Market Timing: Big Wins or Big Trouble? - Halliburton

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Feature Market Timing: Big Wins or Big Trouble? For as long as there has been a stock market, there have been investors who rely on market timing to figure out the best times to buy or sell. With market timing, investors attempt to predict the future direction of the stock market, a specific stock or investment fund, then place a buy or sell order based on the prediction. Basically, market timing is a speculation strategy that is the opposite of the “buy-and-hold” strategy. It’s too risky! Most investors and stock market experts believe that timing the market is impossible. The argument against market timing is based on the belief that it’s best to stay fully invested over time. While some speculators like to predict when the market will surge and when it will crash, they’re often wrong. No one can consistently and accurately know Easy Boat to Miss 20% 15% 10% 5% 0% 14.4% 11.3% Full Period Less the 10 Biggest Up Days Past performance is no guarantee of future result. Annualized Increase in the S&P 500: 1980 to 2007 Net of Dividends 9.0% Less the 20 Biggest Up Days 7.0% Less the 30 Biggest Up Days 5.2% Less the 40 Biggest Up Days what the market will do in the short term. In the long term, though, the trend is clear: The market tends to rise. As the chart below illustrates, from 1980 to 2007, the S&P 500 was up an average of 14.4% during that entire period. However, if you missed out on the 30 best days during that ten year period, your return would have dropped to 7.0%. Even if you only missed 10 of the best days during that period, your return would have been cut from 14.4% to 11.3% — a significantly lower return. By trying to predict the market, you could have actually decreased your investment significantly. According to Motley Fool, in 1997, the S&P 500 advanced 33%. That was a thrilling year considering the market’s historical average return. Many predicted that the market was due for a crash. But those predictions were wrong and 1998 offered a jump of 28.6%. If you had pulled your money out in 1998, you would have missed a banner year. So in this case it was better to buy and hold. 3.6% Less the 50 Biggest Up Days S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market. An investment cannot be made directly in a market index. ©2008 Citigroup Global Markets Inc. Member SIPC. Smith Barney and Consulting Group are divisions of Citigroup Global Markets Inc. Smith Barney is a service mark of Citigroup Global Markets Inc. and its affiliates and is used and registered throughout the world. Citi with the arc design is a trademark and service mark of Citigroup Inc. or its affiliates and is used and registered throughout the world. For further information contact Smith Barney at 1-866-425-9675 or http://fa.smithbarney.com/halliburton. Source: Smith Barney Consulting Group This buy-and-hold strategy subscribes to the belief that investors should make no big moves in and out of the market or big adjustments to equity proportions to ensure you are in the right investment funds on the days when it counts. The philosophy is to stay the course and ride out any rough patches. It’s not that risky A few investors (or speculators) believe market timing is the best way to make significant gains in the market. They believe that the market moves in cycles and indicators, if read correctly, can predict a cycle change. However, if you buy and sell according to market cycles and indicators and your prediction or timing is wrong, your investment will likely fall short.
While market timing can occasionally work in the short term, there is no guarantee it will be consistently successful over time. There are a multitude of investment magazines, websites and software that claim to help investors time the market and earn returns well above the usual market returns. But don’t let these claims fool you, while market timing can occasionally work in the short term, there is no guarantee it will be consistently successful over time. Saving for retirement through a 401(k) such as Halliburton’s Retirement Savings Plan requires a long term investment strategy. Investors who are trying to build security for retirement tend to make investments that are more consistent in growth and value over the long-haul. Market timing is not well suited to this type of investment strategy. Rather, market timers attempt to gain value by finding the big windfalls. More often than not these windfalls can become big pitfalls in a long-term investment strategy. If you take a look at the one-year holding periods for the S&P 500, you can see that there is no consistent pattern of highs and lows. So, if you weren’t consistently invested through a long-term strategy, you would have missed out on the positive returns over time. Is market timing right for you? Market timing may be an investment strategy best left to the professionals who have access to leading economic indicators and History Favors the Long-Term Investor 2002 1974 1931 1937 1930 -40% -50% -30% -40% -20% -30% 2001 1973 1966 1957 1941 -10% -20% technical data to assist in determining if a stock or fund is undervalued or overvalued. Even if you think you have the knowledge and experience to try your hand at market timing, it’s important to be aware of the dangers. Gambling with your entire nest egg could be devastating to your financial security. Cautious investors don’t typically consider marketing timing. They opt for a buy-and-hold philosophy. But remember, buy-and-hold does not mean buy-and-forget. All investments require active monitoring. As asset classes evolve, adjustments must be made. If you invest in the Premixed Portfolios, those funds are automatically rebalanced for you. If you invest in other funds, it’s important to review your entire portfolio periodically and adjust your allocations as necessary. 2000 1990 1981 1977 1969 1962 1953 1946 1940 1939 1934 1932 1929 0% -10% 2007 2005 1994 1992 1987 1984 1978 1970 1960 1956 1948 1947 0% +10% 2006 2004 1993 1988 1986 1979 1972 1971 1968 1965 1964 1959 1952 1949 1944 1926 +10% +20% 2003 1999 1998 1996 1983 1982 1976 1967 1963 1961 1951 1943 1942 +20% +30% 1997 1995 1991 1989 1985 1980 1975 1955 1950 1945 1938 1936 1927 +30% +40% 1958 1935 1928 +40% +50% The above chart is for illustrative purposes only and is not indicative of the performance of any specific investment. Past performance does not guarantee future results. 1954 1933 +50% +60% S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market. An investment cannot be made directly in a market index. ©2008 Citigroup Global Markets Inc. Member SIPC. Smith Barney and Consulting Group are divisions of Citigroup Global Markets Inc. Smith Barney is a service mark of Citigroup Global Markets Inc. and its affiliates and is used and registered throughout the world. Citi with the arc design is a trademark and service mark of Citigroup Inc. or its affiliates and is used and registered throughout the world. For further information contact Smith Barney at 1-866-425-9675 or http://fa.smithbarney.com/halliburton. Source: Smith Barney Consulting Group
Page 1: TrustTalk Spring 2008 Current news
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Page 10 and 11: Focus on Funds Non-U.S. Equity Fund
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Page 14: Performance Notes The Bond Index, B

Market Timing: Big Wins or Big Trouble? - Halliburton

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