It's Only Money

I am always appalled to see people in positions of responsibility cutting corners, avoiding regulations, and employing any number of methods of cheating in order to fill their own pockets at the expense of those they were meant to protect. So, if you think I am talking about some third world country, or the past earthquake in China where many innocent children were killed in unsafe school buildings, you would be wrong. No, I can only watch what is happening to the U.S. financial system with a growing sense of horror.

I learned a long time ago through exercises in loss protection that systems are designed in such a way that it takes a minimum of two parties in collusion with each other to defeat the security measures. One, or the other, by themselves is not enough - it takes two. So, the more I see how close the regulators and big money in Wall Street, and everywhere else, have grown, the less I feel I can trust them.

I understand that lady justice is blind, and that things within those circles turn very, very slowly. The result is most of the people who got the world into this mess are still making it worse. The same people who demand exorbitant salaries because they have to spend long hours at the helm navigating the ship, now tell us that despite having received their compensation, and their bonuses, they didn’t actually know what was going on. It wasn’t their fault - nobody knew! Since when is incompetence any real excuse? I can just see me trying that one on my employer! Meanwhile, the regulators are busy running around plugging little holes in the dyke as the water rises higher, and higher.

The real problem is people will want to see some accountability within the system, or else it will only be a matter of time before they start to take matters into their own hands. Many may be lying low hoping to eventually invoke the statute of limitations, but I don’t know if you have ever noticed, but if you really, really anger someone, they can take a very long time to forget, if ever! Now I am not inciting riots, or even believe that violence is ever the proper solution, but how much, how far, do they think people are willing to go?

Do the cheaters actually believe they are all that much smarter than everyone else? The crisis is past. Next year will be better. Apparently time in the market is the financial services solution for anything and everything. Given enough of it, all manner of problems can be solved. It sure as hell removes any and all responsibility!

What actually got me on this rant was the notion that it is not where a company is domiciled that is important.  Instead, it is a matter of from whence the income streams originate. By that logic, almost any U.S. company that does business with growing third world countries is a huge investment opportunity. I am even told stock valuations for U.S. companies are favourable these days. The problem as I see it, is, to invest in those companies listed on the U.S. stock exchanges (since they are domiciled there), I have to buy shares in U.S. dollars. Given the time it is going to take for the return of any real confidence in the U.S. dollar (and not just panic buying), why do I want to forfeit much better opportunities? I know there is no shortage of snake-oil salesmen who want us to believe in their product, but me, I’m not buying.

Given the fact I can buy Exchange Traded Funds (another hugely untold story within the traditional financial services industry) in Canadian dollars which provide investment opportunities from all over the world, why would I participate in the current madness involving the currency of the place which was once the greatest exercise in capitalism on the planet? Surely I am not alone when I say, without accountability, I'm not willingly going to hand over any of my hard earned money.  Sorry. Nothing personal - it’s just business. It’s how business used to be, and still should be conducted. After all, the rest of us less-than-powerful people are held accountable for how we spend our, and most especially, other people’s money.

Up, Up, and Away?

To believe that Qualitative Easing will heal the U.S. economy is to fail to comprehend the magnitude of the demographic shift that is taking place.  Qualitative Easing makes it easier for financial institutions to borrow money.  The lack of borrowing is the symptom, rather than the cause of the issue.  The real underlying cause is the shift in the habits of the Baby Boomers from being spenders to becoming savers.  The savings rate in the U.S. took a jump with the drop in stock markets, and more importantly, the price of homes.  The Baby Boomers are a group who are running out of time to prepare for retirement, whatever form that may take. 

I have read much about the maturing of the "me" generation resulting in a surrendering of the need for stuff in favour of basic values.  I don't believe the change is coming from the inside, but rather the outside.  Demographic research shows the peak spending years in a person's life is around the age of fifty.  One half of Baby Boomers reached that point in 2007.  Every passing day results in even more Baby Boomers leaving behind the age of peak spending than those who have not yet done so.

Check out this definition of a Ponzi scheme I lifted from the U.S. Securities and Exchange Commission website. "A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity."

Now, I am not saying what the Federal Reserve is doing is engaging in non-legitimate investment activity, but I think one can begin to see the similarities between the actions of the Fed and those of people engaged in a Ponzi scheme.  I fail to understand how more borrowing is going to solve the current debt crisis.  To me it is not a coincidence that the problems in Japan can be linked to the same demographic shift.  Sure, they made some serious errors in handling their situation, but any resolution can only come when we address the cause rather than attempting to treat the symptoms.

