TimingCube - The best contrary indicator - contrary indicator,risk aversion,herd mentality,logical fallacies,unemotional

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Today we begin our second TimingCube Subscriber Survey. You can access it directly by clicking the "Take Survey Now" button at the top of the "Current Signal" page. Please take a few minutes to answer the questions, your feedback and suggestions are invaluable in helping us serve you better!

Signal Update

Current Signal Performance as of

Signal Type	Trade Date	Index	Return since issued
		Nasdaq 100
		Russell 2000
		S&P 500
		QQQ

Cumulative Returns since First TimingCube Live Signal () as of

Index	Long Only	Long Only with Margin	Long & Short	Long & Short with Margin	Buy & Hold
Nasdaq 100
Russell 2000
S&P 500
QQQ

Note: QQQ returns are included for continuity sake.

Market Update

For the second week in a row, markets sold off on Wednesday. This time, the culprit was Cisco: even though Cisco's earnings report was better than expected, cautious comments from CEO John Chambers triggered heavy profit taking in technology stocks. As has been the case in several occasions since April 2003, investors saw the Nasdaq's drop as a buying opportunity and drove market indices sharply higher on Friday, recovering all of Wednesday's losses and then some. For the week, the Nasdaq 100 and Russell 2000 gained 0.39% and 0.57%, respectively. The S&P 500 did even better, with a weekly gain of 1.03%.

It has been a wild week, but our Buysignal remains active.

Trend Timing School

The best contrary indicator

There are mountains of evidence supporting the fact that individual investors make bad decisions, repeatedly, when they follow their emotions and instincts. So much so that if you go by your emotions, you are almost certain to lose.

Irrefutable proof of this harmful behavior pattern was developed long ago. For example, in a 1994 study by Morningstar, results from individual investors were compared against the results of the 219 growth funds they followed for a five year period. The study showed that the average growth stock fund gained 12.5% per year over the 5 year period, while the average investor in those funds lost 2.2% per year. Why such a huge difference? Why can't we all just buy low and sell high? The answers lie in human psychology and the fact that people are highly emotional creatures. We can all be better investors and make fewer bad decisions if we understand and avoid falling prey to the key behavior tendencies we face every day.

Risk aversion. The underlying cause of risk aversion is that we all want to be proud of our great investment results and avoid the remorse associated with a losing trade. What's even more subjective than pride and remorse is our assessment of risk. For example, when the market is moving down we perceive higher risk than when it moves up, despite holding the same exact investment and that the odds of the market reversing are about the same in both scenarios.

Fear of heights. Research has shown another puzzling fact about our risk assessment capabilities, or lack thereof, and our propensity to reach opposite decisions based solely on our current situation. Curiously, investors become more risk averse when facing the prospect of a gain, and more risk seeking when facing the prospect of a loss. They tend to sell more of their winning positions than the losing ones, even though the winning investments they sell subsequently outperform the losers they continue to hold.

The herd mentality. The well known "sheep syndrome" is explained by the reduction of time and effort needed to properly analyze an investment decision if one follows the herd, and the comfort found in knowing that we are not alone in our decision. The instincts and information-processing shortcuts which are highly efficient in our day-to-day lives systematically work against us in the market place. "Herding" is also used frequently as a powerful tool to influence market movements.

People over react. We naturally tend to swing between extremes of optimism and pessimism. Instinctively we look for indications that something bad is about to happen, and the daily deluge of news gives us plenty to choose from. At other times we get carried away with enthusiasm and the desire for good times to last forever. Widely overpriced stocks and market bubbles (the now famous "irrational exuberance") invariably lead to crashes and bear markets, and vice-versa.

Logical fallacies. We all want to believe that we are pretty smart and have good judgment. Unconsciously, our analytical mind is constantly in motion seeking facts and arguments that logically justify and support our gut feelings. When our emotional biases are reinforced by information and the powerful influence of experts or news media who interpret information the same way we do, the pressure to follow becomes compelling.

In conclusion, we can all congratulate ourselves and be proud of having taken the first step to commit to the unemotional Trend Timing wealth building system. Long term success is ours as long as we stay disciplined and keep these malicious emotions in check. And if you really feel compelled to trust your emotions, use them as your best contrary indicator and run the other way.

FAQ of the Week

Question: Am I better off using ETFs or mutual funds?

Since both Exchange Traded Funds (ETFs) and mutual funds are index tracking investment vehicles suitable for our Trend Timing strategies (described in the "Our Service" page), we often get asked which of the two is better. Alas, there is not a single answer to suit everyone and all circumstances. Instead, we give you the pros and the cons of each to facilitate an educated decision based on your specific situation and preferences.

	ETFs	Mutual funds
Simplicity	You manage short/margin trading	Simple fund buy/sell/exchange
Retirement accounts	Long Only strategy (no short or margin trading allowed)	All 4 strategies
Trade execution	At market open	At market close
Costs	Low expense ratio (0.10-0.20%) You pay margin costs	High expense ratio (1.25-2.00%) No margin costs
Index tracking	Best	Leveraged funds can vary significantly*
Performance	Tracks index, plus short and/or margin	Leveraged funds can outperform or underperform*
Liquidity	High	Low to Medium