An interesting, provocative book that suffers by examining other investing systems more thoroughly than its own.

Several premises form the backbone of this book. The author presents some guiding principles/tenets; the investor's job is to understand them and perform specific actions that flow from them. I'll try to present these core beliefs here:

1. Markets downturns last so long, that simply buying and holding is NOT a good strategy for most people. Several convincing examples are provided, and the author cleverly (although a bit too blithely) puts the bite on the adage about how much one loses if one misses the 10 best days of the market by trying to time. The counterpart not usually asked: What if one is in the market on the ten WORST days. All of this is predicated on the belief that an informed timing strategy (buying when low, selling when high) will beat buying and holding through bad times and good.

1. Technical analysis, particularly various buy and sell signals revealed through DOW, S & P, and NASDAQ charts, is more important than fundamental analysis of companies (either alone or as components of an ETF or a mutual). Furthermore, conservative, reasoned technical analysis permits fairly successful timing. Fundamental analysis looks at things like financial strength, return on investment, different valuation and risk metrics (price/earnings; sales/price, etc., management, competition, etc.) Technical theorists believe these things are usually built into the price, and that following price movements is more effective and efficient (I simplify greatly here!)

2. The performance of a stock, mutual fund, or ETF is 70% related to overall (e.g., the S&P) market movement, 20% to sector (e.g., financials, growth stocks, agriculture, small-caps), and only 10% to the stock itself. Therefore, follow overall market patterns, then know which ETFs to buy.

3. ETFs are the best investment "vehicle" for getting into and out of markets. Exchange Traded Funds are like a hybrid of mutual funds (many stocks rolled into a single investment) and individual stocks. Like stocks, their price changes throughout the day and one can trade them daily; like mutual funds, the large number of holdings decreases risk, and there is a large variety from which to choose. ETF's are better than mutuals, though, because there are fewer restrictions on buying and selling, much lower fees, and are generally passively rather than actively managed (they follow an index, like a representative sample of technology stocks, for example), and active managers have a fairly poor track record!

Given these premises, the following system is proposed:

Use eight different technical indicators (e.g., the OPPOSITE of investor sentiment, when a trend line reverses direction, when an ETF price moves through its moving average, when the ratio of new high prices to new low prices reaches a certain percentage), score a point for each, and buy ETF's when the overall market indicators score +3 points or more; sell them when their sum reaches -3 points. Forget about transaction costs of buying and selling, or tax consequences, these are usually outweighed by not holding while your ETFs are plummeting, or failing to buy as they rise.

Summary: A Top_Down, Contrarian, Momentum System!
Look for signs that the overall market is reaching a high or a low based on the convergence of these indicators, (among these are signs of overly exuberant or fearful investing patterns), then either buy or sell (all at once, or in increments) the top ETFs (based chiefly on their strength relative to similar types of ETFs), preferably buidling a diverse portfolio (some based on financial sectors, some on regions, some of style [growth vs. value crossed by small, medium, and large size of the holdings in the ETF). This latter assumption is a type of momentum investing: ETFs that are performing well will continue in that direction, and the only work is monitoring them and selling when their relative strength fizzles out.

Strengths of the Book:
1. There's a lot of practical and cautionary advice that is both realistic and helpful for beginning to average experience investors. The usual caveats about diversity, etc., are supplemented with warnings about shorting the market, the danger of leveraged funds, and the sometimes helpful strategy of using limits to safeguard your principle.

2. There are free websites given that track all eight components that signal when to buy or sell. The fact that there MUST be some convergence (at least three points in either direction) is also a prudent strategy.

3. WIth the exceptions of a few typos, the book is clearly written and interesting. Even if you don't agree with the strategy, the beginning/intermediate investor will learn a lot, and can test the system for free.

Problems with the Book.

The biggest flaw, which I see has not gone unnoticed by other here, is that there is no back-testing of the system to see how it would have performed in the past. Instead, we are shown, time and time again, how well it would have predicted the fairly unusual and very volatile market heights and deep valleys from 2007 through 2009. Even though there were no ETFs in earlier decades (say, the 1980's), why wasn;r research done to see how well the indicators would have predicted overall turns in the market! WIthout this, we seem to have a selection of data chosen to fit a theory, and this is not a very scientific way to proceed. Back-testing is presented in other contexts, but not with the system presented here.

2. While the universe of ETF's is whittled down to just 66, there's only one strategy given for choosing among them...an ETF's strength relative to similar ETF's. Given the book's lack of interest in fundamentals, there is no advice given on comparing simple metrics such as Alpha, or Sharpe and Traynor ratios (roughtly, the amount of reward relative to some benchmark given the amount of risk).

3. The graphics are hard to read, and, in a few cases, don;t support what's in the text. We're shown a low--a buy signal-- but not the low that occurred three months earlier, and that would have lost us money (given that other indicators converged). Instead, there's an annoying inexactitude, a focus on signals happening at roughly the same time, and an apparent ignoring of signals that may not have worked. Without more examples, the reader is left with the work of determining whether these signals would have hit the magic sum of 3.

Conclusion: Use with Caution.

TO its credit, even the book warns readers to use this system cautiously, and gives some variations according to your risk tolerance. The bottom line for me, though, is that we can only see that the system seems to work for the (short) selected time period, and the burden is left to us to test whether it has any legs in a very uncertain market that seems to defy many of the rules.

A welcome introduction, however, to the benefits of ETFs, some great websites for tracking overall market conditions and individual ETF performance, and for, perhaps, questioning one's own assumptions about investing. Recommended as a learning tool--as an investment strategy, the jury's still out.