The FAQs
The answers to Frequently Asked Questions (FAQs) are grouped below. Find your question, then click on it.
Questions About the Website
What's this site about?
What's the Moose Club?
Why publish a free signal?
Why charge so little for your newsletter?
Do you sell signals from your other models?
Do you sell visitors' names and email addresses?
Are you being paid to mention funds or brokers?
Do you invest in the securities you mention on the site?
Questions About Market Timing
Does market timing work?
Isn't timing more expensive than holding?
Isn't timing high-maintenance?
Questions About the Moose
How does Decision Moose work?
Why invest 100% in one asset at a time?
Questions About the Funds
Why use funds instead of individual securities?
Why use these particular funds?
Do I have to use the funds in the model?
Some of these funds are thinly traded, is that a problem?
Where can I find out more about the funds you use?
Questions About Moose Performance
Is the model ever wrong?
Can the Moose beat buy-and-hold after expenses?
Should I expect similar returns to those on this site?
How does the model treat switch signals?
Could your signals move the market?
What other factors may have an impact on my returns?
Is the Moose riskier than buy-and-hold?
What is the Sharpe Ratio?
Questions About Using the Moose
Who should consider using the Moose?
Am I too wild or uptight for the Moose?
How much money do I need?
When is the best time to check the Moose?
Should I act immediately on a switch signal?
Should I buy an asset when the signal is "HOLD"?
What do "Bullish" and "Bearish" mean?
WHAT'S THIS SITE ABOUT?
This site is about timing financial markets. It does not suggest that timing should become a part of your overall investment strategy, only that if you dismiss it entirely you may be missing something. Specifically, the site demonstrates one version of the Decision Moose framework, INDEX MOOSE, which uses exchange traded index funds in an attempt to time the markets. The model's signal is provided free of charge each week. Readers may also join the Moose Club for a modest fee, and gain access to the author's online newsletter on the global financial markets, the model's transaction history, an archive of recent newsletters and selected commentary, and an expanded set of FAQs.
The Moose first appeared on the internet in 1997.
Decision Moose is named for a cartoon character created by the model's author while earning his MBA and publishing the campus newspaper at Harvard Business School.
WHAT'S THE MOOSE CLUB?
The Moose Club is intended to provide both a broader perspective on the markets and additional investor education. It explores current global financial conditions based on the author's reading of the model. A nominal fee ($26) buys access to the password-protected areas of the site through December 31, 2010, including the Moosecalls online newsletter (for an example of the newsletter, click here), the Moosnippets archive, Moosistory, and expanded FAQs. Joining the Moose Club is not essential to getting the weekly signal which, is free.
HOW DO I JOIN?:
(1) Click on the Moostore button to go to our secure online store and submit your payment. (2) You'll receive a username and password with your invoice. Print it out and keep it in a safe place. Unfortunately, you can't change it, so commit to memory. An email confirmation follows, but does not contain the secure information. (3) Return to decisionmoose.com and click on the Moose Club button, or any of the other secured pages, and a drop-down box will appear asking for your username and password. (4) Fill in your security information from the invoice-- remembering that it is case sensitive and there are no spaces. Your username and password will work for all secure pages (Moose Club, Moosecalls, Moosistory, Club FAQs).
INTERNATIONAL PAYMENT INSTRUCTIONS: International subscribers must use PayPal to join the Moose Club. The credit card processing arrangement that the Club uses accepts U.S. payments only. I apologize for any inconvenience. Since international credit card processing capability costs far more than domestic only, and since 99% of the readership appears to be US-based, and since I'm trying to keep this affordable, I've opted to try paypal, at least until I know how many international crises I'm causing. If you are international and have a problem joining with Paypal, please let me know.
The site is provided by Quant$treet Corporation, a privately held, limited liability Maryland corporation engaged in high net worth portfolio management and financial publishing. William Dirlam is both the author of the model and the president of Quant$treet. Dirlam holds a Masters in Economics from Georgetown University and a Harvard MBA. He has thirty years in banking and finance in both the public and private sectors.
WHY PUBLISH A FREE SIGNAL?
