The Right Stock at the Right Time

Larry Williams

The Right Stock At the Right Time - Larry WilliamsA very decent book on Stock Picking techniques and Market Timing from a famous investor.

Larry Williams starts with a review of some Market Timing indicators.

First, various calendar/seasonal patterns are presented:
  • the typical stock market pattern over a decade. Now, not much to explain this pattern: for instance nothing to explain why the US stock market has never made a loss in a year ending with 5. I’d really like to know why, don't you ?

  • the 4 years cycle: not the presidential cycle but the fact that the market tends to make major lows every 4 years. Incidentally, it corresponds to year 2 of the presidential cycle, that is the worse year so kind of make sense.

  • the best 6 months (called the "October effect"): the results are presented in an interesting format so may be useful even if you already know this timing system (see table 3.1 page 32).

Some additional timing systems based on Sentiment and Valuation (Dividend Yield) are also presented.

Williams then proceeds to Stock Selection. His strategy is mainly a Value Investing style with further timing using Technical Analysis. Of course he uses the Williams Accumulation/Distribution indicator which he created.

Then, back to seasonal pattern: Larry Williams shows how to time entry in a stock using a stock’s typical yearly pattern. Collect the historical quotes of a stock for many years (widely available) and construct a typical yearly pattern. Many stocks exhibit a seasonal pattern so, according to the author, it can be used to time your entry/exit.

Note: Jon Markman (MSN Money Central) presented the same idea, with more details, in Online Investing: Markman called this system the Historical Monthly Average Return Quotient (HiMARQ).

Then comes an interesting part for mechanical investors: Williams combines stock picking and market timing. The author backtested various Value mechanical stock picking strategies and the best 6 months (November-April) timing system using the stocks of the Dow Jones Industrial Average as Investing Universe. Larry Williams then provides an enhanced strategy that also invests in defensive stocks during the worst 6 months (May-October).

Finally, the book provides some Money Management techniques (more for Day Traders).

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