will not spend time here on what it is. Suffice it to say that the text covers the material adequately and provides the normal warnings that novices should heed.

The next part of the book - and the main part - covers the essence of the author's strategy. The author has come up with a set of eight (8) technical indicators and combined them into a single dashboard that is supposed to divine the overall direction of the market. To those who are not intimate with this terminology, note that technical investors use a very calculated approach to the market. They choose to track the market behavior over time and chart it in a variety of ways. For instance, one of the indicators is the overall stock market value as compared to its 50 day moving average. Since a moving average calculates the average of the market over the previous 50 days, any day that the market closes above the average means that the market has been trending upwards. Of course, it takes a few days from when the market reverses direction until it crosses over the line, and so you can see that this is a trailing indicator rather that a predictive one. Nonetheless, the basis of the strategy is to look at these eight indicators on a weekly basis and assign them a value between +1 and -1 (some of the indicators have a 0 value, but not all). The dashboard is a simple addition of the 8 values and then the author tells us that we should start investing in equities when the dashboard reads +3 or higher, and we should sell all of our equities and move to cash when the dashboard reads -3 or lower. Values between those two can be ignored and no action is required.

A finesse here is that the author allows you varied movements into the market by your risk tolerance. So, if you are very risk averse, you might want to put only 25% of your money into the market when it hits +3, another 25% when it hits +4 and so on. A more aggressive investor might go 100% in when the indicator goes to +3. Regardless of how you enter, you should not remove your money from the stock market until the indicator drops to -3 and then you are to take it all off the table.

Once we finished going over this part, the book describes how it wants you to invest your money. This is the second major portion of the strategy and the recommendation is to buy Exchange Traded Funds (ETFs) rather than individual stocks or mutual funds. The author spends a fair amount of time explaining why he chooses to use ETFs and I find that I agree with his arguments given his highly technical approach (The other major way of investing is to evaluate individual companies and decide if their value is likely to increase over time - this is called Value investing). The author cites another technical approach to this portion of the book where you are to choose from a universe of 66 ETFs only those that have a Relative Strength Indicator that is better than the others in the same category. Again, this is a highly automated and technical approach and does not care what stocks are actually parts of the ETF, but rather relies on the calculations to determine whether to buy this particular ETF versus another.

The book is very well laid out and detailed enough although I would have preferred for him to have gotten his various charts printed in color rather than in the small black and white print that it is. As the reader, you will have to ask yourself if you are willing to follow this very mechanical approach and if you believe that it will lead to better results than you are currently getting with whatever strategy you follow. I am not a technical investor so will probably not follow this book's recommendations - nonetheless I found them to be very interesting.

I decided to give this book only four stars because the information in it is actually out of date. The author alerts you to his website and blog where he provides a lot more information about the strategy and the blog tracks it on a regular basis. When I went on that website, I discovered that he has already redefined some of the eight indicators so the dashboard in the book and the one on the website differ. On the good side, it was interesting to follow the discussions on the blog to see how often the indicators changed and there is good information there as well. There are tools to help you select the ETFs that it recommends as well and without the website, the book would be much less useful. What I discovered by reading the blog is that the indicators vary quite wildly and over the two or three weeks that I monitored it before writing this review, many of the flipped around and both sell and buy signals were generated. For someone as conservative with my money as I am, this would cause my more heartache than it is worth so I will not follow the recommendations except for my curious streak. Your mileage may vary.

Leslie Masonson has written this book for those who are open to the idea that the buy-and-hold strategy is dangerous, a notion he provides ample evidence for in his first chapter. The buy and hold method is so entrenched, however, that most people--at least the people I know-- will not accept the arguments in this book, never mind the fact that twice in ten recent years many have lost much of their retirement funds in major stock crashes. But for those who have ears to hear, he lays out a very sound approach to buying exchange traded funds and holding them just long enough to gain profits.

This may not be a book for most beginners. He presents eight indicators to use for gauging when to enter and when to exit both the market in general and ETFs in particular. And although he clearly explains how to use the indicators and thoroughly demonstrates examples with charts, it might be tough going for neophytes. Since his strategy seems in many ways akin to that of Stan Weinstein (Secrets for Profiting in Bull and Bear Markets), and since he cites Weinstein in his bibliography, I would recommend that absolute beginners read the Weinstein book first. That book is basic enough for beginners to understand, but presents an elegantly simple and effective way to judge when to buy and when to sell stocks. Weinstein's tutelage in chart reading is excellent. And his method works: using it, my husband and I avoided the crashes of 2000 and 2007.

However, Masonson expands on Weinstein's excellent methods, and thus "Buy--Don't Hold" is an important and logical next step to Weinstein's book. Masonson focuses on exchange-traded funds because they are an good choice for a market that has become increasingly volatile, due in part to program trading and the increasing interconnectivity of world economies. ETFs give the investor/trader an edge in choppy markets because, being baskets of stocks, commodities, or bonds, they tend to average out some of the risk inherent in picking individual stocks. However, because they trade on the exchanges just like stocks, they offer a liquidity (and freedom from fees) not available with most mutual funds.