The free part of the site adds very little time to my weekly workload. The process is automated for the most part, and I have to run the models anyway. Writing it down helps me think. I also enjoy seeing it work. When it does, call it an ego boost. When it does not, call it a discipline: it piques my curiosity and forces me back to the drawing board. Besides, having it live on the internet for years validates its performance over time-- I have witnesses.
Actually, the entire site was free prior to 2010. Unfortunately, plagiarists began lifting my work verbatim, using it to publish a mirror site. They stole everything, including the FAQs, my performance data, and my weekly overview. They charged $200 a year for the advice that I provided for free. In the process of getting the illegal site shut down, I found that one's copyright protections are strongest (a) when there is an effort to protect the material, and (b) when the plagiarism results in tangible economic loss. As a result, I instituted password protection and a nominal newsletter fee.
WHY CHARGE SO LITTLE FOR YOUR NEWSLETTER?
True, the average newsletter competing with Moose Club may be four to eight times more
expensive, and provide inferior insight, but every business has to make
its own pricing decisions. The Moose Club's goal is investor
education-- reaching as many people as possible in an affordable way. So let's just say I'm generous. Actually, Index Moose is only one aspect of the Moose framework, a conceptual demonstration primarily suited for smaller accounts. From a business standpoint, folks who surf the net for financial help are a more hands-on, do it yourself demographic than those who hire professionals to manage their money. A do-it-your-selfer's portfolio is also typically much smaller, and professional help may not make economic sense, especially when the manager quotes a minimum fee or account size, as most do.
DO YOU SELL SIGNALS FROM YOUR OTHER MODELS?
No. We do not sell subscriptions to any model signals. Ancillary models are used primarily for account management in larger ($500K and above) portfolios. As a practical matter, in larger accounts, the lack of liquidity in some ETFs may require a more diversified approach than Index Moose offers.
DO YOU SELL VISITORS' NAMES AND E-MAIL ADDRESSES?
No, Decision Moose does not sell, rent or lease your personal information to other third party companies. Moreover, we secure your personal information from unauthorized access, use or disclosure.Decision Moose secures the personal information you provide on computer servers in a controlled, secure environment, protected from unauthorized access, use or disclosure. When personal information (such as a credit card number or personal data to join Moose Club) is transmitted to other websites, it is protected through the use of encryption, such as the Secure Socket Layer (SSL) protocol.
ARE YOU BEING PAID TO MENTION FUNDS OR BROKERS?
No. No one associated with this site receives remuneration (hard or soft) from any fund provider or brokerage house for being mentioned here. Moreover, this site does not accept any advertising, insuring an independent viewpoint.
DO YOU INVEST IN THE SECURITIES YOU MENTION ON THE SITE?
Yes, we do occasionally invest in the funds in this model. Since the model deals exclusively with broad index funds, however, it is virtually impossible for concerted action by a few Mooseaholics to move asset prices.
DOES MARKET TIMING WORK?
Market timing is unproven. That said, every mutual fund salesman you'll meet-- except maybe the Vanguard 500 guy-- would have you believe that his fund manager is a better stock picker than anyone else in the world, and although few like to mention it, good timing is implicit in good picking. On the other side, academia continues to go to great lengths to disprove timing and promote diversified buy-and-hold investing. The controversy, then, is between a group with considerable practical experience, but a vested interest in timing's success (financial professionals who want to sell their expertise), and a group with no practical experience, but also no particular vested interest (academicians). Obviously, the creator of Decision Moose, a financial professional, thinks timing may indeed work, or he wouldn't be wasting his time on a site devoted to benchmarking a timing mechanism to prove its validity.
ISN'T TIMING MORE EXPENSIVE THAN HOLDING?
It is. There can be capital gains taxes with every sale and brokerage commissions with every transaction. But expense is only half of the equation. Return must also be included in the calculation. The real issue is whether the gains derived from timing-- after taxes and commissions have been paid-- exceed the gains from simply holding-- after taxes and commissions are paid. Timers can minimize expenses by using deep discount brokers. Taxes, on the other hand, are a fact of life. If you hate paying taxes, your only recourse is to stop making money. The Moose program minimizes taxes to the extent that index funds generally have lower capital gains distributions due to less turnover, but Index Moose will clearly be more profitable in tax-deferred portfolios like IRA's, SEP's and so on.
