Customer Reviews

Timing the Market: How To Profit in the Stock Market Using the Yield Curve, Technical Analysis, and Cultural Indicators

5 star:		(7)
4 star:		(4)
3 star:		(0)
2 star:		(1)
1 star:		(2)

 

 

This work provides an excellent, professional grounding for one's approach to the markets. The theoretical basis for this foundation is ongoing analysis and interpretation of the U. S. treasury yield curve, bond quality spreads, and movements of the federal funds rate. The author's exposition of the yield curve is the best I've seen. She divides her analysis of the yield curve into short-term money market segments, the traditional spread between ten year bonds and three month bills, and longer-term bonds. Each of these segments affords the analyst important information as to the the present and anticipated state of the economy -- which determines the earnings expectations that drive markets.

The second section of this book affords a somewhat different take on technical analysis than is usually encountered. The author explains how to use the volatility index (VIX) and the put/call ratio as indications of short-to-intermediate term market turning points. She also indicates how margin debt and short interest levels can be used to reveal long-term market highs and lows.

The third section of the book describes cultural and demographic methods for gauging the market climate. These methods are qualitative only; subject to interpretational error; and questionable in the separation of "fact" from one's psychological projection. However, used strictly as adjuncts to yield curve analysis and technical indicator confirmation, they can be quite useful as further confirming tools.

The fourth section describes how to use market timing in a profitable, top-down approach to riding the business cycle through rotation from fixed-income investments into equities, then hard assets, foreign currencies, and back into fixed-income instruments. The author details how intelligent asset rotation leads to more favorable portfolio results than does buy-and-hold over the long run.

The market timing model which the author evolves over the course of the book substantially beats a buy-and-hold portfolio and does so while experiencing less volatility. The timing model's rationality, operations, and results are clearly explained and documented to facilitate a comprehensive understanding of her approach.

This book is well-written. Its thesis is logical; well-developed; and supported with numerous examples, data, and around sixty pages of appendices. I feel that its methodology will help investors understand and identify forces which move markets as well as avoid those traps of crowd psychology which lead to participation in mass buying at market tops and mass selling at bottoms. This work is an interesting, original contribution to the literature of markets!

I approached this book with an inclination to like it. I'm a firm believer in market timing, and I jumped at the chance to learn some new ideas about using the fixed-income markets to time the stock market. I have to say, though, that I came away from Timing the Market frustrated and disappointed. Here's why.

Throughout the book, there is a chart detailing various buys and sells that one supposedly could have made using the author's timing system. However, rather than deriving these buy and sell points systematically, the author seems to choose buy and sell points that would have worked best in retrospect without regard for whether or not they fit into a coherent, replicable system.

For example, in chapter 7 the author adds buy points to her chart right after the waterfall declines in October 1987, September 1998 and September 2001. What is the rule that guides these choices? Apparently, it is that the Fed lowered the fed funds rate at least one-half of one percent after a crash of some kind. This rule is apparently a sufficient but not a necessary condition of buying because numerous other buy points on her chart don't involve this rule at all. So IF you hadn't already committed funds because of other rules, you MIGHT have been able to buy then.

Later in the book, on the basis of a breadth-based rule about the Dow 30, the author erases the September 2001 buy signal and records a buy signal for her system on July 19, 2002, near the ultimate bottom of the bear market. This is based on the fact that all 30 Dow Jones Industrial Average stocks declined on the same day. I see IN RETROSPECT why she did this, but how would you have known in September 2001 to wait for the later buy signal? The author does not address these kinds of questions at all, as far as I can tell. As I said, frustrating and disappointing.

There may be value in Ms. Weir's concepts, but she has far to go if her aim is to develop a rigorous market timing system, in my opinion.

I'm a technology guy, so when asked if "something works", my response is often: "I don't know, let's try it." That's precisely what I did with this book. It actually inspired me to go out to the Fed's site, collect the data, crunch through some numbers, and make the trades myself going back to 1960. I only "traded" based on the information in the first two chapters (the heart of the book really) I used the 3 month / 10 year curve and the money market curve for buying back in.

I really was surprised to find that I ended up with twice the money as the buy and hold portfolio even though my trade dates were slightly different than the author's (not by much, but I think the data differs a bit depending on your source)

Bottom line for me: It seems that there is something to this yield curve stuff . . Sitting down and working through the math did teach me an important lesson though. The 1982 - 2000 Bull Market in stocks was an incredible thing - an unusual affair. After trudging through the volatility of the 1960s and 1970s that fact really leaps out at you. If you had simply bought stocks toward the end of 1981 and held on until about the middle of 2000 you would've reaped something like a 1200% gain by my estimates. In other words, the 1982-2000 Bull made things very easy for stock market investors and bailed out a lot of unsophisticated people.

Will the future be so easy? I highly doubt it. And I wouldn't expect a bull market like the one we just saw anytime soon. This may render the simplistic "buy and hold" advice of old practically worthless. All the more reason to pay attention to what markets and the economy are doing. Bear markets can last a looooong time. It's worth making an effort to stay away from them if possible.

I bought this book awhile ago. Studied it. It all sounded so good. And then I tried to recreate the buy/sell signal data.... If you already own the book and are using it to make investment decisions, be sure to try this exercise and answer the question at the end.

