FundAdvice.com will never compete with supermarket tabloids like the "Weekly World News." But in this article I'm going to confess in public. Some of what I have to say may surprise you. This is one of the toughest subjects I have tackled. But I'm not flinching, and I'm going to share some things that my marketing advisors -- if I had any -- might wish I would keep to myself.

Why? Because you deserve to know everything I can impart about market timing, which I think is one of the most difficult, if not the most difficult, investment strategy. Besides, not all that I have to say is really heavy stuff. Some of it is even fun! So pull up a chair, leave your calculator in the other room and read the...

TRUE CONFESSIONS OF A MARKET TIMER

Confession #1: I agree with the critics who say market timing is not the most important investment decision.

Asset allocation is far and away more important than the decision to buy-and-hold or market time. Market timing critics like to draw a pie chart to represent the source of investment returns over time. One small piece of the pie, representing the selection of stocks, contributes 3 percent to the final return. Market timing contributes 2 percent. And the other 95 percent of investment results come from asset allocation, the decisions of what class of investment to invest in, how to divide a portfolio between stocks, bonds, money markets, international vs. U.S. stocks and short vs. long term bonds, etc. I think the 95 percent may overstate the case for asset allocation. But not by very much.

Most market timers try desperately to prove that timing is more important than anything else. But I think they're wrong. Over any 20 year period, the decision between investing in bond funds or growth stock funds is far more important than whether you buy-and-hold or market time either of those investments. The same is true of stock selection (or fund selection, for that matter). When investors choose mutual funds, most of them focus on the fund manager, who is essentially a stock picker. They think that a manager's stock picking prowess is going to make a difference. They are generally wrong. Despite the cult of the hotshot fund manager, history shows you can beat the results of most stock pickers by owning an index fund. The reason is simple: the stock picker rarely generates returns that are  radically different from the market.

The part of investing most people focus on, stock selection, is not going to affect their return very much. However, picking relatively few stocks in hopes of beating the market will increase the risk of a portfolio. Market timing, on the other hand, will decrease the risk.

Confession #2: Using market timing, I might not beat the S&P 500 index.

Most people think our goal is to beat the market, but it's not. I have had the honor of participating in the Donoghue Mutual Fund Superstars Conferences. Through these conferences and from being around this industry for over 30 years I have met a lot of portfolio managers and investment advisors including Bill Berger, Frank Cappiello, Don Yacktman, Wally Weitz and Fred Green. They are all very bright people, and they will all tell you how they plan to beat the market. The reality is that most of them will underperform the market. Most of them would admit that in private. But what they live and breathe for is to beat the market. I think beating the market is fine for the egos and adrenaline of money managers. It's a great competitive sport that tends to turn a few managers into heroes and many others into bums.

But beating the market doesn't necessarily do much for you as a client. In a year when the S&P 500 is down 20 percent, a beat-the-market strategy succeeds even if a fund only loses 18 percent. Do you want your fund manager to drink a toast to that? To me, that's a massive failure because you, the investor, have lost a very significant chunk of your money.

The goal of market timing is not to beat the market. It is to protect investors from big losses. This means I'll never be named the Money Manager of the Year. What gets my juices flowing is not competition with an index, but the challenge and responsibility of managing other people's money so that they can retire successfully. Every year, I want to do that by reducing risk, not by competing with a market index.

Confession #3: I believe in buy-and-hold — even though I don't use it on my own account.

Let me explain. Some investors can put their money in the stock market and leave it there without worry for 20 years or more. They can tolerate the interim risks and trust that they are doing the right thing. If you are one of those people, a buy-and-hold strategy may do just fine for you, especially if you use no-load funds chosen carefully to track major asset classes.

Personally, I don't have that much tolerance for risk. In fact, I believe most investors engage in some form of market timing whether they realize it or not. Newspaper and magazine articles have headlines like "What Investors Should Do Now" and "Eight Funds To Buy Now". Many of those articles suggest buy-and-hold strategies, often describing funds as suitable for a lifetime or a decade or some other period. But the same magazines will come out a month or two later with a whole new set of funds or best-buy stocks. By implication, the magazine is saying that its earlier recommendations weren't good enough. If you take those articles seriously, you may wind up switching strategies often. This is definitely not buy-and-hold.

By definition, buy-and-hold is considered the standard, and as such, it is never wrong. The conventional wisdom seems to hold that if you lose 50 percent of your money because you bought something and held onto it, the loss is acceptable. It's not your fault. But if you lose even 10 percent of your money because of a market timing decision, this same conventional wisdom seems to regard you as a fool.