ISN'T TIMING HIGH MAINTENANCE?
It is. Managing your assets takes more time than ignoring them, and you should include your time when you're considering the costs of your investment program. Obviously, if you'd rather be doing something else, managing money probably isn't for you. The Moose tries to minimize the effort required to implement it. It is an intermediate term model (6-9 months), not a daily timing model. It is run weekly, not daily, so you only have to check it once a week. And it's a long-only model that generates only three or four trades a year, so you're not constantly on the phone with your broker.
HOW DOES DECISION MOOSE WORK?
The framework's structure is proprietary, but broadly speaking, it measures the relative attractiveness of each of the assets under study. Any number of assets can be plugged into it and compared. Technical indicators then select the one asset in the group having the highest probability of price appreciation. The framework is more growth than value oriented in that price momentum and trend-following technical indicators play a central role, but there are also Fed and overall market indicators. Unlike a diversified, buy-and-hold approach-- the strategy preferred by random-walk investors-- Index Moose invests the entire portfolio in one fund for as long as it is the most attractive among the group.
WHY INVEST 100% IN ONE ASSET AT A TIME?
Investing in one asset is logical. Diversification is for those who don't think markets can be timed. Targeting is for those who think they can. For "prudent man" traditionalists, that may sound a little scary, but our research shows unequivocally that in a long-only model like Index Moose, a 100% investment in the most attractive asset yields significantly higher profits than diversifying a portion of the portfolio into each asset according to its relative attractiveness.
WHY USE FUNDS INSTEAD OF INDIVIDUAL SECURITIES?
Funds generate fewer trades with less risk. Individual equity prices can be far more volatile than stock or bond indices and that makes individual securities far less predictable. Since the Moose invests in only one asset at a time, a fund provides some of the diversification needed to reduce risk. (Given the prices of individual securities these days, it is pretty tough for a traditional investor to buy a thoroughly diversified portfolio of individual stocks and bonds for less than $300,000, so chances are, if your portfolio is under $300,000 and well diversified, there are some funds in it already.) On the downside, all funds, even ETFs, carry embedded administrative fees that individual securities don't have. In the end, however, after commissions, funds, especially ETFs, provide diversity cheaper and quicker.
WHY USE THESE PARTICULAR FUNDS?
The criteria for selecting a fund are as follows:(1) An adequate data history is essential. The framework requires almost a year and a half of price data before it can generate a signal. (2) Funds should be exchange traded to allow intraday transparency. (3) Funds should be passive rather than actively managed. (4) Funds should track widely accepted and broadly traded indices.
Thus the funds are, with one exception, passive, exchange-traded index funds. The long zero-coupon bond fund (BTTRX) is the only non-ETF carry-over from the early days. It has not been replaced by an exchange-traded fund in the Moose because its replacement (TLT) does not reinvest dividends it pays each month. Since dividends are a major consideration in the total return for long bond investors, TLT's price tends to understate the relative attractiveness of bonds in the model. BTTRX is a passive, index fund that trades end of day. It provides a more accurate estimate of bonds' total relative worth by incorporating the coupon into the price. (From a practical standpoint, I actually invest in i-shares' long bond ETF (TLT), rather than BTTRX, which may or may not have a problem with "hot money".)
Finally, the model refers to three-month T-Bills as the standard proxy for cash. From a practical standpoint, I find it more convenient to use my broker's premium money fund, rather than actual T-bills or a short-term bond ETF when I go to cash. Premium money funds often pay more than T-bills and there is no commission to get in or out. The downside is that they trade end of day, so that switching out of cash and into something else takes a couple of days. If your account is too small to qualify for a premium fund, the regular sweep money market fund at your broker works too.
DO I HAVE TO USE THE FUNDS IN THE MODEL?
