I understand your statistical objection that my 7 years of good performance could merely be good luck. I’ll just have to live with that objection until more years pass.

However, I would appreciate your further comments regarding your objection that my momentum philosophy is a form of “market timing”, and all the negativity that such a label connotes. Does it help clarify the debate by acknowledging that there is no one definition of “market timing”, and that we should really focuss on the extent/and or degree to which almost all investors engage in “market timing” — buying, and then selling. That is, the issue is really one of frequency — when we turn-over our account too often we are thought to be gambling, especially if we incurr trading costs/commissions. But if we don’t “excessively” turn-over our account — and don’t incurr excessive commissions — we are not “market timers” in the most extreme connotation, but are more likely to be thouhgt of as prudent investors. Indexers are at one end of the market-timing continuum –(most will sell something eventually)– and day traders are at the other end of the continuum.

To use an everyday analogy — “market timing” could be considered akin to alcohol consumption. — Too much, and too frequent, can become a problem, but controlled “socially responsible” drinking is acceptable to most reasonable people, whether or not they partake. Indexers arre near tea-totallers; many day traders have problem; and October Strategists are somewhere in between. Thus, we are not just throwing labels around — “You’re a market timer / No I am not” –but are really debating the more meaningul concepts — frequency, costs, and probability.

Regarding your trading system though – I have had a look at the Shiller data mentioned previously on CC, and found that an allocation to (US) equities decreasing linearly from 100% at a PE of ~17.5 to 0% at a PE of ~35 would have beaten the market for the period from 1871 to present. I believe the observation to be borderline interesting, you might feel different.

Zop was of the view that a 100% equiy strategy is dangerous. I agree. I don’t recommend that anyone use the October Strategy (or equities) for 100% of their nest egg, especially as they near, or achieve retirement. See” The Risk of Losses; Get Some Ultra Safe investments” on my web-site.

It is true that my strategy pays MERs as a necessary evil for diversification, and no trading costs. We do, however, try to pick lower cost funds and index funds whenever possible. ETFs are a possible new alternative for us.

As to my 7 year lucky streak, would anyone accept the challenge of publically comparing returns on a go- forward basis? (I would have to be careful to comply with the Securities Commissions’ newsleter rules, but I am sure that I can find a way to do so).

p.s. my secretary is now my typist.

Also like mike points out, by holding some “hot” funds but not others, you are shifting asset allocations around in addition to your seasonal strategy. That’s text book market timing. This doesn’t mean that there will be periods when out performance is possible simply due to luck but I’ll be very surprised if your strategy turns out to be a winning one over the long term.

Bill…..back testing on market timing schemes always looks good. In fact it is a high cost, high trade volume, high maintenance strategy that works in every year except those years it does not work. Here is my suggestion, keep it to less than 10% of your investment portfolio and have fun with it. That way when it flops you are educated but not broke!