Gleason Report FAQ

FAQ: The Gleason Report Stock Model

Is the Gleason Report a market-timing tool?
Does Market Timing work?
Why is Buy and Hold risky?
Is the market timing less risky than Buy and Hold?
Will your timing model also work in the future?
Can you describe exactly how your model works?
What are the model's returns?
What drives stock prices?
Why do most small investors lose money in the stock market?
How do I use your timing model?
Is the timing model simple or complicated?
Can it be used to purchase of sector funds or stocks?

Is the Gleason Report timing model a market-timing tool?
Broadly, yes. The model is a risk-based strategy that outperforms the S&P500 and other broad market indexes by avoiding steep losses. It exits the market when it's subject to a significant decline and buys back when risk is much lower. In a strong bull market it may be in the market for years and in a down or volatile market perhaps for only a thirty-day period. You can expect it to buy or sell at most twice a year in volatile markets. It's for investors who are willing to take on some active management of their capital. It can’t predict where the market will be one year from now but it warns of risks and opportunities. The Gleason Report stock timing model is not day trading or a get-rich-quick scheme. It is a market timing tool for serious long-term investors.

Does Market Timing work?
Yes and no. Back testing shows that various popular market timing methods are statistically proven to beat the index but many of them have extended losing periods or perform poorly in bear markets. Some are very simple and successful, like seasonal investing, which is only in stocks from November through April. It worked well for a long time but has broken down in recent bear markets. I've developed moving average systems that beat the S&P500 by 2:1 over 30 years but they aren't very reliable over short periods. Overall though, market timing has a deservedly bad reputation due to the unscientific and inept practices of timing promoters. A timing method is useful if it’s easy to use, avoids steep losses, rarely trades, and beats the S&P500 index.

Why is Buy and Hold risky?
Buy and Hold is a fine strategy during a long-term rising market but what happens during a Bear market? The US economy also has seen long down cycles where holding stocks can destroy your capital. Down periods have occupied almost half the market's 200 year history; 95 months of bear market and 103 months of bull market since 1802. Look at the average yearly Bull/Bear returns below.

Data Source: Stock Cycles by Michael A. Alexander

In 2001-2002 stocks lost 17% per year over two years. In 2003-2007 stocks were up 13.1% per year. The years 2008-2009 are one of the worst bear markets in history. Holding stocks through a bear market can strip away all the gains you made previously. Markets fall much faster than they rise and most investors don't react fast enough to avoid being crushed.

Is TGR stock model less risky than Buy and Hold?
Yes. Risk/Reward can be a complex topic - let's make it simple. From 1980 through 2008 a buy and hold strategy has returned 7.1% per year while the TGR stock model has returned 15% with less risk. For the 3 years from the market peak in 2000 to 2002, the average investor lost over 10% per year whereas TGR was up 10%+ per year. TGR avoided the 2008-2009 bear market collapse. The trade history on the performance page tells the story.

Will the Gleason Report model also work in the future?
The Model was created based on investor observation and later a computer program validated the concept. The model has been back-tested on 27 years of historical data. Since starting to use it “real time” in 1999 it has performed stunningly during two severe bear markets. It stays invested with few trades in bull markets and performs wonderfully in bear markets. I'm reasonably confident this performance will continue but make no guarantees. It is not wise to "bet the farm" on this or any other timing model.

Can you describe exactly how your model works?
The method is proprietary. It works because it makes decisions using mathematical discipline and common sense. It manages risk and employs no superstitious methodologies, momentum schemes, moving averages, or subjectivity. It seldom trades and consistently makes money. It's in the market at all times except during the danger period. I use a Traffic Signal on the main page to indicated the current risk level. Green and Yellow are IN phases and Red is OUT.

What are the Gleason Report's returns?
$10,000 invested with the TGR model in 1979 would now be worth over $600,000 vs. $88,000 for Buy&Hold. The huge difference results from avoiding the devastating losses in bear markets.

During the great bull market from 1982-1999, the model was in the market 84% of the time. The S&P500 index returned 10.7% per year and the TGR model returned 17%. It made only 7 buy/sell combinations as it rode the Bull but they made a big difference. The S&P500 went up a whopping 1160% but the TGR model went up almost 2000%.

