|Review of Dave Rogers' 90% Solution
by William Schmidt, Ph.D.
(C) 2006 William Schmidt - All rights reserved.
Main Web-Page of TigerSoftware and
Peerless Stock Market Timing.
45 Months Now without a 10% Decline in the DJIA.
"YES". I Would Say that Dave Rogers Book on
the Need to Re-Discover Market Timing is Very Timely!
90% Solution? Certainly, Dave Rogers is right that
if we could somehow buy at the bottom after a major
bear market and then sell out at the next top, there is
a 90% chance we would make money, no matter what we buy.
But his book goes way beyond this. For all the
rote praise given by the "buy and hold" crowd to blindly
holding "good quality" stocks tightly for the long-term,
their performance is usually not even average. Most fail
to match the gains of the averages.
Even those slaves to the fashion of blindly holding
for the long-term should understand that the very stocks
that make up the major averages are not fixed for all time
forward! Someone in a dark room, not in the public light,
engages in "market timing" and assesses the individual components
for continued timeliness. Every so often, they kick out
the laggards and infuse new blood into the DJIA-30,
the NASDAQ-100, the SP-500, the FTSE-100, etc.
Even more right-on, Dave Rogers asks us simply to
ponder whether the market must always be tilted up,
much less at the same steep angle that it has been since 1982.
In August 1982, the DJIA was at 800. Now in December 2006, it
stands at 12,400. This is more than a 1500% gain in 24
years. A lot of things went very right for the market
in this period. Communism was defeated. The Internet
was Invented. Taxation on the rich and stocks was halved
and then halved again. But what if things change for the worse.
What if retirees start to sell their stocks on balance
as the population ages? Can the three trillion dollar cost
of the US war on Iraq be really escaped, financially,
diplomatically, morally? Peace is bullish for a while.
The ending of the US war on Viet Nam in late 1974 led to a
bull market, which ended in mid 1976. But, it then took six years
for the market to cope with war's hang-over consequences
and get back to its peak of 1020 in September 1976.
We have only to look back at the period from 1966 to
1982 to see what an unsuccessful major US military adventure in
Asia produced for the stock market, namely inflation, decline
of the dollar, sharply higher interest rates, impeachment of a
President, shrill partisianship and a DJIA that ended up in
August 1982 more than 100 points, 10%, below what it was in
January 1966, a full sixteen years earlier!
Rogers asks us, ever so politely, just to think about
how well we would take to a market that took on the bumpy
characteristics of a roller-coaster. Would we really be comfortable
riding out an 18-month to 24-month bear market like those
from December 1968 to May 1970, January 1973 to December 1974,
January 1981 to August 1982 or January 2001 to January 2003?
Such bear markets very often wipe out 50%-90% of the value of
popular growth stocks. He asks us if it wouldn't be worth while
to start to learn how to spot the tell-tale signs that are
the usual alerts to such long bear markets. Wouldn't it
be worthwhile, in other words, to learn some of the tricks
that market timers have to teach us.
Shouldn't we at least think about how we might learn
to use time-tested market timing techniques to avoid 10%-35%
sell-offs in the DJIA (and twice that for most NASDAQ stocks)
that last 2-6 months? These are very common. Such panics
and sell-offs can reap havoc to the value of a "long-term"
portolio of "good stocks".
I have spent the last 25 years studying market history.
Visit my website, http://ww.tigersoft.com and see how common
steep sell-offs of more than 10% are in the DJIA in the last 40
years. Simply counting the years in which they occurred
gives you an idea of how bumpy the market can be: 1966, 1967-1968,
1969, 1970, 1971, 1973, 1974, 1977, 1978, 1979, 1980, 1981,|
1982, 1984, 1987, 1990, 1994, 1997, 1998, 1999, 2000, 2001
2002 and 2003. Now fewer than 24 of the last 41 years saw declines in the
DJIA of at least 10%. (Keep in mind that a 10% DJIA drop probably
means twice as big a fall in the NASDAQ and much more in
volatile growth stocks.)
We have now gone 45 months without a 10% decline in the DJIA.
That is longest such period since at least the 1950's! So, yes.
I would say Dave Rogers' book on market timing is very timely!
My "Peerless Stock Market Timing", written first in 1981,
is living proof that market timing works well, very well and
offers peace of mind, something buy-and-holders may not have much
of next year, if instead of making peace in Iraq, President Bush
deepens US military involvement there in 2007.