Masonson also spends more time than does Weinstein on tracking relative strength in industry groups and sectors as a way to gauge which areas one should be moving funds into. (This strategy is a particular strength of William O'Neill's approach - and his book "How to Make Money in Stocks" is also in Masonson's bibliography). Also, in contrast to the Weinstein book, his method of using indicators is a bit more involved, and he presents specific rules about observing the indicators as a group to serve as a weather vane for the market.

Masonson also spends some time delving into investor psychology, outlining a method by which readers in different life stages can decide how much risk they are willing to take in relationship to their personal investing timeline. He presents helpful advice which readers won't find in Weinstein's or O'Neill's writing. Finally, Masonson discusses online software for use with his method, and provides online resources that serve as adjunct material for his book.

There are many investing and trading books that promise great riches with little effort. This is not one of those. The author makes it clear that you need to do your homework. As one expert trader (whose name I now cannot remember) once observed: would you try to perform heart surgery or attempt to fly a jumbo jet without years of training and experience? Probably not. And yet, people think that they can take the market bull by the horns and wrestle it to the ground just by going on gut feelings sprinkled with hearsay.

Also--there is no holy grail of trading. No one book can deliver the key to success. Success derives from developing your own unique style, using suggestions from various teachers to help you on your path. For those who are willing to work at developing their own style, Masonson gives good, clear information and does not promise anything. He states clearly at one point that his method has not yet been tested, and I appreciate his honesty. However, he is clearly astute in his approach, and his work is informed by very capable predecessors in the investing world. I am looking forward to experimenting with his techniques.

I just bought another 6 books of "buy don't hold" and send it to friends and family that are self-directed investors. Why I am that positive? The books approach is quite similar to my personal approach which worked really well for me over 10+ years (with 2 of the last 2 bear markets). The background reasoning of this book gives important answers: like having a clear method to get in and out of the market, using stops and which ETFs to buy.

What I particularly like about this book besides the very falluable general arguments : How to invest in a universe of exchange-traded funds selected by a weekly relative strength analysis. The book gives good reference to free web sites that show relative strength of ETFs.

What I do NOT like is the described market timing system the "DASHBOARD" . It does not fulfill the major goal (of the book) to stay out of bear markets. Back-testing showed that it did stay in cash for only short periods of the last bear market. However just the simple 200 day moving average would have stayed in cash for most of all of the last bear market. Over the last 11.4 years (with 2 bear markets) the dashboard invested in the SP500 produced 3.3% p.a.(annualized), that's only somewhat better than buy+hold the SP500 of 0.7% p.a. . Only the best 15 relative strength ETFs combined with 10% STOPLOSS and the dashboard produced 7.2% p.a. -- To look at the current "dashboard" and the back-testing results (published Jun 07, 2010) see blog to book: [google> buydonthold].

This book is not a new play for the average mutual fund and stock investor on the stage. The mantra of this book is to invest in ETF's, buy on upswing and sell on downswing, which you predict by a set of eight technical indicators which the author calls the "Dashboard".

Investing in ETF's makes a lot of sense and I also agree with author when he says "But after many years of mixed results, I've found that mechanical non emotional trading and investing, has the highest probability of making money." And he is also probably correct in arguing that "Buy & Hold" is obsolete. I am a long-time investor and found this book to have some excellent arguments against buy-and-hold investing and for a more active approach, but not day-trading.

The author seems to be an expert in relative strength indicators and their value in investment selection and he puts together a good system for rotating through a set of ETF's to maximize return based on relative strength.

However, some issues need to be noticed:
1. There is no proof that the proposed "Dashboard" strategy even works. The author has not applied this strategy to historic data and shown any superior returns. Back-Test is important to validate a strategy before applying it with real money.

2. There is no easy way to keep track of those eight indicators constituting the "Dashboard".

In summary, I agree with the arguments presented in this book. And the author proposes his solution. You should do your home work to validate his "Dashboard" strategy first. If it works for your, then find an easy way to implement it.

The skeptic in me always wonders if there is a system that truly works as advertised, why would anyone want to advertise...just employ it and be super rich! That cynicism aside, Masonson providers a systematic and logical approach whose dependability is difficult to predict ("Past results do not guarantee...." is not slapped on any investment or advisor ad for fun).

After a fairly standard 3-4 chapters on investing risks and why traditional buy-and-hold is not a good strategy for capital preservation, let alone capital appreciation, Masonson provides an interesting Chapter 5 detailing the set of indicators presented as a "dashboard" for this technique. It is an interesting mix of contrarian, momentum/trend investing, sentiment indicators that at first glance seems to be comprehensive. When treated individually, these indicators make sense - it is these indicators' confounding effect that makes for some confusion - especially when it comes to implementation.

The relative degree of lagging/leading nature of these indicators can result in very mixed signals. The author acknowledges that this is not a market timing method per se...nevertheless, a reader wishes there was more detailed discussion on identifying and managing mixed signals. The use of relative strength is not particularly novel - but viewing it in the dashboard's context and then selecting ETFs is intriguing. Despite the inability to predict the technique's effectiveness and potential confusions in managing a diverse set of indicators, this is an interesting read.