The Daily Dow
Friday, May 30, 1997
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (May 30, 1997) -- As we approach the beginning of summer, swimsuits, golf clubs, tennis rackets, all come pouring out of dusty storage. And along with it, all the market-timing saws about "go away in May" and other such nuggets of market lore.

Today, CNBC did a feature on market timing where you can avoid the summer doldrums by getting out of the market for certain months of the year and getting back in for others. But is it a good idea for the long-term investor?

Nope.

Michael O'Higgins tested such an approach in his book, Beating the Dow, an approach called the Halloween Effect. Using that approach one would get in the market at Halloween and then get out after April, spending the other 6 months in a risk-free investment like Treasury bills or a money market account. The reasoning behind this is research that shows that 85% of the annual market gains come in those months.

Aside from the obvious disadvantage of turning every investment into a short-term holding by only staying in the market for six months, it doesn't help the overall returns, either. What it does improve is your risk-adjusted return because you're only invested in stocks for half the year. But in terms of pure, absolute, total money-in-your-pocket returns, it loses to O'Higgins' basic Beating the Dow model where you stay invested all year.

Given that of all the equity investments out there this one has one of the best risk-adjusted returns anyway, I don't see the loss of tax savings and the reduced absolute returns justification for the added measure of safety. As with all of O'Higgins's "Advanced" models, his point remains a simple one: the Basic model works better. Keep it simple!

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. ________________________________

Stock  Change   Last
--------------------
T    +   3/8   36.75
GM   +   3/8   57.25
CHV  -   3/4   70.13
MMM  -   3/4   91.88

               Day   Month    Year
        FOOL-4   +0.08%   5.14%   0.43%
        DJIA     +0.01%   4.59%  13.69%
        S&P 500  +0.50%   5.86%  14.52%
        NASDAQ   -0.19%  11.07%   8.47%

    Rec'd   #  Security     In At       Now    Change
   1/2/97  120 3M            83.00     91.88    10.69%
   1/2/97  153 Chevron       65.00     70.13     7.88%
   1/2/97  179 Gen. Motor    55.75     57.25     2.69%
   1/2/97  479 AT&T          41.75     36.75   -11.98%


    Rec'd   #  Security     In At     Value    Change
   1/2/97  120 3M          9960.00  11025.00  $1065.00
   1/2/97  153 Chevron     9945.00  10729.13   $784.13
   1/2/97  179 Gen. Motor  9979.25  10247.75   $268.50
   1/2/97  479 AT&T       19998.25  17603.25 -$2395.00


                             CASH    $609.53
                            TOTAL  $50214.66