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10 comments:
what i would really like to know is what is YOUR exit strategy?
Correct me if i am wrong, but you believe in having a well-constructed and diversified portfolio. You shift your allocations between portfolio parts based on your macro and fundamental analysis. You take profits if things run too far too fast. You stay mostly invested through pull-backs because the market has been up 72% of the time historically and always rebounds after a correction.
That's all good... in fact, i would argue that it is excellent.
But here is where you lose me. let us say that our markets have a 50%+ drop... i do not see it happening, but for the sake of argument.
You say we have plenty of time to exit and we can do so after the first 10% portion of the drop... I concur. But you also say that a 30% drop is a normal correction within historical norms. Implying, and maybe i am wrong, that you would stay mostly invested through that as well.
So, if you are going to stay mostly invested through the first 10% portion of the drop and through the first 30% portion then when would you exit if we indeed have a 50% correction? after a 40% drop? after 50% drop? never exit and ride it out?
i am not being sarcastic here. I admit to over-trading in my attempts to preserve capital. I would like to trade less, but i do not plan on following a "buy and hold" strategy. I have been shifting recently towards using the 50 day MA as my guideline to whether i should be long, short or on the sidelines. If i can understand your exit strategy, i may be able to incorporate it into my portfolio.
thanks.
My point about 30% being normal, one I have made before, is that if an investor takes no action due to whatever reason it not quite a death blow.
In general terms, the market closes below its 200 DMA, probably for a couple of days, i would do something to reduce exposure. The something depends on exactly what is going on at the time; either sell a little stock or add to the double short. But the first trade does not radically change the portfolio.
A couple of weeks later, give or take, if things have not improved, make a second trade, either selling stock or buying more double short or both.
Double short funds allow for quickly taking a portfolio away from looking like the market with out having to place 30 trades.
This can be gradual as bear markets rollover slowly for several months before any serious damage and I am not worried about being in while the market is still down a little.
Further down a lot happens so rarely that I do not want to over react by selling too much when the market is down 7%.
Markets often turn very fast as we saw last summer. I am willing to lag as a by product of caution but not willing to miss as a by product of caution.
The double short funds hedge more and more as the market goes down setting up the possibility of fewer sell orders.
When the market goes back above its 200 DMA I would wade back in slowly.
Roger,
Thanks for your sound comments and time you keep putting in. Being a dog owner myself I got a kick out of the "All done" comment.
Take care,
JM
Thanks Roger for the feedback, much appreciated.
Looks like the Buckeyes are about to bow out of the dance.
Go Badgers!!! Go Big Red!!!
Doh!!!
what a comeback!!!
http://stockcharts.com/h-sc/ui?s=
$CPC&p=D&yr=3&mn=0&dy=
0&id=p32648485596
this is the putcall ratio 13ema.
...and this may be a record high back to 1995...if anyone has the historical data to verify...i've also heard that the rydex asset ratio is seeing more bear dollars than bull which is supposably extremely unusual.These sentiment indicators argue for a bottom being carved out.
If I may make an editorial...roger I appreciate your commentary on roles certain alternative type asset classes can have in a portfolio but I would prefer that you do not reference any specific person unless you have enough information to critique that person. Yes, i know that you do so in the context of not endorsing. So, fwiw, i'll give my own critique of the book by perry bryant on high dividend stocks. It is exactly what I thought it would be..a total advertisement for his advisory services. The blue print for the do it yourselfer is non existent, even though one review at amazon suggests differently. High dividend vehicles have shown very impressive capital appreciation and I have alot of respect for the risk of these vehicles plummetting. It's a cinch to find the high yield, but how to handle the risk of stock price is another matter. This is a process I would be interested in Roger discussing in the future. Rogers shares quite a bit. Not all magicians are so willing.
Timing Model = 1.0
70% long, 30% cash
Global allocation of long positions
MSCI EAFE Index 30%
MCCI Emerging Markets Index 30%
Russell 3000 Index - U.S. 40%
U.S. Sector Ranks
U.S. Real Estate 5.5
Mid Cap Value 5.5
U.S. Basic Materials 5.5
U.S. Leisure Goods 4.5
U.S. Utilities 4.5
Precious Metals 2.5
U.S. Oil Equipment, Services & Distribution 2.0
U.S. Telecommunications 2.0
Intl. ETF ranks
MSCI Malaysia Index Fund 3
MSCI Singapore Index Fund 3
MSCI Australia Index Fund 3
MSCI Sweden Index Fund 2
MSCI Germany Index Fund 2
MSCI Mexico Index Fund 2
FTSE/Xinhua China 25 Index Fund 2
MSCI Spain Index Fund 2
MSCI Pacific ex-Japan Index Fund 2
MSCI Austria Index Fund 2
MSCI Netherlands Index Fund 2
Top Asset Classes and Regions
MSCI Pacific Free ex-Japan Index 3.0
FTSE/Xinhua China 25 Index 3.0
S&P Latin America 40 Index 2.0
MSCI Emerging Markets Index 2.0
Silver 100% 2.0
MSCI European Monetary Union Index 2.0
What a difference a week makes. My guess is we haven't hit bottom yet but I'm feeling more bullish after reviewing Goefert's intermediate term sentiment models - 2 of his 4 are in OS territory. The other two are cycling down but are still quite a ways from signaling excessive pessimism.
Indeed, we need to identify dramatic structural risks if we choose to be ultra-bears. i can think of a few serious risks, but i don't see them as likely.
i'm still in cash. the big nightmare scenarios involve devaluation of cash, so perhaps i'm not defensive enough. it'll have to do.
could you amplify on Friday mornings post about UKW and 4% yield on both $5K in one and cash in the other.
i'm not sure where to leave the reply about UKW and 4% so I'll leave it here.
all the leveraged ETF (long and short) use futures contracts and so own mostly treasury bills that pay interest after paying the fee. Owning one of these funds should capture whatever effect it is going after plus interest, roughly 4% these days.
The money market at most brokerage firms also yields somewhere in the fours, I believe.
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