Market timing is difficult, if not impossible, to achieve because it frequently leads to the investor purchasing or selling too late or too early rather than on time. Professional investors often frown on the idea of using a market-timing approach.

The Background

This is the ultimate “light touch” moment strategy as initially developed by Gary Antonacci and later enhanced by an army of professional and amateur investors, notably Chris Ludlow and Steve Hanly.

The Strategy

The rules are straightforward. Calculate an accelerating momentum score for US and international equities, with a focus on small-cap ex-US companies for the extra benefit of correlation. The sum of each asset’s 1-month, 3-month, and 6-month returns is used to calculate the momentum score. The total of these three-time segments allows us to account for the trend’s curve as well. If both scores are below zero, that’s a terrible sign and a sign that stocks are on the way down – buy bonds (specifically long-term treasuries, again for the added correlation benefit). Otherwise, go with the asset that has a stronger momentum trend. Make this decision at the start of each month.

Performance

Over the previous 20 years, this relatively simple method has done admirably. The approach may be backtested and studied using Portfolio Visualizer and mutual fund data dating back to 2000 because it is so basic. With a $10,000 beginning investment in 2000, this method would have grown to over $360,000 by the end of 2020, compared to just under $44,000 if invested in the S&P 500 at the time.