Investment Strategies

Once you become a TimingCube subscriber, you must first decide what investment strategy, or combination of investment strategies, best fits your personal risk/reward preference. As stock market research experts and trend timers, we firmly believe that traditional Buy and Hold strategies offer the worst risk/reward ratio by forcing the investor to ride the market down during corrections or even serious bear markets.

Our Model and index fund investment strategy enable us to protect ourselves against losses, or even to benefit from downturns, by following the predominant market trend. Our stock market research has shown that our longer-term broad market Model can be used with a wide variety of U.S. and international indexes to consistently outperform Buy and Hold. In addition to the four basic timing strategies associated with our Buy/Sell/Cash signals, this page also describes World Index Ranking strategies which let us not only time, but target the stock markets with strong momentum, wherever they may be.

Basic timing strategies

• Strategy 1: Long Only
  This is the most conservative fund investment strategy we follow. It keeps you invested only when our Model tells us that the predominant market trend is up, and lets you step aside during down trends:
  
  • When our Model issues a Buy signal, you buy the market through shares of your selected investment (more on this in the What to trade? section in the "Resources" page). Your position is said to be long
  • When our Model issues a Sell or Cash signal, you liquidate your long position and keep the proceeds in cash or in a money market fund


• Strategy 2: Long Only with Margin
  This is a more aggressive version of Strategy 1, where you are willing to invest on full margin, therefore doubling your potential gains and losses. It keeps you invested only when our Model tells us that the predominant market trend is up, and lets you step aside during down trends:

• When our Model issues a Buy signal, you buy the market on full margin through shares of your selected investment. Your position is said to be long
• When our Model issues a Sell or Cash signal, you liquidate your long position and keep the proceeds in cash or in a money market fund

Note: Qualified retirement accounts such as an IRA or a 401(k) are not eligible for investing on margin. As an alternative, you can buy a leveraged index tracking mutual fund that offers margin-like returns (see the What to trade? section in the "Resources" page).

• Strategy 3: Long and Short
  This strategy is designed to make you profit whether the market is going up or down. We believe this strategy offers the best risk/reward ratio for most investors. It keeps you invested whether our Model tells us that the predominant market trend is up or down:

• When our Model issues a Buy signal, you liquidate your current short position (if any), and then buy the market through shares of your selected investment. Your position is said to be long
• When our Model issues a Sell signal, you liquidate your current long position (if any), and then sell the market short by shorting shares of your selected investment. Short-selling means selling a stock that you borrow from your broker in the hope of replacing it later at a lower price. Your position is said to be short
• When our Model issues a Cash signal, you liquidate your current position, long or short, and keep the proceeds in cash or in a money market fund

Note: Since selling short requires a margin account, qualified retirement accounts such as an IRA or a 401(k) are not eligible for shorting stocks. As an alternative, you can buy shares of a mutual fund that aims for the inverse of the return of the index it tracks (see the What to trade? section in the "Resources" page).

• Strategy 4: Long and Short with Margin
  This is the most aggressive strategy we follow and the one with the best track record, by far. It requires investing on full margin, therefore doubling your potential gains and losses. This strategy is designed to make you profit whether the market is going up or down. It keeps you invested whether our Model tells us that the predominant market trend is up or down:

• When our Model issues a Buy signal, you liquidate your current short position (if any), and then buy the market on full margin through shares of your selected investment. Your position is said to be long
• When our Model issues a Sell signal, you liquidate your current long position (if any), and then sell the market short on full margin by shorting shares of your selected investment. Your position is said to be short
• When our Model issues a Cash signal, you liquidate your current position, long or short, and keep the proceeds in cash or in a money market fund

Note: As for Strategies 2 and 3, qualified retirement accounts such as an IRA or a 401(k) are not eligible for shorting stocks or investing on margin. As an alternative, you can buy shares of a mutual fund that aims for double, or double the inverse, of the index it tracks (see the What to trade? section in the "Resources" page).

You can check the performance and returns of our four strategies on the page. Please note that all performance results are calculated using the respective indexes as the investments. If you are a subscriber and log in to the site, all results will be current as of the last trading day. If you are not a subscriber, all results will be delayed by twenty trading days.

World Index Ranking strategies

The World Index Ranking strategies are based on the premise that over time the relative strength of world markets changes as former leaders slow down and new ones emerge. The strategies seek to have us invested in the strongest markets by building a diversified portfolio from the top 5 indexes and rebalancing every 4 weeks.

Our Model is index-based to avoid being too specifically tailored to a particular investment. There are many stock markets around the world but we automatically narrowed the field with some of our requirements, such as a minimum of 5 years of publicly accessible index data. The complete ranking can be found on the "Current Signal" page. We ended up with a total of 27 indexes divided as follows:

• North/Latin America (10 indexes, 7 U.S.)
• Europe (9 countries/indexes)
• Asia/Pacific (8 countries/indexes)

Our research and testing has shown that the optimum rebalancing period is 4 weeks: it provides excellent returns while minimizing trading commissions. Rebalancing consists of selling the indexes which have slipped out of the top 5 group and buying the new ones. Our return calculations assume that each of the 5 positions represents exactly 20% of the portfolio at the start of the new 4-week period. Practically, you may use somewhat looser rebalancing guidelines for your own portfolio unless a large dollar difference develops between your positions. Simply rebalancing such a portfolio amongst the world’s leading indexes beats any Buy and Hold strategy over time. In addition, we can further enhance performance and manage downside risk by overlaying the TimingCube signals, resulting in three World Index Ranking strategies:

• The Long Only strategy invests in the top 5 indexes and rebalances every 4 weeks during Buy signals, and goes to cash during Sell signals
  
  
• The Long and Short strategy invests in the top 5 indexes and rebalances every 4 weeks during Buy signals, and goes short QQQQ shares during Sell signals. An alternative to shorting QQQQ is to simply buy the inverse ETF ticker symbol PSQ
  
  
• The Buy and Rebalance strategy ignores the Buy/Sell signals altogether and stays fully invested in the top 5 indexes at all times, and rebalances every 4 weeks

After settling on a strategy one must decide which investments to use. There are many to choose from between ETFs, open and closed-end ones, mutual funds, options, etc. The What to Trade? section of the "Resources" page contains lists of applicable investment vehicles.

We update the World Index Ranking weekly, after the close on Friday, so you can start your cycle on any day as long as you rebalance every 4 weeks from then on. Our page provides the returns and statistics for a sample 5-index portfolio that was started on January 2, 2001 and rebalanced every 4-week period since then according to the World Index Ranking. Please note that all performance results are calculated using the respective indexes as the investments. Actual returns with the corresponding ETFs may vary, depending on currency fluctuations and how closely an ETF tracks its underlying index.

As with any investing approach we recommend moderation and diversification. History has shown that international investing comes with a number of additional risks which must be properly considered in selecting how much of your investments you want to assign to the World Index Ranking approach, and how many countries to invest in. Our backtesting shows that a 5-country portfolio provides the optimal tradeoff between diversification and performance. You can use use a different number but we would not recommend fewer than three. Also, we intentionally do not include margin strategies for international funds because many are inherently volatile enough for most investors.