No. Index Moose was originally developed in 1989 using indexes. Its purpose was to provide a comprehensive overview of the global investment scene for a newsletter. The Moose Club is the index model returning to its roots. When the model began to show significant promise as a forecasting tool, the search for a way to invest on its signals began. The first tradable version incorporated standard, no load, open-end mutual funds, since they were the only option available at the time. They were not particularly suited to the task. Mutual fund managers have always had an aversion to "hot money", which they define as money that moves out of their fund within six months of moving in. Since Index Moose's positions averaged three to four months, the switch to ETFs and closed-end funds inevitably made sense. It was 1999, however, before there was adequate ETF coverage to revise the model. The ETFs selected were essentially those with the longest price histories at the time. Since then, there has been a proliferation of exchange-traded funds (ETFs), increasing the available choices. For an up-to-date listing try ishares.com or amex.com.
SOME OF THESE FUNDS ARE THINLY TRADED, IS THAT A PROBLEM?
Not really. The index ETFs in the Moose are rebalanced against their index end of day, so there is no premium or discount carried over into the next trading session. Moreover, their associated index is recalculated and published every 15 seconds throughout the day. So if a disparity between the ETF price and the index value arises, it presents an arbitrage opportunity for the specialists who deal in these securities.
WHERE CAN I FIND OUT MORE ABOUT THE FUNDS YOU USE?
You can (and should) get a prospectus from your broker before investing in any security. Unfortunately, the Invesco Funds referenced pre-2000 are defunct, and no data readily exists on the web that I can find. The same applies to Scudder Asia Fund, ticker SAF (since reassigned to Safeco). Otherwise, you can check out the current funds on the internet. A Google search can help you find the latest information about most of them. Meanwhile, try the following sites:
finance.yahoo.com-- a good starting point
americancentury.com-- long zeros fund (BTTRX)
streettracksgoldshares.com-- gold bullion (GLD)
amex.com.-- the US large cap stocks (SPY)
ishares.com-- ishares (IEV, IWM, ILF, EWJ, EPP)
IS THE MODEL EVER WRONG?
Certainly, but like intelligence and wealth in people, accuracy and profitability in a model are not necessarily the same thing. Based on the theory that most people would rather be rich than feel smart, the Moose framework puts profitability ahead of accuracy. By focusing on being really right, when it is right, and only slightly wrong, when it is wrong, the framework tries to maximize return while reducing risk-- and it seems to work. That said, over the years considerable research has gone into improving accuracy and reducing false signals. (False signals are those that only last a week or two before switching back at a loss.)
Extensive back-testing on earlier versions of Index Moose between 1984 and 1999, put accuracy right around 75%. In less positive terms, about one in four signals turned out to be false. The revised version of the model on this site has given a false signal fewer than one in ten times-- a little better than 90% accurate. The improvement could be due to any number of factors, including the switch to ETFs, and minor tweaking of the signal calculations. It seems likely, however, that the increased reliance on cash during "the lost decade" (2000-2010) improved "accuracy", since cash always provides a positive return, though not necessarily the best return.
CAN THE MOOSE BEAT BUY-AND-HOLD AFTER EXPENSES?
Index Moose theoretically beats buy-and-hold after expenses handily, so it probably CAN. Of course, that's not the same as claiming it WILL. An impressive past is never a guarantee of massive, immediate and automatic future wealth. There are several reasons for this, most of which are related to the problem of translating a theory into reality. Implementing is not the same as theorizing.
SHOULD I EXPECT RETURNS SIMILAR TO THOSE ON THIS SITE?
Please don't. That way, you won't be disappointed if your effort falls short, and you can be pleasantly surprised if your effort does better. The returns on this site are theoretical. There is no real account out there backing up the numbers. Moreover, to simplify the calculations, several shortcuts have been employed. For example, calculations do not include potential margin, taxes, transaction costs, or dividends earned. In addition, model switches are treated differently from reality. (See next question.)
Apart from all that, I also make occasional errors. The Moose is a complex mathematical construct. As a result, I don't worry about hidden errors, as much as I have come to expect them. The site is useful in that regard, as there is usually someone out there who cares enough and is bright enough to catch my mistakes. Moreover, ongoing independent assessment of the model's performance is available at CXO Advisors.
I not only appreciate, but rely on having a few thousand free editors checking my math, my spelling, my grammar, and even my methodology. I welcome the critique. The better the site, the more likely we can all expect returns similar to those on it.
