# Opportunity Investing: The Myth of Buy and Hold

This chapter is from the book

## How to Identify Periods When NASDAQ Is the Stronger Market Area

The steps involved have to be taken only once each week, after the close of the final trading session of the week. The entire process should take just a few minutes. Signals, created at these times, carry for the entire week following, until the next calculation takes place. Here are the procedures involved:

1. Secure at the end of each week the closing levels of the NASDAQ Composite and the New York Stock Exchange Index. These are readily available in Barron’s, in the financial pages of virtually any major newspaper, and on almost any Web site relating to the stock market.

2. Divide the weekly closing level of the NASDAQ Composite by the closing level of the New York Stock Exchange Index to secure a weekly NASDAQ/NYSE Index relative strength ratio. For example, on April 22, 2005, the NASDAQ Composite closed at 1932.10, and the New York Stock Exchange Index closed at 7015.85. The weekly ratio, therefore, stood at .2754. (1932.10 divided by 7015.85 = .2754.)

3. Each week, calculate the average of the most recent 10 weekly ratios that you have calculated, as per Step 2. To do this, you add the most recent 10 weekly ratios and divide the total by 10. On the eleventh week, you drop the furthest week back so that you are always totaling and then averaging the most recent 10 weeks in your calculation. This is called a moving average.

4. Weekly ratios will increase if NASDAQ is rising more rapidly than the New York Stock Exchange Index. They will decrease if NASDAQ loses strength in relationship to the New York Stock Exchange Index.

5. Compare the most recent reading of the NASDAQ/NYSE Index relative strength ratio to its 10-week moving average. If the weekly relative strength ratio is greater than its 10-week moving average (for example, if the latest weekly ratio stands at .2750 and the 10-week moving average is .2746), consider the NASDAQ to be leading the New York Stock Exchange Index in relative strength. This will usually carry positive implications for the stock market. If the weekly relative strength ratio is below its 10-week moving average (for example, the ratio is .2745 and the 10-week average is .2750), consider the NYSE Index to be the stronger market area. This does not necessarily carry bearish implications but does indicate that the most favorable market climate, at least based on this indicator, is probably not in effect.

The following tabulations in Table 1-3 are hypothetical, based on retroactive research employing the parameters set forth above, and do not represent real-time performance for the entire period. The presumption is that investors would be invested in stocks only during favorable market periods (weekly NASDAQ/NYSE Index ratio above its 10-week moving average) and would be in cash at other times. No allowance is being made for commission and other transaction expenses or for tax consequences. Nor is any allowance being made for interest returns while in cash or for dividend payouts while in stocks.

#### 1971–April 2005*

 Performance of the NASDAQ Composite Index Buy and Hold Average Gain per Annum 8.98% Maximum Open Drawdown –77.42% Invested 100% of time Trading By The NASDAQ/NYSE Index Relative Strength Indicator Average Gain per Annum 11.28% Percentage of Time Invested –54.6% Rate of Return While Invested 20.65% Number of Round-Trip Trades –141 (4.1 per year) Maximum Open Drawdown –39.72% For the New York Stock Exchange Index Buy and Hold Average Gain per Annum 7.60% Maximum Open Drawdown –49.78% Invested 100% of time Trading By the NASDAQ/NYSE Index Relative Strength Indicator Average Gain per Annum 7.59% Percentage of Time Invested –54.6% Rate of Return While Invested 13.9% Number of Round Trip Trades –141 (4.1 per year) Maximum Open Drawdown –23.72%

* --The employment of the NASDAQ/NYSE Index relative strength indicator, even as a sole determinant for stock market investment, would have improved both rates of return while invested as well as risk levels for the NASDAQ Composite, more than doubling rates of return achieved while investor capital was at risk in stock portfolios that replicated on a buy and hold basis the performance of the NASDAQ Composite Index. No credit has been given for income received while in cash.

--The performance of the NYSE Index improved, too. This index produced almost identical returns when invested all the time as it did when it was invested only when the NASDAQ/ NYSE timing indicator was favorable. However, rates of return while invested were clearly superior during periods that this model was favorable (+13.9% rate of return versus +7.59% for buy and hold). Risk levels were lower, too (–23.72% versus –49.78%).

---No allowance has been made for trading expenses, but these would almost certainly be offset by additional interest earned while in cash positions.

### InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.

## Overview

Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

## Collection and Use of Information

To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

### Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

### Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.

### Surveys

Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

### Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.

If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

### Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

### Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

## Other Collection and Use of Information

### Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

### Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

### Do Not Track

This site currently does not respond to Do Not Track signals.

## Security

Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.

## Children

This site is not directed to children under the age of 13.

## Marketing

Pearson may send or direct marketing communications to users, provided that

• Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
• Such marketing is consistent with applicable law and Pearson's legal obligations.
• Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
• Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

## Correcting/Updating Personal Information

If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.

## Choice/Opt-out

Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

## Sale of Personal Information

Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

## Supplemental Privacy Statement for California Residents

California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

## Sharing and Disclosure

Pearson may disclose personal information, as follows:

• As required by law.
• With the consent of the individual (or their parent, if the individual is a minor)
• In response to a subpoena, court order or legal process, to the extent permitted or required by law
• To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
• In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
• To investigate or address actual or suspected fraud or other illegal activities
• To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
• To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
• To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.

This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.