What sector will be the next tech sector? Which phone booth will all of the momentum investors rush into? Is it Health Care, is it TeleComm?

And is sector investing the most profitable strategy anyway?.....

We've all heard the buzz about sector funds, and index funds, and every conceivable form of a niche fund. But with the huge upswing in tech stocks of recent months, it is the hot sectors that are getting the most recent attention.

CDA/Wiesenberger, in an update of its popular "Perfect Selection Vs. Perfect Timing" scenario exploration, attempts to discover which of three investment strategies is most successful and to what extent. First created in the '50s, the scenario was last updated in November, 1997.

For the purposes of the scenario, they created three hypothetical investors -- Susan Selector, Timothy Timer and Guy Buynhold to see how their investment choices would pan out.

All three invest $1000 and utilize different investment strategies. Susan Selector can tell which sector will be hot and moves her money around accordingly. Timmy Timer and Guy Buynhold both invest in an S&P 500 Index, but while Guy has neither the time nor the research to move his money, Timmy knows exactly when to move his money out of the Index before a dip.

Susan, Timothy and Guy all began with $1,000. Timothy, with the help of his crystal ball and tarot cards, was able to time each market swing, grabbing his money from the S&P 500 the month before the market took a nose-dive and putting it back during the month the following upswing began. Guy, as we said before, just threw in his $1,000, closed his eyes and hoped for the best. Susan put her money in utilities at the beginning of 1983 and shifted it between precious metals, health care, financial services, energy/natural resources and technology/communications funds over the next 15 years.

So, who won? By the end of 1998, Guy Buynhold had $11,817 after his initial (and only) investment of $1,000. Not too shabby since he didn't touch his investment. Timothy Timer was pretty lucky himself. Having successfully timed the S&P 500 forty-four times since 1983, Timothy took home over $73,000. Susan Selector, however, won the blue ribbon. Choosing the most successful sector every year for 15 years, she garnered over $115,000 for her efforts. It's worth mentioning, though, that had Susan made the wrong choice and picked the least successful sector for the coming year, her $1,000 investment would have dwindled to $172, hardly enough for theater tickets, much less retirement.

Clearly, Susan Selector and Timothy Timer can’t really make such good calls over time. The likelihood of choosing the correct sector every year since 1983 is close to impossible. And, given the increasing volatility of U.S. equity markets since 1983, timing its swings is just as unattainable.  

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