o many mutual fund executives, the popularity of market timers ranks somewhere between lawyer and politician. Their image is that of a Machiavellian market manipulator, who stops doing obscure mathematical calculations just long enough to make yet another trade, and cause their finely tuned tracking system to crash like a ton of bricks.
Jim Bernstein, CFP
Assets Under Management
100% Mutual funds
They'd be surprised to meet Jim Bernstein
, a mild-mannered financial advisor who is genuinely concerned about the trouble that market timing can cause. "I know there are some bad guys out there," he said, "but by and large most market timers are OK. Most are concerned about the disruption we can cause."
The Education of a Market Timer
Bernstein, 36, developed his market timing skills early. His first job was trading government bonds on Wall Street, a "math-intensive" undertaking. After six years at that job, he went to business school, then returned to Wall Street for a brief stint in arbitrage, another math-heavy endeavor.
Bernstein opened Windsor Investments
in Princeton, New Jersey five years ago. He's been market timing from the start. He currently has about 60 clients and $20 million under management.
Market timers tend to be computer savvy, and Bernstein is no exception. "It's amazing what the technology lets me do," he said. His basic data comes from a program called FasTrack
, which he said has comprehensive data that is clean and works well with his specialized programs. He uses "four or five" different programs specifically developed for market timers, mixed together into what he calls a "home brew."
Bernstein's relationship with fund companies is defined by market timing, and he recognizes that it makes him something of a pariah. But he doesn't think antagonism is inevitable. He believes that market timers and fund companies are locked together in a co-dependent relationship. "The last thing I want is to disrupt somebody's operations. Market traders won't do well if we screw up the fund companies," he said.
Relations are generally friendly, in part because he manages a relatively modest amount of money and moves it relatively infrequently (at least by market timer standards). He said that potential conflict can be reduced by clear, consistent statements from fund companies about their policy toward market timing.
Conflict comes when fund companies change rules in the middle of the game. "Be clear, up front," is all he asks. "My biggest problem is funds that tell me 'If you get out, we won't let you back in.'"
He acknowledges that market timers cost fund companies money, and can live with the fees that fund companies charge to offset those costs. The additional fee simply becomes another part of the buying calculus.
For example, Bernstein always holds some of the Fidelity Select sector funds, even though they charge a front-end fee and a redemption fee. He likes the funds because they're "high focus and very targeted."
He's had success lately with electronics and biotech, but it would be a stretch to call them personal favorites. "When the market timing programs give me a buy signal, I use another program to figure out which sector to buy." That doesn't leave much room for feeling.
If the fund discourages market timers, he stays away. "If you don't want me, tell me." said Bernstein. He finds enough buying opportunities with fund companies that welcome market timers, such as Rydex
, which he says is "extremely market timer friendly"
Market timing removes some of his flexibility in picking funds, so normal marketing efforts usually fall on deaf ears. "When it comes to marketing, the only thing that is really useful to me is a quick e-mail about new funds," he said. "When wholesalers call, I tell them that if they're on FasTrack and they're performing well, they'll get picked. It's all a matter of math."
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