Thursday June 22, 2006
He and I have spent much time together debating the merits of timing systems in general, and after closely following his system and track record in recent years, I've become highly confident in the consistency and value that his system offers to investors.
Jim's system used in his Investment-Models service is called the RIX, and it is based on a proprietary computation that he has been compliing every single trading day for 34 years. Most importantly, he has a long term record that consistently keeps him among the top rated timers in Timer Digest’s ongoing surveys, including on occasion, the enviable Timer of the Year award.
He does not share the factors that go into the proprietary calculation behind his system, so those looking for the “secret” behind his success will gain no information here. However, I can share his description of his process. Jim explains:
“Investing can be very complex, and very frustrating. If we have too many indicators or too many factors to consider when making a decision to invest, we can’t be sure if we are making the correct decision.
Add to that the problem of knowing the correct time to make an investment, and you have a very difficult decision. In order to make an easy investment decision, we need to strip away all of the variables and make the decision become a mechanical decision that does not require any thought and certainly any guessing. But how can investor do that?"
His answer is through his proprietary index, which is focused on determining when the "trend" of the stock market has changed from up to down. His RIX Index is a timing indicator that coverts the action of the stock market into a specific number that represents the trend of the stock market. That provides him with what he calls "a metric that identifies the changes in the trend."
Through his Investment-Models service, Jim does not provide recommendations for specific stocks or sectors, but rather on two major indices - the NYSE and for the NASDAQ. It is then up to individual investors as to how best to position their capital. He does, however, explain how he personally uses this system for his own investing.
Jim says, "As part of my 'keep it simple' approach, I decided back in 1974 that I would not invest in individual stocks. I had done well with stocks, but there was always the one stock that hurt my results. So I decided that I would invest in no-load mutual funds, switching between a stock dund in up markets and a money market fund in down markets.
Most importantly, he doesn't try to tell the market what it should be doing, and he eliminates all aspects of emotion from the equation. He readily admits, "The market surprises me a lot. I know that I can't predict what it will do, so I rely on the RIX to tell me when to get in and when to get out."
Meanwhile, Jim does not pretend to know how long a buy or sell signal will be in effect, nor how strong a market move will be after a signal is issues.
Indeed, he realistically understands that there is no guarantee with any market timing system. However, over time, his RIX index has done an excellent job of catching consistent moves in the market, while cutting losses short should the trend go against his latest signal.
Few market timers survive for months, let alone years. In a market that changes from day to day, it is rather remarkable that Jim has remained successful for not just years, but for over three decades. Over the past few years, Jim and I have started a "tradition" of meeting up at the Money Shows after our speaking panels for a Bloody Mary and a chance catch up with each other.
The insights I have gained from our conversations has changed my view of his timing systems from a skeptic to a believer. Indeed, among the many timing systems I have seen over the years, the Jim Rohrbach's RIX is one of very few that I would consider "worth its salt".