Confession #4: Like everybody else, I hate making mistakes.

Yet in market timing, mistakes are guaranteed, and there's no way to duck from them. If I were a broker recommending stocks, I would pitch the story behind each stock. Whatever the story (new products about to be introduced, terrific management, industry domination or vast new markets to be conquered), I would use it to cast an optimistic, hopeful glow over a client's purchase. I'd want my client to feel good about doing business with me, to feel as if he/she was making a good bet on the future.

Now imagine that the stock falls from $40 to $30, even though the story stays the same or even gets better. As the broker I have nothing to apologize for because I sold the story, not the stock price. If, on the other hand, the stock falls because the story itself is suddenly no good any more, if the top management jumped ship or some geek on the Internet discovered a flaw in the company's product, well, that's just the breaks of investing. The story has turned sour along with the stock. You take your lumps and you move on.

Unfortunately, we market timers have no story to hide behind. All we can do is point to our moves in and out of the market. The reality is that one third to one half of our trades will be losers. We will either buy into the market at a higher price than we last sold, or we'll sell at a lower price than we last paid to get in. Because we are trend-followers, we will never sell at the top of the market and we'll never buy at the bottom.

And if we use a single fund or a single system, either the fund or the system may be out of synch with the market. That's why we use multiple funds and multiple systems. This makes it even harder to invent a nice story to tell our clients and our critics. Buy-and-hold investors, on the other hand, will never be out of synch with the market.

Confession #5: I hate every buy signal we get.

You would think a buy signal would be a welcome sign of optimism, meaning clients are going to start making money. This will make them happy, and I suppose I should rejoice at the prospect. But in fact, a buy signal makes me nervous. Our systems are not perfect, and that signal could be coming at the market's peak. On a short-term basis I always live with the reality that the systems will make us look incompetent. Our job is to be defensive, and every time we get a buy signal and have to go back into the market, we expose our clients to risk.

However, we use a strictly mechanical discipline that requires us to follow our timing systems, whether we want to or not. On a day when all our signals are screaming buy, you can count on me to act on those signals. But don't expect me to be wildly enthusiastic about it!

Confession #6: Like all sales people, I sometimes tell clients what I think they want to hear, even if that's not what I think they need to hear.

This is called selling to the path of least resistance. We talk to our private management clients as often as once a quarter. Sometimes, if they are in an asset class that is underperforming, they will be irritated. Sometimes I yield to the client's wish to change into some asset that did very well last year, despite the strong evidence that that's a poor strategy more often than a good strategy.

It's actually much more important for long-term investment success to set an asset allocation mix that has proven to work in the past and then stick with it through the good times and the bad times — and stop trying to guess what's going to happen next. But sometimes I abandon my better judgment. I am not proud of that, but sometimes the client's frustration is so great that if we don't do something, the client may take his money elsewhere. And when he does, he's likely to make the buy or sell move that I balked at, and not have the benefit of market timing.

Confession #7: We like to talk about our track record, especially when it is favorable. But in this industry an 8-year track record is so short that it means very little.

Yes we are proud, according to The Hulbert Financial Digest, to be tied for first place since December 1986 in bonds, to be No. 5 in timing gold funds and to be among the top 25 percent of all equity timers. And we are also proud that, on a risk-adjusted basis we were rated No. 4 among all mutual fund newsletters in existence at least eight years., and that we made the Forbes Honor Roll in 1998.

But the truth is, as an investor you cannot buy those returns. They are in the past. All you can really buy is our strategy and our commitment to it. Ironically, this is true for mutual funds as well. The one thing mutual funds tend to focus on in their advertising is their past performance. And that's the one thing that investors cannot buy!

Confession #8: Investing is war. The only way our clients can win is for other investors to lose.

This is where investing gets a little ugly, so let's be very blunt. When you buy something, especially with a market timing strategy, you want to buy something that's going to go up. You hope somebody else is foolish enough to sell it to you dirt cheap. Likewise when it is time for you to sell, you hope you can find somebody stupid enough to buy it from you when it is fully priced or overpriced.

This is one reason you hire a broker. You pay the broker to find a sucker. The broker knows either you or the sucker is going to be wrong, but the broker doesn't care. Your broker makes a commission no matter who wins!