HOW DOES THE MODEL TREAT SWITCH SIGNALS?
Index Moose is a weekly model, and for simplicity only contains Friday COB ("close of business") data. The instruction to switch is usually published over the weekend. Signals are based on the closing prices from the previous Friday. The model is calculated as if it changed automatically at the Friday close. It is done that way to maintain data consistency. Of course, that is a synthetic construct. In reality, investors' first opportunity to act is Monday, and they must make the best short-term calculation they can in the following week(s). The goal is to get in at or below the Friday closing price. Sometimes that is possible and sometimes not. For more information on this topic, see "The Art of the Switch" on the MooSignal page.
COULD MOOSE SIGNALS MOVE THE MARKET?
No, unless maybe Warren Buffett and George Soros both became Moose fans simultaneously. Even then it would be unlikely. It would mean cornering the world gold market, or European stocks, or US stocks, or Asian stocks. Now the Moose is good, but we're small potatoes in the overall scheme of things. This is not a commercial site; we don't advertise; or proselytize, and don't care to. We get about 4.600 unique visitors a week (as of December 2008). While that up 500% in two years, it isn't sufficient to cause even a ripple in the global financial indices-- even if most visitors were to act on the signal, which they probably don't.
WHAT OTHER FACTORS MAY HAVE AN IMPACT ON MY RETURNS?
Theoretically, Index Moose (unmargined), not only outperforms diversified buy-and-hold, but also beats the S&P500 (a tougher bogey). Moreover, its reward to risk ratio appears stellar. HOWEVER: as a do-it-yourself program, the level of success you actually enjoy will depend on you-- how well you keep to it, the type of account you have, your tax situation (state and federal), where you trade, and how aggressive you are.
IS THE MOOSE RISKIER THAN BUY AND HOLD?
Depends. Using the standard deviation of weekly returns as a measure of risk (a common method), the time period one selects has a significant impact. As a general rule, the better Index Moose is performing versus the S&P, the riskier the Moose may appear, using the standard deviation method of comparison. That's reasonable, because greater risk is necessary for greater return. Fact is, investors willingly overlook risk when their portfolios are getting fatter, so a more appropriate measure of overall risk considers return as well. We use the Sharpe ratio to measure risk-adjusted return.
WHAT IS THE SHARPE RATIO?
It's a ratio developed by William Sharpe to measure risk-adjusted performance. It is calculated by subtracting the risk free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. It tells us whether the returns of a portfolio are because of smart investment decisions or a result of excess risk. Generally, a positive value indicates that the portfolio's risk-adjusted return is greater than it would have been had the funds been invested in three-month Treasury bills over the same period. Sharpe ratios above 2 are considered good, and above 3 are considered excellent. As with standard deviation, the time period selected has an impact on results. The longer the time period, the less risky an investment appears.
WHO SHOULD CONSIDER USING THE MOOSE?
Those who would invest part of their liquid assets in the Moose should meet ALL of the following criteria: (1) Have a better than rudimentary understanding of the investment process. (2) Have a medium to aggressive risk tolerance. (3) Be willing to accept personal responsibility for the risk implicit in one's actions. (4) Be willing to commit to an intermediate term market-timing program. (5) Have at least a medium term time horizon (3-5 years), preferably longer. (6) Be willing to invest in funds rather than individual stocks and bonds. (7) Have a tax-deferred account at a discount broker, or(8) be willing to incur short term gains in a taxable account.
Just remember all quantitative models are the product of fallible human beings. Invest in the models like we do-- at your own risk. Very conservative investors will probably be uncomfortable with the Moose and should avoid it. Very active traders may become impatient at times, but could be rewarded if they overcome their impatience.
AM I TOO WILD OR TOO UPTIGHT FOR THE MOOSE?