Being raised in the country, I have long been familiar with the saying, "You can lead a horse to water, but you can't make 'em drink".  Flooding financial institutions with cheaper money helps the financial institutions, but says nothing about people's need to borrow.  Still, it will probably take the experts a few months to discern the tea leaves and make any determination as to the effectiveness of QE2, this second round of Qualitative Easing. 

Bottom line for me is I am not participating in this stock market "rally".  The big reaction in the markets smells to me of a short squeeze.  After that, there is no telling how long before the denial turns into disbelief.  When it does, I will be betting against the markets, at least in the shorter term.  My prediction is the markets are going to end up lower than where they are presently.

Going To Pot?

"Stupid is as stupid does", says Forrest Gump.  First, the government blind-sided investors with the reversal of their position on income trusts.  Then, the Alberta provincial government drove energy companies out of the province with punitive increases in royalties. After that the government blocked the sale of MacDonald Dettwiler for (seemingly valid) reasons of national security.  Now our government has stepped in to block the sale of Potash Corporation.  This, while extolling the virtues of a "business friendly" environment.  Do they not understand that foreign investors, like kids, listen to nothing we say and notice everything we do.  After all, the way to tell when all too many politicians are lying is when their lips are moving.

While we can argue whether, or not, we are business friendly, we cannot say we are investment friendly.

Personally, I did not want the BHP Billiton deal to be accepted.  I thought the bid was too low.  I felt BHP was trying to take advantage of the situation and steal a valuable resource at a rock bottom price.  But, it doesn't matter what I think, or necessarily what some government minister thinks.  The only people with a say in the matter should be the share holders.  If, collectively, they didn't think the deal was fair, then it is up to them to say so.

It was abundantly clear that public sentiment was not in favour of this deal.  What bothers me, though, is any government that would make choices that further their own political agenda, regardless of the impact on shareholders and Canada's reputation at large.  I know people will say it doesn't make any difference in the long run, and perhaps it won't.  It isn't this one incident that concerns me, however.  It is the growing trend of saying one thing while actually doing another.

I even appreciate the patriotism that compels people to want to hold onto this valuable Canadian resource.  Whoops, did I say Canadian?  Did anyone point out the fact it is already an American company, with a head office in the U.S.?  Different politicians and labour leaders were quick to point out that other jurisdictions would never allow such an important national resource to be taken over.  My question to them is, "How is that working for their economies?"  Would you rather adopt the Russian economy?  How about the U.S.?  Perhaps any of the European economies, most especially Portugal, Italy, Ireland, Greece, Spain, or the U.K.?  I have to believe one of the most important catalysts to growth in this country has been, and is, foreign investment.

We should all demand governments with vision, one's not afraid to deviate from the herd and stand for real principles and not just follow public opinion of the day.  Not that I believe Canada is the only country to blame.  If the world economy is currently on a downswing, as anybody but those trying to hawk debt would believe, protectionism is surely alive, well, and on the spread.  Do we really want to repeat the mistakes of the past?  As Forrest would say, that would just be stupid!

Newsflash: Canadian GDP Slowing!

At the same time we close the books on the best September for the markets since the Great Depression, we get word that Canadian GDP slowed in July.  Now, I am the first to admit that one month does not a trend make.  What strikes me most, however, is how the two can occur in the news at the same time.  I have been unable to justify to myself, the lofty returns of the TSX since around the time of the "flash crash" back in May.  I was beginning to wonder if everyone knew something I didn't.  Now, the floor that was propelling us upward seems to have dropped away from beneath us.

Imagine my surprise that nobody seemed to take into account that things would slow down after the introduction of the HST in BC and Ontario.  Who would have thought that people would try to spend their money on products and services ahead of the introduction of a new tax, pulling demand forward?  And, who could have predicted the implementation of the new taxes would slow down an already damaged economy?

There's more.  Look at the sectors that slowed the most.  Manufacturing, retail, construction and forestry all posted declines.  Can we guess why?  Could it be the result of problems in the economy of our single largest trading partner to the south?  Who could have predicted that?

How big are these sectors when it comes to providing Canadians with employment?  What does that say about our economy going forward, the taxes our governments were planning on collecting to cover deficits?

Anyone who has heard of a Price/Earnings ratio knows the relationship between growth and price.  The price of a share divided by the earnings per share gives us a number.  Said another way, the earnings per share multiplied by that number results in a price for a share.  That multiplier number is directly correlated to the growth rate of the company.  The faster the company is growing, the bigger the multiplier.  The growth rates of companies in Canada are usually highly correlated to the growth rate of the country's GDP.  If our countries GDP is slowing, the multiplier number used to determine the price of companies' shares will shrink.  When prices drop, the market contracts.

