Guru Grades

Jim Rohrbach's Technical Timing Approach (Last Updated 7/14/09)

A reader suggested that we add Jim Rohrbach, president of Investment Models, Inc., to our graded gurus list. According to his web site, Mr. Rohrbach's stock market timing service (based on the proprietary Rohrbach Index, or RIX) is "designed for timing retirement no-load mutual funds and individual stocks by avoiding stock market crashes and helping investors keep their IRA in bull markets and out of bear markets using technical analysis timing models." He advises that: "The stock market can be timed!!! Don't believe the 'experts' who tell you that it can't be done." We cannot locate a public archive of Jim Rohrbach's past stock market commentary, so we cannot evaluate him in the same way we have evaluated many other gurus. Instead, we examine his self-reported recent trading performance. Using daily closes for the designated trading vehicle, S&P Depository Receipts (SPY), adjusted to incorporate dividends over the period 3/24/03 through 7/10/09. we find that:

Jim Rohrbach's recent trading record lists 19 round trip trades starting with a BUY on 3/24/03. The last trade is a SELL on 1/21/09. In analyzing this record, we make the following assumptions:

• Trade in and out of SPY at the close on the trade dates specified.
• When out of SPY, accrue interest on the balance at the daily 90-day Treasury bill yield.
• Assume one-way trading friction (transaction fee plus bid-ask spread) is 0.2% of the balance.

The following chart compares the cumulative returns for Jim Rohrbach's timing approach and for buying and holding SPY over the period 3/24/03 through 7/10/09. The timing approach lags a buy-and-hold approach for most of the sample period, but ultimately outperforms modestly by avoiding part of the large 2008 market decline.The terminal values of the Rohrbach timing and buy-and-hold approaches are $12,437 and $11,397, respectively. The sample of 19 round-trip trades is small.

Since cumulative return analyses are sensitive to start and stop dates, we also look at annual and daily return metrics.

The next chart compares the annual returns for 12-month intervals commencing on March 24 (the first trade date) each year for Jim Rohrbach's timing approach and for buying and holding SPY. A buy-and-hold approach wins four of six years. However, the average annual return for the timing approach is 4.6%, beating the 3.2% for buy-and-hold (largely due to results for the year commencing 3/24/08). Also, the standard deviation of annual returns is 14.4% for Jim Rohrbach's timing approach, substantially lower than the 23% for buy-and-hold. However, the sample of six years is very small.

What do daily returns indicate?

The average daily return for Jim Rohrbach's timing approach is 0.016%, compared 0.018% for buying and holding SPY. The standard deviation of daily returns for the timing approach is 0.71%, compared to 1.38% for buy-and-hold. Again, the sample in terms of number of trades is small.

It appears that Jim Rohrbach's timing signals result in underperformance during bull markets and outperformance during bear markets. The net outcome probably depends on the frequency and severity of bull and bear phases. A sample period spanning multiple bull and bear markets might clarify whether the timing approach consistently outperforms buy-and-hold.

Note that:

• Results are somewhat sensitive to the assumption about trading friction, which depends on account size and specific broker fees. For example, the average daily returns for Jim Rohrbach's timing approach over the entire sample period are 0.019% / 0.016% / 0.014% for one-way trading frictions of 0.1% / 0.2% / 0.3% (compared to 0.018% for buy-and-hold).
• If trading in a taxable account (apparently contrary to Jim Rohrbach's intent) taxes may put a considerable dent in returns for the timing approach.

In summary, Jim Rohrbach's timing service may be preferable to a buy-and-hold approach, mostly in terms of reduced volatility, for long-term investors using sizeable tax-deferred accounts. The sample period is too short for a confident conclusion.

See Jim Rohrbach's reactions to the original review.

See Guru Grades for a snapshot of the accuracies of various experts in predicting the behavior of the U.S. stock market, including links to detailed individual evaluations. Since the methodology above is not comparable, we do not include Jim Rohrbach in the snapshot.