There are a number of interactive sites that can help you figure out your risk profile. Even if you don't use the Moose, knowing yourself is one of the first steps to solid investing. Figure you'll need at least a moderate tolerance for risk for the moose. Since May 2000, the ETF model's largest one week drawdown is 10.9%. The largest uninterrupted drawdown is 13.2% over three weeks. Though that isn't frequent behavior, it's clearly possible. When it occurs, it takes considerable "coolness under fire" to watch 10-15% of your assets evaporate in less than a month and still stick with the program. Comparatively, model drawdowns are smaller-- at least during this particular period-- than drawdowns for those who bought and held the S&P. Sharp short term declines should be expected as a matter of course in any equity investment program, but especially in one that is designed to provide outsized returns through high-beta investments. If volatility makes you crazy, the Moose is not for you. If it merely makes you uncomfortable, then it could be right for at least a portion of your assets.
HOW MUCH MONEY DO I NEED?
To start you only need enough to open a brokerage account at the discount broker of your choice. Most discount brokers do have a minimum account size for both taxable and tax-deferred (IRA) accounts, which you can access through their websites.
From a practical standpoint, however, you should consider trading costs as a percentage of your portfolio before committing to the Moose. For example, in an average year, the model gives four signals-- requiring four round-trip trades. Say your broker charges $10 per trade ($20 per round-trip). You're looking at $80 per year in expense. If your total portfolio is only $1000, that's an 8% expense ratio. A decent no-load mutual fund charges 1-2% in expenses.
Obviously, from an expense standpoint, that makes buying and holding funds (until you have more money) a competitive option. Strictly considering expense-- without factoring in fund/Moose performance differentials or the personal satisfaction you might derive from being a player as opposed to a spectator-- a $5000-$6000 portfolio is a reasonable minimum to go Moose.
Factoring in past performance differentials between the Moose and a buy-and-hold mutual fund strategy, however, lowers the minimum to about $2,500 -$3000. Of course, past performance does not guarantee future results-- for Moose or mutual funds.
In the end, we all have to pay to play. Minimum account size is a personal decision-- a function of broker's fees, your risk tolerance, and of how badly you want to play.
WHEN IS THE BEST TIME TO CHECK THE MOOSE?
My self-imposed deadline for each weekend update is Monday 8AM. So check before the open on the first day of trading each week. Usually the site has been updated by Sunday evening. There is no email subscription service, mostly because I enjoy being a money manager, and have no interest in becoming an email address manager.
SHOULD I ACT IMMEDIATELY ON A SWITCH SIGNAL?
Maybe. Index Moose is not effective as a short-term indicator, so waiting for an "up day" to sell and a "down day" to buy can improve performance... or not. The author uses short-term trading rules and a commercial charting and technical analysis program (TC-2000) to assist in the buy/sell decision. The fact is, a perfect switch is rarely possible. Short term, you are likely to be dissatisfied with what you got for the one you sold and what you paid for the one you bought. Moreover, delaying the switch could evolve into total inaction-- ignoring the signal altogether. Not a good idea. Even so, some delay is probably better than putting in a blind "switch" order with your broker over the weekend. Acting prior to a close provides better information than acting prior to an open. For more information on this topic, see "The Art of the Switch" on the MooSignal page.
SHOULD I BUY AN ASSET WHEN THE SIGNAL IS "HOLD"
There are two types of signal at the Moose: HOLD and SWITCH. They mean what they sound like they mean. Holding for more than a week or two after a "switch" signal is not recommended. Similarly, switching into a position in the middle of its 'hold" signal is not recommended-- particularly if there has been an appreciable price increase in the designated asset since the signal was first given. (Switching out of an old position late, however, and going to cash between signals, may stem further losses.)
A HOLD signal means hold. It does not mean "buy", but neither does it mean "do not buy". In fact, it means it is the best asset out there right now. The reason switching during a hold signal is not recommended has more to do with probabilities and with the way the model works than with the relative quality of the assets.
The average duration of signal is about three months. The average gain per signal is about 8%. The deeper you get into the signal period, and/or the greater the current signal's gain to date, the less likely it is that switching mid-signal will yield a positive outcome. Moreover, mid-or-late-signal corrections are common. They are easier to weather with a substantial gain already in your pocket.
WHAT DO "BULLISH" AND "BEARISH" MEAN?
Bullish investors are those who think the value of an investment is going to rise. Bearish investors think the value will fall. (This was an actual reader question. If you did not already know the answer, you might read a couple of books on investing and return to this site later.)