It would appear the market is headed in one direction while the economy may be headed in the opposite one.  The situation has to resolve itself, as the two can not continue to oppose one another for very long.  My guess is it ends up poorly for the market.  If we had only known!

The Case For Technical Analysis

In my last post I referred to the amount of money that has come out of equities since the spring.  Apart from those who have left for good, are the remainder doing the right thing?  How will they know when to return?

I am a big believer that we should not invest in anything we don't understand.  Anyone who says they understand this market, other than at a mile-high macro level, is not telling the truth.  Sure, there are people who say it is like the markets during the great depression, or similar to previous major recessions, or like any other recovery - but slower.  The truth is, they are simply speculating.  Some are just outright lying.

Having said what I did about not investing in anything we don't understand, I am going to contradict myself and tell you I have money in this market.  While I don't understand this market, I do know a little about technical analysis.  The beauty of technical analysis, if we can call it that, is we are not required to understand the fundamentals.  Good thing, because fundamental analysis for this current market went out the window a while ago.

I have a methodology I use for valuing companies, but find that information all but useless, currently.  That will not always remain the case, but for now I will rely on technical analysis.  In some ways, it reminds me of the tech wreck almost ten years ago.  I remember finding good companies, yet invariably, only a couple of days later their stock price was lower than ever.  Technical analysis works better on groups than on individual companies.  So, for now, I have switched to Exchange Traded Funds (ETF's).  I have shortened my time horizons since the volatility of this market is high.  Trades tend to be days and weeks, rather than months.  I also risk less by holding smaller positions.

For the people that know little about technical analysis, I think they are doing the right thing by getting out.  The trick becomes knowing when to get back in.  Again, I use technical analysis to provide me with a signal to return.  However, there is another way.  When the stock price of a good company like Research In Motion drops, despite having pretty good fundamentals, I find the best thing to do is to take a "show me" attitude.  I give the stock a couple of quarters for the price to perform consistent with the fundamental valuation.  After the two become more predictable, it could be time to test the waters again.

The "experts" say the problem with leaving the market is knowing when to get back in.  I applaud the people who stop shopping when they can no longer tell a sale price from an exorbitant one.  Why would anybody want to go shopping when all of the price tags are meaningless?  I wish I had a nickel for every time I have heard that you can't time the market.  To my mind, all it really takes is a little common sense.

Crisis Equals Opportunity

Billions and billions of dollars have come out of equities so far this year.  It started around the time of the May "flash crash".  If you have watched the volumes of transactions, you know it is more than people just taking the summer off.  The question is, are they coming back?

If I knew very little about the markets, I would not be tempted to return.  The institutional managers seem to have an unfair advantage in a system we could nicely label as rigged, at worst, corrupt.  The markets seem to have degenerated into a wild west show, where the powerful trump all.

So, while I was watching a David Suzuki rerun recently, I was struck by something his daughter said.  Having heard her father continually rail against the people and corporations that show complete disregard for the environment for so long, she had grown to believe it was too late to turn things around. She felt there was nothing she could do.  After all, they wouldn't listen to someone as well known as her father.

That is, until she became better educated about what her father was saying and learned where the opportunities for improvement lay for her.

Now, I'm no David Suzuki, but I can see how people listening to me, and people like me, could get the wrong idea.  Yes, there are a lot of things wrong with the stock markets and the financial institutions of the day.  However, I do not want to give people the idea that we are all playing a mug's game, that we are at the mercy of their system.  Do I want to give up on a potential income source?  Should I buy real estate instead of REIT's?  Should I hide in bonds and money market accounts?  Should I just stash my cash under the mattress?  Am I going to wait for the government to rescue me?  Should I just rely on my spouse to get us through it?  Hell no! 

I believe the expression is, "You can run, but you can't hide!"  I have already hinted at what I think the solution is.  Learn what works for you.  Get educated.  Start small, start smart.  Make continuous improvements.  Apply that experience to potentially new and better opportunities.  There are no short cuts.  We all have to pay our dues.  Nobody in this world can do a better job looking after your money than you can with a little hustle, and bit of common sense.

The day I walk away from the opportunities the stock markets provide is the day I run out of hope.  Don't give in to learned helplessness.  All too many of those who have given up will never return and will deny themselves of the opportunities ahead.  Instead, when the time comes, be brilliant, not afraid. 

