|
Confessions
of a Market Timer
It started years ago when I began just a little tactical allocation. Sure, I’ve switched funds in my 401(k). Hasn’t everybody? Anyway, it seemed harmless at the time. Then I got into the harder stuff. Seasonality became my favorite pastime. The highs felt sooo good, especially November through May. I just knew that I could pull out before the urge to hold became uncontrollable. After a while, I started to go only for the highs. No low betas for me. But cash left me with a dry, empty feeling. Then I discovered inverse funds! Now I can party, party, party! Look, ma! No hangover! Just a little “hair of the dog” and I’m feeling just fine again. Is this hereditary? Well, let me see…hmmm. Well, my mother decided that she liked lil ol me so much that she decided to have 13 more! So, I guess it runs in the family! We’ll call her a baby timer. We grew up on a farm where my dad taught me when to plant and harvest the crops. He’s a tractor timer. My brother knew exactly when to feed the chickens and gather the eggs. He’s an egg timer. I sold my car recently. It was looking a bit worn and the odometer was registering six digits. I could have just parked it in the yard when it gave its last gasp, but I couldn’t get myself to buy and hold a car. I do see some people with wrecks parked in their front yard. Maybe they are better buy-and-holders than I am. But I just can’t see paying someone to tow the wreck away when people will pay me money to drive it away while it’s still running. I guess I’ve been a car timer for a long time. Hey, the news just flashed something interesting! I can now time my cellular phone number! Yep, I can switch carriers and keep the same number. I circled November 24th in red! I can’t wait to time my cell phone. Will it be instant messaging or call waiting? The choices are endless! Wait a minute…you mean there’s nothing wrong with me? But I’m in the news! Market timers are horrible people! I gotta get some help!!! What, you said they’re not talking about me? You mean I can buy low and sell high all I want? Wait a minute; who are the bad guys? Oh, those guys. The ones who give a big customer preferential treatment on purchases, or allow a trade after the market is closed, that’s not market timing! If you are a money manager who puts his trades before his customers, that’s not market timing! Let’s see…sounds like favoritism, fraud and deception to me. But why is Gretchen Morgenson calling it “Market Timing” in her New York Times article (Monday, November 10, 2003)? Let’s read it a little more closely…Hmmm, “special allowances given to certain customers that are allowed to frequently trade fund shares while the same actions are forbidden to “all” customers,” according to Ms Morgenson. Hey, that’s the rest of us. These things don’t have anything to do with market timing. Sounds like the same old stuff just being recycled, if you ask me. Just where did Gretchen get her jargon, anyway? Reading the article more closely, Ms. Morgenson says, “Market timing is a misnomer, of course.” So, ladies and gents at MTA, if you are questioning your motives, relax! Elliot Spitzer doesn’t have you in his sights. Unfortunately, the mutual fund industry pays a lot of money in advertising to the same media who report on their malfeasance. Perhaps the media are getting this “market timing” label from the same sources. After all, the mutual fund industry would like to enforce a buy and hold strategy forever. It’s their fees that are being protected. If the mutual fund companies could pass a law to slap a termination fee on all shareholders that want to leave before, let’s say, five years, they would. Of course, it would only be in the best interest of the remaining shareholders, right? The government is already doing it. It’s called capital gains tax. But, you say, “What about the people who really must leave?” Tough! Let them take their lumps! You ask, “What will really happen?” Well, the flow of money would slow. Wall Street would become even less profitable. They would raise their fees, cut their services. Shares would be less liquid. Trading would be inefficient. Staff will get fired, as if that is not already happening. I can see the want ad in the local classifieds, “1000 shares High Roller Fund, original owner, $800.00, obo. Seller desperate.” So now that I have it off my chest, a word of caution. When the SEC and the mutual fund industry get together to clean up their mess, there’s a high likelihood that the public investors will be penalized, too. This “market timing” scandal could be used as an excuse to further diminish the ability of investors to take their profits when they see fit, by putting further restrictions on the victims while letting the perps get away with a slap on the wrist. If they do, they had better be careful. There is already a move to withdraw significant sums from the companies of the more blatant offenders. Meanwhile, they are no longer the only game in town. Mutual funds are already facing increasing competition from Exchange Traded Funds (ETFs). ETFs can be bought or sold throughout the day, rather than having only end-of-day pricing. There is no minimum holding period. They may even be bought or sold short. So, if the mutual fund business thinks they can get away with just misnaming the act, passing the buck, firing a few people who had the bad luck to get caught and reducing services to customers, they had better reconsider. Market Timers Anonymous is watching.
The Practical Investor, LLC is a State Registered Investment Advisor CONTACT
INFORMATION The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
Hello,
my name is Tony. I’ve a confession to make. I’m a market timer.
I’ve been doing it since 1997, maybe earlier. I’ve tried to control
the urge to time the market, but it seems to have gotten out-of-hand
lately. I can’t seem to control my urges to sell my mutual funds,
especially after Putnam, Janus and Strong revealed their raunchy side. I
scan the news daily for another fund I can sell. Before I know it, I
won’t own any funds at all. Someone has got to help me. That is why
I’m here at Market Timers Anonymous (MTA).
