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Chapter 7. Timing the Market > The Timing Newsletter

The Timing Newsletter

Another type of investment professional is the financial advisor who provides advice through a newsletter. For a substantial annual fee, you can subscribe to any of several newsletters that pick stocks or give timing advice.

One newsletter, the Hulbert Financial Digest, follows the advice of several dozen market-timing newsletters and reports on their success. Before divulging the performance of these experts, remember the lessons from Chapter 3. That is, by sheer chance some people should beat an S&P 500 Index buy-and-hold strategy. Say that at the beginning of every month I flip a coin. If it is heads, I invest in stocks, if tails, I invest in T-Bills. What is the likelihood that I beat the index return? Not very likely. However, if 100 newsletter writers flip coins, how likely is it that at least five end up beating the index? At least one beats the index? Recall that Chapter 3 suggests that because of randomness and luck, beating the index is not enough to proclaim them good market timers. Can they consistently beat the index, and is their system for making the timing decisions reasonable?


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