Have you had it?  Are you ready to cash in your chips?

I have been bearish on the TSX for some time.  Even so, I want to share what I would call, a recent sell signal.  Before I do, I want to reiterate that I am not a professional, and as such can not give the reader advice.  But, then, I don't mind sharing what I am doing, either.

I have circled the RSI (relative strength indicator) oscillator (please see http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators ) if you require more information on RSI) at the point where it reached the 70-line.  That is the point I would sell half of any long position I owned.  Beneath the chart, at the bottom, I have included the Stochastics oscillator.  Notice the second peak where the green line touches it.  That is the point in time I would sell the remainder of any long position I owned. Also, notice the divergence between the slope of the green line above the Stochastics indicator, and the slope of the lines under the price candles on the chart, and the RSI at the top.  This divergence often occurs just prior to a trend reversal. 

In my own case, I am using Exchange Traded Funds (ETF's), since I am concerned about the lack of regard for fundamentals in the current market.  A sell signal such as this causes me to sell the ETF's which make money as the market goes higher, and buy the inverse ETF's which make money as the market goes lower.  While there are risks to using leveraged ETF's, I prefer them for short-term trends and use the Horizons' 2 times ETF's.  That means they are designed to return twice the daily amount of the underlying index, or commodity.  In this particular case I am talking about the Horizons BetaPro TSX ETF's, ticker symbols HXU (long), and HXD (inverse).

My current target is the point at which the RSI reaches the 30-line, again.

Only In Canada, Eh?

Previously, I had asked my broker about a particular transaction I had entered. Then, I heard something about the Alpha stock exchange on BNN. That led me to this article in the Globe and Mail. http://www.theglobeandmail.com/globe-investor/banks-face-probe-for-directing-stock-trades/article1694665/ . After doing more research I discovered we should not place a market order before trading begins. Never. Always use a limit order.

Some people will say, "Well, duh!?!" But what I don't think people realize is the opening price on the two exchanges, Alpha and TSX, are not the same. Again, not a huge surprise. In my case they were different by more than what I would have imagined. What I didn't know, is that we are not entitled to the best price between exchanges! For a market order, we get the opening price for whatever exchange our transaction is executed on.

Despite what I have managed to find out, nobody has explained to me how my transaction ends up on Alpha, or the TSX. Apparently, computers are to blame. Anyway, instead of submitting a market order, the advice I have been given is to enter a limit order. So here's the rub. If the price on the exchange which the transaction is being processed is outside the requested limit, nobody has guaranteed me that the order will be filled, even though the other exchange may have a price within the limit (unless of course, the price on the exchange which received the order comes back within the limit). I have no idea, either, how long it might take the two exchange prices to sync up during the day. Perhaps somebody reading this might have the answers.

If you want to get an Alpha quote, you can go to http://www.alphatradingsystems.ca/ and enter the ticker symbol. N.B. they are not real-time quotes.

Good luck!!

The Trend Is Our Friend

I don't often look at monthly charts, so when I saw this one, I was completely taken by the simplicity of what I was seeing. This is a chart of the iShares TSX 60 Index ETF (XIU) from the bottom in 2003 until today. If you look closely at it, (click on it for a better view) you can see the brown line that roughly follows the price bars. It is something close to the 40-week moving average, or 200-day moving average as it is usually referred to.

I wish I had a nickel for every time I have heard how we cannot time the markets. With three buys, and 3 sells over the period of approximately eight years, the average annual return comes to at least 13%, assuming we only participate in the up legs. Today, we have inverse ETF's which would allow us to play the down legs, making the average annual return approximately 17%. Yet, it gets even better than that. If we used the leveraged ETF's when they were introduced by Horizons a couple of years ago, the returns come to a whopping average annual return of 22%.

People will say, "Yes, but that is in hindsight." That is why I drew the trend lines in red. There is no hindsight required. Stick to the trend until it breaks, then either wait for the next uptrend, or follow the ensuing downtrend.

I am intrigued by those who have adopted a passive investing style in order to minimize trading expenses. Doing so will give a return very close to those of the market. I prefer the simple method shown here instead, for one major reason. I believe we are entering a period of higher volatility, with very little overall return in the long run. I think we should be able to make even better returns, relative to the market, than what this basic method demonstrates. Still, it is a powerful example of why I don't believe we should be happy with market returns, let alone less than market returns. I am not saying we should expect these kinds of returns going forward. I just want to outperform the market.

Random Walk - Not!

