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We at Mack Research believe that long-term market timing provides the most effective path to long-term wealth building.  

 

Long-term market timing, properly implemented, increases returns and lowers portfolio volatility compared to the S&P 500.  Our Mack model portfolio has been back-tested into the 1960s and shows superior performance had an investor applied our timing strategy.

Mack Research Historical Performance

 

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Mack Performance Log and Arithmetic Chart

Performance of Mack Market Timing v.s. S&P 500 Log and Standard Chart Scaling (click for larger)

 

 

Many factors drive market returns, some more than others at any given time. To ensure future performance, today’s investors must monitor all potential market drivers.

 

We developed our proprietary model to evaluate potential market drivers, which, include but are not limited to: broad economic data, corporate fundamentals, market action, cross-asset relationships, and market valuation.  Our timing model also includes several unique underlying models, each pulling from a large sample of data.

What Is Market Timing?

 

Simply put, market timing is an investment strategy that aims to exit a market before a decline and enter a market just before an advance.  Doing so successfully would increase returns and lower volatility.

What Is the Value of Successful Market Timing?

 

U.S. equities have been a strong and diversified investment over the past 150 years.  The growth of the United States and its economy, with the resulting inflation, have all been reflected in the tremendous growth of equity prices throughout the past century and a half.  The total return of all U.S. Stocks during that time has been approximately 9% per year with meaningful contributions coming from both price appreciation and dividend yield.

 

Unfortunately, this 9% figure has been extremely volatile at times.  Investors are well aware of the stock market’s vagaries from 1929-1932, in the 1970s, and during the 1987 crash, the tech bubble of 2000, and the recent 2008 decline.  Fortunately, it was possible to identify many of these periods in advance, allowing investors to avoid or minimize damage to portfolios.  Advance detection of economic recessions and equity bear markets has extremely positive implications for an investment portfolio.

 

One need not identify the next great American growth company to have an outperforming portfolio. We have shown, rather, that just by investing in a sound index fund and successfully timing the market, a long-term portfolio can experience several additional percentage points of appreciation per year, with less volatility, than the S&P 500.

 

The U.S. stock market, historically, has been a great investment.  The addition of successful long-term market timing makes it nearly unbeatable compared to other assets classes.  By avoiding or minimizing bear markets, volatility is diminished, generating much more consistent returns.

The Mack Market-Timing Model

 

Our timing model is the product of more than a decade of research and development.  Although we believe it to be an excellent long-term model, we continue working to improve it.  The changing nature of the global economy and technology punish those who sit back and coast; we constantly invest in R&D.

 

Past stock market movements have been driven by different factors at different times:

 

  • Inflation was extremely important in the 1970s but not much of a concern in the early 2000s.
  • War impacted equity prices during the Viet Nam Crisis of the 1960s and ’70s and again during Gulf War 1, and at the beginning of the Iraqi invasion in the early 2000s.
  • In 2015, for the first time, oil traders watched eagerly for new rig-count data as they forecasted oil prices.
  • Monetary policy has been a primary focus for investors over the past decade, whereas fiscal policy had captured their attention throughout the 1980s.

 

Ultimately, such variability makes simple market-timing models ineffective or inconsistent over long periods of time.

 

To address variability, we created a multi-faceted model using data from such a diverse set of sources as broad economic data, corporate fundamentals, market action, cross-asset relationships, and market valuation, to name only a few.

 

By diversifying our model and back-testing into the 1960s, we have created a robust strategy which we feel will perform consistently for many years.

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Sentiment Analysis for Identifying Short- and Medium-Term Trends

 

Although long-term market timing is critical, how do you identify opportunities to add new capital to the market?  Should a liquidity need arise, when do you decide to make a partial sale?

 

Our sentiment composite model provides an effective way for clients to identify short- to medium-term turning points.  We do not advocate short-term trading due to the difficulty and tax implications, but we do understand the need to add new savings to an investment account or to periodically use capital for life’s expenditures or alternate investment opportunities.  Knowing when to time those transactions is important to avoid adding to or redeeming from a portfolio at the wrong time.