So what exactly is "market timing"?

[Belrix]

A couple of union boilermakers made millions in that mutual funds debacle taking advantage, perhaps unethically if not illegally, of “market timing”.

What were they doing? I don’t understand finance enough to understand the new reports.

-B

[Belrix]

…“news” reports that is…

[cainxinth]

Market timing is a style of investing that is looked down upon because it is risky and some claim creates instability in the markets. Personally, I think it’s a very sensible method if you know what you’re doing.

In a nutshell there are three main ways to play the market.

1. Buy and Hold- self explanatory; buy a stock and hold it for a long period of time.

2. Day Trading- making multiple trades on a stock over the course of a single day.

3. Market Timing- watching the market over a course of time, usually a year or more, and investing heavily when the market appears to be very low, or shorting when it appears posed to drop.

There’s also the tried and true technique my parents seem to love. Buy high and sell low.

[cainxinth]

BTW, I’m not familiar with the case you mention but the only way I could see them being held legally responsible is if someone can prove they were using insider information in their trades.

[Matchka]

I’m real good at that buy high/sell low strategy. I’m sure I’ve sent numerous kids to college using it…just not my own.

Sorta like Cain said, timing the market is a little like shooting at a bottle dangling by a string and blowing in the wind: There is some discernable rythm that you can use for predicting when to take your shot, but there is just enough unpredictableness inhrent in the system to severely restrict the probability of a “sure thing.”

Real estate in Denver is a good example. Up until last summer you could pretty much “predict” good times of year to buy (Winter Holiday Season) and sell (Spring & Summer). For lots of reasons, the real estate market entered Hospice in June 2002 and has very nearly died now. It’s only a good time to buy if you can hang in there for the long term cuz ain’t enough buyers to create sufficient demand to justify a profitable sales price.

But that’s timing individual securities markets (stocks, real estate, paperclips, whatever). I’m not sure how you could time a Mutual Fund because it’s made up of lotsa individual company stocks–which individually might have differnt/opposing “sweet” times that would cancel each other out. Of course if the MFs were made from stock within a certain industry category (Snow Shovel Manufacturers) there might be some predictability.

If it really was mutual funds these guys cleaned up on, I’d be inclined to think their detractors were choking on sour grapes.

But I’d just be guessin’

[Belrix]

From CNN Article about the Putnam Investments investigation.

Putnam has been accused by Massachusetts Secretary of State William Galvin and the Securities and Exchange Commission of “market timing,” a practice in which fund managers allow certain investors to make rapid trades in mutual funds to take advantage of global market price fluctuations. Such transactions are not illegal, but allowing only a select group of investors to engage in them would be a problem.

…which doesn’t help me much. “Market Timing” in this case, though, seems a thing of minutes & hours and not months.

NPR’s report is the one that mentioned that millions were made by some Union “boilermakers” using this method. It’s alluded to in MSNBC article.

Commission have demanded information from nearly 250 mutual fund companies and broker-dealers about after-hours trading, which is illegal, and market timing, a short-term trading strategy that exploits time differences and stale prices, particularly in international funds. Timing is not illegal, but most funds say they discourage it because it can cut into overall returns.

…and…

Galvin said a whistle-blower came to his office in September with allegations that Putnam was allowing market timing by members of a union that had its 401(k) plan with Putnam.