My assertion was that machines, with the proper programming, could be taught to think for themselves. This was many years ago. Today we refer to it as Artificial Intelligence. Then, the idea did not go over well. At first I didn't understand people's reaction to what seemed like a perfectly logical premise. Later, I realized that people do not like to by categorized, classified, and called predictable.

For decades, many have believed there was no pattern to the way in which prices moved in the stock markets. After all, people aren't that predictable! It is a belief that is still popular today. The financial services industry promotes the idea in order to convince customers to buy into the market and hold for the long term. Of course, if the markets moved in a truly random fashion, it would not make sense that they would have had an upward bias up until this point. Without that bias, buy and hold could not work.

I don't have any difficulty in believing there is a pattern. "To every thing there is a season", so says the Bible (ecclesiastes 3:1). The question is, what does this pattern look like? I tend to favour the Elliott Wave Principle. In my previous post I described some similarities with a couple of other theories. It would seem to have some predictive capability. Some would say it is too vague and imprecise to be of real value. Perhaps the fit is between what we want to find and how the price patterns can be used to portray the theory. After the fact, practically anyone can identify the wave patterns.

Perhaps it is more art than science. I am reminded of stories in "Blink" by Malcolm Gladwell about how we think. There are things we know which we are unable to articulate in words. Until we have a better explanation for how the theory works, it seems, for many, it will remain just a theory.

As for me, it would seem to be the best predictor of market direction. While even the most highly trained and experienced Elliott Wave analysts often seem to get the exact timing wrong (my experience), their ability to predict a market outcome is uncanny to me. What they are currently saying is the markets are headed much lower. That doesn't make me want to completely sit on the sidelines, but it does make me more cautious than usual. If all else is counted as equal - a fifty-fifty chance of the market going up, or down - I am going to give more weight to the Elliott Wave theory. I would rather be wrong and hold onto my life savings, than be wrong having lost them! That is one walk I am not willing to take.

Of Wind & Waves

The underlying premise of the "buy and hold" philosophy has always been the belief that, over time, the market trends upwards. Robert Prechter, of Elliott Wave International, says that may have been the case up until recently, but is no longer. At least not for the next few years.

The Elliott Wave theory is supported by a number of other theories. Just as personality research tends to support the idea there are four basic human personality types, the Elliott Wave is not the only theory where new products, ideas, and services gain acceptance in three phases. Think S-curve in product cycles, or audiences in change management.

Early adopters are first. These people are the least invested in older products or ideas. They are quick to adopt the new behaviour, product, or service. Then comes, what I call, the herd. After a certain critical mass develops, the herd - the largest segment of the three - begins to adopt the new change. This is the period of greatest change. Finally, the third group, the resistors, begin to convert, usually because of obsolescence in the old ways.

This same process can be detected in the way people move in and out of the stock market. The chart (click on it for a larger version) shows a recent example in the S&P 500 index. According to the Elliott Wave theory, the wave with the five segments indicates a downward trend to the market. The three segment ABC wave is counter to the market direction.

Is Mr. Prechter correct? If so, we are in the process of a correction of generational proportions. "It is an ill wind that blows no good", said John Heywood. Perhaps some of the confusion as to market direction we are currently experiencing is caused by a different wind - the wind of change. Need more information? Check out the website at http://www.elliottwave.com/ .

Rating Agencies

Rating agencies were back in the news last week. The Finance Minister of Canada wasn't too happy that Standard & Poors downgraded Ireland's debt. As quoted in the Globe and Mail, “You know, the rating agencies, quite frankly, were part of the problem that caused the crisis,” Mr. Flaherty said. “I’m not a big fan of Moody’s and Standard & Poor’s and so on when they start to pontificate on certain issues.”

Neither should you. The system of ratings is a deeply flawed system. Ratings are paid for by the debt issuers. In order to do a bond issue, I have to pay the rating agency to provide a rating for it. Of course, the better the rating I get for my bond, for example, the more demand I generate. There is too much incentive for me to "bonus" the rating agency in return for the rating I desire.

In defense of the rating agencies, one could argue that leading up to the recent market crash they were not able to fully comprehend the nuances of modern derivative products. To that, I would say, that didn't stop them from issuing a rating and pocketing the cheque for doing so. They say the ratings are "point in time", meaning as factors change, so do the ratings. So why didn't they? Incompetence is a poor defense of ignorance!

To make matters worse, there is no regulatory agency responsible for ratings. Instead, products need to be rated by two of the three large "quasi-regulatory" companies. The biggest firms hire their own ratings staff. Where do you think the best talent goes - to ratings agencies like Standard & Poors, or the big, high paying firms?

