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Backtests show that these signals do not improve overall rate of return (CAGR). What they do well is reduce volatility - and take you out of the market to avoid situations that in the past have produced major losses (2000-02, 08-09, 2011). They will not catch short term minor market tops or bottoms.


The above text is from the Timing Methods page:

http://mechinvesting.wikidot.com/timing-methods

Is it to be understood that even though timing methods would keep us out during major losses,
the overall CAGR encompassing such periods is not improved?

Is it to be understood that even though timing methods would keep us out during major losses,
the overall CAGR encompassing such periods is not improved?

Mainly, yes. A very few timing methods backtest to have a slightly better CAGR.

Is it to be understood that even though timing methods would keep us out during major losses, the overall CAGR encompassing such periods is not improved?

The CAGR during the major market loss would be much improved. With most timing methods, your max downside deviation (MDD) will be lower during the market loss as well. In "return" for the lower losses during market declines, normally timing signals will also keep you out for a period of the post-loss market gains, so generally timing system CAGR suffers after the market decline until the timing signal reacts.

So, over a whole market cycle, the CAGR using timing is roughly the same as buy & hold, but with reduced losses and reduced gains (less volatility). The benefit of them is if you can't afford to take (or survive) the significant hit to your portfolio during the market loss period. That might happen during the decumulation phase of your investment life (i.e. living off your investments) if you aren't independently wealthy.

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