Remarkably, since the market crash in 2000, TGR has greatly outperformed the S&P 500 index while making only 6 round trip transactions. The market's increased volatility has led to even higher returns. In 2000, while the Nasdaq crashed 60%, TGR got out and actually made 5% sitting in the money market. In 2001 it was in the market for only 3 months and earned 14% while the S&P500 index lost over 10% for the year. In 2002, TGR was up 16% on two trades and the S&P 500 went down over 20%. From 2003-2007, TGR made 13.1% per year matching buy and hold. But, look what happened next. The stock market crashed in 2008 losing 38% while TGR exited stocks that January. In late 2008 TGR was in the market one week and made 7%. Stocks continued to crash in early 2009 but TGR was out. This can't be luck.

Is the TGR model simple or complicated?
The signals used to flag TGR model turning points are simple to construct but non-obvious. It manages risk. A Buy signal does not mean the market will go up. It means there is little chance of it going much lower so it’s safe to buy. A Sell signal does not mean the market will fall. It means there is little chance of it going much higher so we sell and move to the safety of short-term government bonds

My research shows that the major indexes can go a few percent beyond the trigger points but rarely much more. Market panics are an exception like in September 2001. The model bought quickly (mechanically) after the 9-11 disaster but the market declined in panic for another week and then quickly turned up. Still, we made 4% on that trade and were in the market for only two months.

To summarize: I can’t predict the exact top or bottom of the market. I don't make market predictions but do indicate when it’s safe to buy and prudent to sell. A non-financial disaster (like the 9/11 attack) can drive markets sharply lower and there’s no way my model can anticipate this sort of event.

How do I use the stock model?
The best approach is to plan on holding a balanced portfolio of various stock index funds plus asset classes like commodities and bonds. When TGR says to exit stocks, move that allocation to cash or short term bonds. Don't double up into other asset classes. Be patient and wait for the danger to clear. Aggressive investors use the TGR stock model to short the indexes but I personally will never recommend that.

It’s important to act promptly (within several days) of a buy or sell signal. Markets often move very quickly.

The greatest obstacle to using TGR is psychology. The model will usually announce a buy or sell signal that contradicts the prevailing market mood of fear or euphoria. Going against the grain can be emotionally difficult for some people but it is essential for success. Fortunately, the model only changes its position, at most, twice a year.

When a buy or sell condition is detected TGR will send you an email. There’s no need for you to watch the market every day. In 30 years, the model has only made 14 round-trip trades and 6 have been in the risky markets since 2000. The results have been very profitable.

What drives stock prices?
The stock market’s general trend is based primarily on changes to corporate earnings. Earnings drive capital investment and dividend payouts. That’s why the shares of individual companies will soar or slump based on news. The stock market churns in a constant flux due to political issues, tax concerns, economic variables, and other issues that can affect corporate profits. The underlying economy grows based on fundamentals like jobs, credit, and other measures. Investor reaction to information drives market valuations up and down. When the valuation gets too high the market “corrects”. If valuation is too low it “rallies”. Over time, the extremes always return to the historical trend. The ebb and flow of stock prices is a natural process.

Why do most investors lose money in the stock market?
Investor psychology causes many people to enter or leave the market at the wrong time and these timing mistakes can devastate investments. People usually invest based on news and large market players manipulate much of it. Also, most financial magazines and web sites are staffed by inexperienced people under the age of 30. Investors listen to this garbage and sell into rapidly falling markets based on negative news or buy only to see their shares fall even lower. Buy and sell points need to be based on indicators that closely correlate with long-term actions soon to be taken by the large institutions. The TGR model indicates a buy or sell very close to market turning points thus lowering risk.

Can TGR be used to time the purchase of sector funds or stocks?
The model buys when the market is unlikely to go down. It sells when the market is at risk. Clearly, if the general trend is up then some sectors will do better than others. TGR doesn't offer a sector strategy. Sector funds can be risky and are only suitable for the most enterprising investors.