The other argument used to defend the actions of ratings agencies has been customers should never invest in things they don't understand. I couldn't agree more. So what is the purpose of the rating?!?

Again, it is the little guy who doesn't have access to a research staff who is most at risk. This is a case of damned if you don't, and damned if you do! I can't tell you what to do, but I ignore ratings. I do my homework. I stay away from derivatives and products we are not meant to understand. I invest in bonds using bond ETF's. I compare the advice of a really, really, good advisor to what I think I should do. Lastly, I listen to my gut. Even when everybody else is doing it, you can still end up losing your shirt!

Believing Is Seeing

Have you ever heard another person describing an event which you attended? Did they describe it the way you remembered it? Probably not. Why the difference? When two people focus on different aspects of the same event, it is like they are seeing two separate events. If I am frustrated by my inability to connect with an old friend, and at the same time you were having the time of your life dancing, we will both remember the event differently because of what we were focused on at the time.

Or, perhaps we both witnessed the same thing, but our perceptions of what we just saw were different. You may have thought the guy was, perhaps, distinguished. I, on the other hand, may have thought he was way too big on himself.

This is what happened to the markets, on Wednesday. American new home starts were near a record low, and oil inventories were higher than expected. Did the markets go lower? Yes, at the start, but then they quickly rebounded. Buyers came to the rescue seeing their opportunity to buy things on sale, rather than selling their losers.

Events do not drive the markets - perceptions do. Sure, events can generate a reaction in the markets, but the market trend is set by the overall perception of market participants. Perception is determined by sentiment. When we believe it we see it. If I am feeling like the luckiest person on the planet, it is because I have numerous references to back it up. I choose the references, and I choose what they mean. In any given day the media sees the markets are up, so they look for the good news that caused it. They wouldn't even begin to look for the bad news that explains what just happened! Likewise for bad days.

As goes the optimism or the pessimism of the herd, so goes the markets.

My Agenda

I am searching for a better method of making money from the stock markets - the Toronto Stock Exchange in particular. Notice I did not say 'invest' in the stock markets. Right away we can debate the difference between investing and trading. I don't like using either word because of all the preconceived notions each invokes. Investors have a long time horizon; traders do not. Says who?!? Investors are loyal; traders might just as well be spelled 'traitors'. Who cares?!?

If you get your information from the Financial Services industry, you are in a lot of trouble. Buy and Hold is a marketing strategy - not an investing (there's that word again!) strategy. There is no shortage of information, and opinions on that information, when it comes to stocks, stock markets and strategies. The real key is to identify the useful information. Too much of what we hear in the media is just a smoke-screen. Too much of what we get from advisors is what their company wants us to hear. This goes double for small clients. Ask your advisor if they are rich. If the answer is no, then ask the question, "Why not?" Isn't that the advice we are seeking?

I don't claim to have all the answers. What I have learned is different times call for different measures. It took me some time to realize that in the current market volatility I needed to shorten my time horizon, and reduce the size of my positions. One method will not work all of the time. I can pretty much guarantee the top ten mutual funds from the past year will not be five years from now. Situations change - we need to change with them. Today, a passive investing strategy using Exchange Traded Funds (ETF's) is working great, but I wouldn't recommend starting one today. The risk of the market going lower from here is a lot greater than the chances of it going much higher. Even if I am wrong, how much can you lose? I plowed a pile of money into a mutual fund in early 1998. I proceeded to lose about 25 percent of my funds by the end of the summer. Nobody warned me the market was about to correct!

As a matter of disclosure, I should tell you about 80 percent of my personal portfolio is currently in inverse ETF's (the ones that make money as the market goes down). I do not recommend betting on the down-side unless one is actively managing their portfolio every day. Despite what the advisors say, there are better times than others to enter the market, and this is not the time. I am reminded of a Dilbert cartoon I read on the weekend. Perhaps you saw it. Dilbert is in a meeting with his manager and the product safety engineer. The engineer is completely wrapped in bandages from head to toe - including their face. The manager asks for an opinion on the company's product. The reply is totally muffled, so the manager turns to Dilbert and asks, "Did that sound like SHIP to you?"

What I am suggesting is despite the industry's desire to get more people into their funds, the stock market is not ship-shape, at the moment. My personal agenda is a little different from that of the financial services industry in that I want to make more than what they say is "realistic". More than that, I actually want to help as many others as possible to do the same.