Go to Appendix 2.1 on page 333. Let's dig into the sell signal on "2000-08-01" as an example. First of all, as Weir explains in her book on page 15-16, the Treasury data is a monthly average. The Three-Month Bill entry is 6.09. That is an average of the 3-month yields from 8/1/2000 to 8/31/2000 (using the daily rates from H.15 3-month Treasury Bill secondary market rate data). Since that is an average, it is known on 8/31/2000 at the earliest. The same is true for the Ten-Year note and therefore the yield spread. Other than the misleading date name in the table (2000-08-01), so far so good.

Now we have a signal to Sell on 8/31/2000, right? The S&P 500 Index for 8/31/2000 is 1517.68. (Yahoo's daily historical Prices for S&P 500 INDEX,RTH (^GSPC)). The "2000-08-01" entry in the book shows 1430 which is what the S&P 500 Index was for 7/31/2000, a month earlier. The same is true for all the entries in appendix 2.1.

So the question is: how is it that you can buy and sell an index based on signals you won't know until a month later?

What a scam!!

If your primary investment goal is to invest for the longterm, but you would like to obtain far better results than the outdated and limiting 'Buy & Hold' strategy suggested by brokerage firms, then this is a book you should include in your library. While I feel some chapters could have easily been left out (the whole section on Cultural Indicators) Weir nevertheless offers some excellent information and proofs on various market-timing strategies. Frankly, the first section of the book offers the best explanation of the Yield Curve that I have found. Whether you include the yield curve methodology in your own investment strategy or not, it would be worth your while to understand its ability to predict market turns.

This book and Leslie Masonson's "All ABout Market Timing" are two of the better market-timing books that you should incorporate into your efforts to learn how to increase the returns on your investments through better market timing.

With the ease and clarity of a teacher, Deborah Weir expertly fuses three critical elements investors must use in making more informed buy and sell decisions. By incorporating her insights on market sentiment, the yield curve and cultural indicators, one will strengthen his and/or her future portfolio changes. The ability to be flexible in adding these disciplines will make the difference in your performance. And this book will help make that difference.
Ralph J. Acampora, CMT
Chief Technical Analyst
Prudential Equity Group, LLC

I'll defer to a much more scholared person I came across on the net, here:
http://www.dailyspeculations.com/dailyspec_archives/dec2005/dec2005b.html

From his review, which REALLY made me re-think my decision on whether to buy or not:
"I was therefore sorely disappointed in Deborah Weir's Timing the Market: How to Profit from the Stock Market (Wiley: November 2005), regrettably part of the Wiley Trading Series, as it contains all these defects.

There are two good parts of the book: an appendix that contains monthly data on the three-month bill and ten-year note, with corresponding S&P 500 Index data from January 1961 to January 2004. The author reports profits and losses from a blind rule of buying when the three-month yield is below the ten-year and selling when it's above. Regrettably she leaves out the sell that would have occurred on November 1969, the update of her results for the loss from buying the S&P on January 2001 at 1320 and holding through the decline to the 780s in 2002 and the four years without profit as we write. She also fails to note that all the inversions since 1966 came with 10-year bonds above 5% as follows:

Inversions (10-year note yield above 3-month bill yield)
Date 10-year yield S&P 500
Sept 1966 5.2 77
July 1969 6.7 98
June 1973 6.9 105
Dec 1978 9.0 95
Nov 1980 12.7 106
Aug 2000 5.8 1430

The date she reports are from a Federal Reserve site. Presumably, on that site the Fed reports how and when during the day or month the yields were calculated and whether they are adjusted in some retrospective way. I eschewed using all such series for many years because they turned out to be based on averages and intraday prices rather than level and end-of-day prices) like the useless retrospective P/E statistics that the doomsday people use.

You might think that a sapient author might have considered that a rule that only gave one sell in 20 years and then was superseded by a buy on Jan. 1, 2001, when the market was at 1320, right before one of the greatest crashes in history, without one further sell, might not be overly useful or relevant. Also that with 10-year yields during her points of inversion averaging some 80% above the current levels, that the conditions and utilities today might be different from the past; but no, such reflection is not made. Instead there are some references to ripples in the term structure from three-month to one-year that the author would have used in retrospect to fine tune the six sell signals she reports to make them even better. "

I purchased this book to learn about yield curve inversions and how to use that information in making decisions on when to exit the stock market. The book meets those two goals and provides a real basis on how to improve market returns by avoiding potentially large losses. The price of the book is a little high. The section on cultural factors such as hemlines and bust sizes did not match well with the main theme of the book. Is it worth $35 to improve stock market returns by a few percent? Duh. Yeah.

I find this book very useful, as it gives you a clear and complete vision of the investment universe avalaible to anyone. Deborah explains her investment criteria in real market situations with the social, historical and economic details of every period. A very good point is that she provides tips on where to find the actual data she is using. It's written at basic level, combining fundamental (through the yield curve) and technical analysis with some cultural indicators. The first one is the backbone of the book. In short, I enjoyed it and it's global and practical approach.

I strongly recommend this book for every investor. It covers all the major market timing techniques and does a great job in explaining them. The book is comprehensive, well organized, and well explained. There is only one chapter that I really hated --chapter 16 which talks about the relation between trends in woman beauty and the market. This chapter should just be removed from the book; luckily it is only 10 pages long!