The following article by Weston Wellington at Dimensional in his "Down to the Wire" column is the perfect follow-up to Scott Maxwell's recent article about market timing and moving averages. Here in the Dallas area, the weekend AM radio talk shows are dominated by "financial advisor" hucksters pitching - and frequently misrepresenting - annuities as investments, life settlements and market timing schemes. One of the most prominent - he has shows on multiple stations - is a self-proclaimed market timing guru that promotes his scheme with a radio show that features silly sound effects and lots of invitations to sample the "world's best chocolate chip cookies" at one of his frequent seminars. His astonishing success has been built on the foundation of one right call - getting out of the market in 2007. Since then, he has made bad call after bad call - to the detriment of his clients. It's probably safe to assume that he made a lot of bad calls before 2007, as well. It's a common ploy - get out of the market whenever you think that there is a chance that there may be a downturn on the horizon and eventually, you'll be right. Then, publicize that call relentlessly and watch the scared and confused line up at the door.
The investment community lost one of its more colorful characters last week with the passing of Martin F. Zweig, a prominent market pundit, author, and chairman of Zweig-DiMenna Associates LLC, a New York investment firm. His death also marks the close of another chapter in the long-running debate on the virtues of market timing.
Zweig took a keen interest in stocks as a teenager, and after earning a PhD in finance from Michigan State University, he began writing investment newsletters while teaching in New York. He launched The Zweig Forecast in 1971 with a handful of subscribers and continued to publish it, with considerable success, for the next 26 years. Zweig loved numbers (including baseball trivia) and was closely associated with statistical measures of monetary policy and market momentum that he combined into what he called a “super model” to assess market conditions. He is credited with introducing the put/call ratio, a measure of investor sentiment, to the toolkit of market forecasters. He transitioned to money management, and in October 1986, he launched the Zweig Fund, a closed-end mutual fund that relied on his analysis of market trends to adjust its exposure to stocks and bonds.
Zweig was a frequent contributor to both print and broadcast media and wrote numerous articles for Barron’s, a weekly publication with a devoted following among those seeking comprehensive market statistics. Perhaps his finest hour was an appearance on the television show Wall Street Week with Louis Rukeyser on Friday evening, October 16, 1987. When his host asked him to comment on assertions from other market commentators that the “bull market is dead,” Zweig replied he was expecting a crash but was reluctant to say so publicly. It was too similar, he said, to shouting “fire” in a crowded theater. Zweig’s prediction proved eerily accurate: The Dow Jones Industrial Average fell by a staggering 29.2% in chaotic trading the following Monday, an even bigger setback than the combined losses from Black Monday and Black Tuesday in October 1929. The Zweig Fund emerged relatively unscathed: According to a profile several years later in SmartMoney, the fund had 58% of its assets in cash leading up to the crash, and experienced a loss of only 6.2% on October 19. Traumatized by the unprecedented market break, many investors sought out advisors or analysts who appeared to have avoided the debacle. Zweig’s reputation as a financial expert soared. For years, he was introduced as “the man who called the crash.” The headline of Zweig’s obituary in the Wall Street Journal described him as a “master market timer.”