Which Way to Beat the Market: Long-Term Investing or Short-Term Trading?

Mark Skousen

Mark Skousen, Ph. D., is a professional economist, investment expert, university professor, and author of more than 25 books.

You’ve got to know when to hold ’em

Know when to fold ’em

Know when to walk away

And know when to run

Kenny Rogers, “The Gambler”

Caesars Palace in Las Vegas is known to host great boxing matches. On Tuesday, May 16, at the MoneyShow at Caesars, I faced Mike Turner (sounds like the name of a boxer, doesn’t it?) in a showdown over the big debate in finance, “Which way is better to beat the market: buy and hold, or market timing?” It was a classic fight between the financial economist vs the technical mathematician.

Mike Turner is the editor of several trading services published by my publisher, Salem Eagle Financial Publications. He is a cycle trader (his website is “Turner trends”) who contends that his sophisticated technical systems allow you to avoid bear markets and to “perfectly” time the markets.

Perfectly? As a trained economist and long-time investor who has seen it all in my 40 years in the marketplace, I am very suspicious of anyone who arrogantly thinks he can time the market, let alone “perfectly” time the market.

The biggest challenge to all market timers is to distinguish between what is a short-term bull-market correction and the beginning of a bear market (or a bear-market rally and the beginning of a bull market). Sometimes a trader has developed a system that works, but then something changes in the next cycle and the “fool-proof” system fails.

Right now, Mike Turner has a good track record as a short-term trader, and my conservative long-term track record is pretty good (so I’ve been told by subscribers).

Exclusive  Early Holiday Sales Projections Vary Widely

But as Warren Buffett says, “Only when the tide goes out do you find out who’s swimming naked.”

Mike does bring up a major worry for all investors: How to avoid a major bear market that comes around every 10 years or so? It would be nice to avoid it if possible and get into cash. But then it’s hard to know when to get back in.

Mike says his system is the solution. I have my doubts. Besides, I think you can achieve above-average returns in the market by creating a well-diversified portfolio of non-correlated investments (including stocks and gold) held over the long term with much less work and effort. All the great investors have used this approach, including Warren Buffett, John Templeton and Peter Lynch.

Warren Buffett’s Warning to Active Traders

At this year’s Berkshire Hathaway shareholders’ meeting, Warren Buffett addressed this issue. Remember, he’s the greatest investor of our generation, and spoke volumes when he said:

Well, the big mistake is thinking they know when to buy and sell stocks,” Buffett says with a chuckle. “That there are times to buy ’em and times to sell ’em. There’s times to buy ’em. And eventually maybe, when you decide to start dis-saving when you’re 70 or 80 years of age or something of the sort, at that time you may sell ’em.

But basically any attempts to pick the times to buy or sell, I think, are a mistake for 99% of the population. And I think that even attempts to pick individual securities is a mistake for people.”

Exclusive  When Will the Music Stop on Wall Street?

The attempt to beat the market by tilting asset class weighting and trading in and out of stocks is known as active investing. Buffett recommends passive investing through a “very, very low cost S&P 500 index fund.”

“They don’t need to do anything but that,” Buffett says. “Then they’ll get a decent result over time. To some extent, the smarter you try to be, the worse you do in investments. Now, there’s a few professional investors that will do better than the S&P over time. But the average individual isn’t going to be able to find them. And they don’t need them. That’s the beauty of it.”

Buffett’s advice reminds me of the story that Peter Lynch told. He was the manager of the most successful mutual fund, the Fidelity Magellan Fund, from 1975 to 1990. Yet, despite its success, he said that a study found that most of his shareholders lost money. Why? Because they tried to time the market, and avoid bear markets. The vast majority of investors couldn’t do it successfully.

Now maybe Mike Turner has discovered the secret formula that thousands of other bright advisers and money managers have missed. Meanwhile, I remain skeptical.

Who won the debate between me and Turner? Over 60% of the audiece were in Turner’s camp, and only a handful changed their minds in either direction. So, it basically was a draw.

Only time will tell who’s right.

In case you missed it, I encourage you to read my e-letter from last week about the disadvantages, as well as appeals, to communism.

Exclusive  Eagle Eye Opener: Blackstone CEO Expects Real Estate and Auto Recovery; Greece Needs to Cut 150,000 Government Workers; Pharmaceuticals Become Target for Tax Revenue

Continuing the Debate

We will be debating this topic and more at this year’s FreedomFest, July 19-22, at the Paris Resort, Las Vegas, with some of the world’s best minds in finance: Rob Arnott, the godfather of Smart Beta; Alex Green, investment director at the Oxford Club; Keith Fitz-Gerald, editor of Money Map; Don Smith, outstanding New York money manager; Marc Lichtenfeld, editor of the Oxford Income Letter; Louis Navellier, editor of the Blue Chip Growth Report (his first FreedomFest); The Global Guru ‘s Nicholas Vardy; Ken Fisher, long-time Forbes columnist and billionaire money manager; and Jim Rogers.

Only at FreedomFest!

Plus, don’t miss Steve Forbes 70th birthday celebration… John Stossel, “Kennedy” and Greg Gutfeld from Fox News… and our historic photograph of the top most influential libertarians.

Our big 10th anniversary celebration is two months away! Our hotel block is almost full! Sign up now and take advantage of our $100 discount. Use code FS2017 when you sign up at www.freedomfest.com, or call toll-free 1-855-850-3733, ext. 202, and talk to Karen, Jennifer, or Amy. Then call the Paris Resort and book a room.

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE


img
previous article

Investment expert Jim Woods shares his insight into recent political events that has had an impact on markets.

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen publishes 5 different investment newsletter advisories, including the award-winning Forecasts & Strategies, which has beaten the market over the last 15 years.

Product Details

LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays. Bryan's four newsletter and trading services include:

Product Details

LEARN MORE HERE

Nicholas Vardy

A Stanford and Harvard Law graduate, Nicholas Vardy scours over 40 different global markets every day to uncover new profit opportunities for subscribers. His 3 advisories and trading services include:

Product Details

LEARN MORE HERE

Jim Woods

A 20-plus-year veteran of the markets, Jim Woods has varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.

Product Details

LEARN MORE HERE

Bob Carlson

In Bob's monthly newsletter, Retirement Watch, he provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

LEARN MORE HERE

Mike Turner

Mike’s financial, mathematical, computer science and engineering background serves as the foundation for his disciplined, rules-based approach to trading. Mike’s three services include:

Product Details

LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

LEARN MORE HERE