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9 comments:
Roger,
Well said. Your thinking very much mirrors how I deal with clients in my advisor practice.
However, I try to be even more focused on the fact that, whether a client manages his own money or have a pro do it, he needs to have a clearly defined exit strategy. Hopefully, such a strategy will keep him invested during periods of short-term panic selling, while protecting his portfolio from serious damage during a bear market.
Off the topic, I liked your recent post on Eastern Europe and have referenced it in my blog at: http://thewallstreetbully.blogspot.com/2007/06/eastern-europe-rising-star.html
Ulli…
Good advise again Roger.
Here is a recent article and chart from Fidelity on how earnings most often correlate to market performance. It might help to put your prospective client at ease:
http://personal.fidelity.com/myfidelity/atn/cover.shtml.cvsr
Good video Roger.
In my experience spotting market bottoms (give or take a few weeks), especially selling climaxs are always easiers than spotting market tops. The question isn't so much having the rocks to buy, but more of having the firepower/capital to buy after a big selloff. It presumes you have enough cash to put to work when selling is out of control.
Its amazing - there are literally dozens of technical and sentiment indicators available that can accurately indicate high probability market bottoms (I'll qualify that by saying "short/intermediate term" market bottoms). Knowing when to sell is the hard part imo, knowing when to buy is relatively easy.
agree 100% on the idea of an exit strategy.
firepower? good point. I would say that only a couple of trades in a diversified portfolio can make big changes. buying 3-4% (not an unrealistic cash position) into a double long fund would really have a big impact on how a portfolio behaved.
The combination of timing and guts plays a role in there somewhere, IMO.
Using an apparent procrastinator as an example for your post today was a good way to set up your point. Being decisive using cumulative experience has (usually) served me and I am sure many others reading this blog well. Sometimes, being decisive means doing nothing.
In real estate, I always tell buyers, whether they are rookies or a set of attornies (at times worse than rookies), that they need to know how they are going to sell real estate before they buy it. This is what makes the present environment so attractive for astute real estate investors. Buying when there is blood in the streets applies to investment classes other than stocks. Or so my cumulative experience of thirty five years tells me.
What’s the old saying? “When life hands you a lemon, make lemonade!
Whipsaws, partially out of and fully back in the market again, are a lemony price one must pay
to avoid serious draw downs. But what about lemonade?
Dan Sullivan (The Chartist) uses his cash moves to reposition his portfolio, when he pops back in. It helps that his investing style is chasing relative strength. I’ve been thinking about using the Sullivan RS technique, after the next plunge. With all the stock screeners available, it should be a doable thing.
An there’s always the easy way, after the plunge, position partially into Ken Heebner’s CGM Focus fund. After the excitement dies down, I’m back to my boring old positions, high RS gives me vertigo.
Models this week:
Timing Model = 2.5
90% long, 10% cash
Global Allocation of long positions
MSCI EAFE Index 40%
MCCI Emerging Markets Index 30%
Russell 3000 Index - U.S. 30%
Top Ranked U.S. Sectors
U.S. Oil & Gas 3.5
U.S. Oil Equipment, Services & Distribution 3.5
U.S. Basic Materials 3.0
U.S. Telecommunications 3.0
U.S. Utilities 3.0
U.S. Mobile Telecommunications 2.5
Composite Internet 2.0
U.S. Real Estate 2.0
Top Ranked Intl. ETFs
MSCI Malaysia Index Fund 3
MSCI Germany Index Fund 3
S&P Latin America 40 Index Fund 3
MSCI Sweden Index Fund 3
MSCI Netherlands Index Fund 3
MSCI Singapore Index Fund 3
MSCI Brazil Index Fund 3
MSCI Mexico Index Fund 3
FTSE/Xinhua China 25 Index Fund 3
My timing model ticked down a half point to 2.5 putting me at 90% long. I'll sell a couple positions tomorrow and I'm going to hold onto my double short hedge positions for a while. This market looks pretty scary with so many sectors technically overbought.
Tom K, how did you get data for this week? When I go on Yahoo’s Historical Prices pages, I mostly get:
“Historical quote data is unavailable for the specified date range.” Yahoo’s data has been down, for most but not all stocks, for about a week.
I did it on friday and didn't have a problem.
Yahoo can be irritating - from time to time data isn't available for some reason.
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