Think for a moment about the British Redcoats in the American Revolution. They dressed in their finest attire, got into perfect formation out in the open where everybody could see them and started marching forward while shooting, knowing people on both sides were going to be killed as a result. Think of this as the equivalent of buy-and-hold investing. No matter what's happening, you are moving forward and firing those rifles. Market timing, on the other hand, is more like guerilla warfare. First you are in, then you are out. Then when nobody is looking you're back in again. You rarely expose yourself completely, and you're always looking for ways to wipe out the enemy!

Confession #9: We want the market to collapse.

(When our market-timing clients are out of the market, of course!) A buy-and-hold investor never wants the market to collapse. But we do. (Naturally, we want to have a little warning ahead of time for our systems to work!) On the surface, we wish good fortune for all investors. Really, it would be nice if everybody in the world got rich. But in private, when we are out of the market we want the market to decline as far as it possibly can. That way, we can buy back in again at bargain prices.

Confession #10: I don't know how well any of my market timing systems will work.

A few years ago I looked at a system that would have added 400 percent to the results of a buy-and-hold investor for the 20 years ending in 1990. I was really excited about it, until I tested it over a longer period of time. I found that over the prior 20-year period, it would have underperformed the S&P 500 by 25 percent. There is no way to know what any of our systems will do in the future. That's why we rely on multiple systems instead of just one.

Confession #11: Most market timing newsletters are a waste of money.

In fact, the same thing applies to most investment newsletters, including those that focus on choosing the right stocks, the best mutual funds or the latest investment strategies. Forbes magazine reported a few years back  that recommendations of most investment newsletters did not match Treasury bill returns from August 1987 through November 1994. In that time, the average newsletter produced a compound rate of return of 4.6 percent, compared with 7.8 percent for the Wilshire 5000 index. On a risk-adjusted basis, 49 of the 73 newsletters Forbes studied underperformed the market. Many of the big names in the industry produced below market returns, both on a real and risk-adjusted basis – Bob Brinker, Robert Nurock, James Dines, Doug Fabian, Joe Granville, Harry Browne, John Dessaurer, Stephen Leeb, Al Frank, Peter Eliedes and others.

Only three of the newsletters rated in the Forbes article had an A+ rating in down markets combined with a rating of C or better in up markets. FundAdvice.com was one of those. The other two were the Investech Market Analyst (800-995-8500, $175 annually) and the Zweig Forecast (516-223-3800, $265 annually).

Confession #12: Successful market timing does not require much intelligence.

Successful timing is no different than successful dieting. What they both require is discipline and the willingness to follow a system. We are  intelligent and well educated. Yet we are looked down upon by many of our peers because we use simple mechanical systems that we know will have losing trades and underperform during bull markets. Because we manage money using trend-following systems, we will never be recognized as market gurus.

Confession #13: Sometimes I would like to second-guess my timing systems.

I know another timing newsletter editor who got a buy signal from his system. But he "made a judgement" that the market had not developed enough of a trend and that he was a better judge of the market than his system. So he went in only 50 percent instead of all the way. At that moment, he "blinked" by abandoning his system. Why? Maybe because this timer's performance was awful last year, and he was probably uncomfortable losing money again for all of his clients. Frankly, I think he made a marketing decision, not a market timing decision. This timer stopped doing what his clients had paid him to do — what they had put their trust in him to do — which was to follow his system.

Confession #14: I am not totally objective about investing.

I am a believer in market timing, and I am not neutral about it. Every money manager I know will tell you the key to success is finding the strategy you are comfortable with and sticking with it. The point was made well by John Nagorniak, portfolio manager of the Vanguard Quantitative Portfolio, in an interview in the AAII Journal, published by the American Association of Individual Investors: "Being consistent may not guarantee success, but it's a good insurer, and if you're inconsistent, that's a pretty good guarantee of failure somewhere along the line."

Confession #15: I would be a lousy investment manager if I followed my heart.

By nature, I'm an optimist. I love the good stories behind investments as much as anybody, and I would like everybody's dreams to come true. If I managed money based on that optimism, I would be an exclusively  buy-and-hold manager and investor. I might be happier. I might make a lot more money in my business. And I would certainly fit better in the mainstream of money managers.

But as much as I love the stories and the optimism and the success of business, I just cannot bring myself to manage money -- for myself or my clients -- based on my wishes and feelings. Now that you've heard my confessions, you know more about market timing than 99 percent of those who criticize it. You must be the final judge, because it's your money at stake.