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Computerized Investing > Second Quarter 2012

Masonson's Stock Market Dashboard, Version 2

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by CI Staff

In the February 2011 CI Online Exclusive, I introduced Leslie Masonson’s Stock Market Dashboard from his book “Buy—Don’t Hold” (FT Press, 2010) (this article is available online at the Computerized Investing website). Masonson uses the Dashboard to gauge the market’s direction in order to decide whether it is time to buy, sell or sit on the sidelines. Research cited by Masonson provides a compelling argument for why it is useful to know where the market is headed: Fully 70% of an individual stock’s return is a result of the stock market’s overall trend. In other words, a rising tide raises all boats (and vice versa).

Masonson’s original Stock Market Dashboard used eight indicators that told him when to buy, hold, or sell. However, follow-up backtesting performed by Masonson proved how difficult it is to time the market. After publishing his book, Masonson discovered that the Dashboard would have failed to generate a sell signal during the market collapse of 2008–2009. If you develop a market timing system that would have failed to get you out of the market during the biggest market downturn since the Great Depression, it’s time to go back to the drawing board. And that is what Masonson did, revising the dashboard so that, according to him, it would have gotten you out of the market in 2008 while generating higher returns and smaller drawdowns. He released his findings on his website in March 2011 (www.buydonthold.com).

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