Thursday, January 31, 2013

The January Effect

In this video, Jim Cramer explains the rapid rise in market indexes this January.  He thinks it has largely been caused by fund managers trying to keep up with the market averages.  I would agree.  There has also been much said in the media about the amount of cash on the sidelines, and the return of retail investors to the markets.  Don't be fooled, my research still shows a declining average volume for the major markets, and mostly, less than average trading volumes.

The Coyote Affect
The media has made much of these "historic" advances.  Myself, when I see the markets disregard the drop we saw in U.S. GDP numbers on Wednesday, I begin to watch for the coyote affect (ala the Roadrunner Show, when the coyote suddenly finds himself walking on thin air with nowhere to go but down).

Cramer talks about the potential "buying panic" in technology stocks caused by good earnings reports.  What he doesn't say is the earnings estimates have been set relatively low, and the seasonality clock has already run out for technology stocks for the beginning of this year.  

Caution Required
Me, I use charts to tell me where the market is at, and what I am seeing at every level is a market that is largely over-bought, for all the reasons Cramer mentioned.  Unlike Cramer, I take my cue from the charts, and while the markets may continue higher from here, they are signalling a cautious approach in the short term.  He may think we are in for a brief pause, but only time, and the charts, will tell for sure.

What charts, if any, do you use?

Thursday, January 24, 2013

The World Is Not Flat

Jack Be Nimble
Below is an older video from Phil Town's blog .  The arrow on the chart beneath it shows us the point in time at which Phil was suggesting people should get out of the market.  When we see the fund managers getting out, we can out-run them because it takes them weeks to adjust their holdings, and us, as little as a day.

"Going Down!"
Being "old school", Manny Schiffres doesn't know how to determine what a bottom looks like, so doesn't want to take the chance of getting back in at the wrong time.  To Manny, quality is "king".  The trouble is, and as the graph shows, everything goes lower in a time of crisis.  Even Maria is convinced taking the long view is the correct approach.  I doubt that today, even after what happened, she will have changed her mind.    The same can be said of most of the people who lost everything in the tech wreck at the beginning of the 2000's.

Phil Town on CNBC's Closing Bell with Maria Bartiromo from Phil Town on Vimeo.

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Save Your Money
Yes, the market has come back, but just imagine if you knew how to time the market like Phil, and had practically all of your cash after the market stopped dropping!  Think about how much money got left on the table by riding the market down and not getting out.

Investing and/or Marketing
The surge in world stock markets over the past couple of decades has been caused, primarily, by the spending of the Baby Boomers.  To think that is going to be the case for the next couple of decades is to have your head in the sand.  Demographics are showing us that the Baby Boomer spending peaked (perhaps, not coincidentally) in 2007.  Buy and Hold is, and always has been, a marketing strategy, not an investing strategy.  We need to understand the difference.

"You Trader, You!"
I love how Maria calls Phil a Trader (as opposed to an Investor), as if being a Trader was something bad!  We need to educate people that being a good trader is smart, not bad.  It took a while to get the academics of the day to believe the Earth is not, actually, flat.  There are a few who still believe it, today. I can only hope it doesn't take so long to convince people to learn how to avoid market disasters like the last two we went through because the next one will come soon enough.

If people can learn to be good traders, does that mean they are merely lucky?  How many people do you know who, despite working very hard, others would say they were very lucky in life?  What do you think?

Tuesday, January 22, 2013

Questions for your Financial Advisor

Think Again 
In this video, David Kaufman says that the vast majority of advisors put their clients first.  Unfortunately, that is irrelevant since most people cannot tell the ones that do from the ones that don't.  He suggests we ask how the advisor is getting compensated, what future penalties we might incur and how changes to our portfolio represent an improvement to what we had before. Notice the last question for Kaufman about why we do not have a stronger standard for care in Canada.  If you believe what we have is good enough, think again.  Take the following as an example.

Be Educated
You would think we should be able to take people at their word, but the reality is we cannot afford to!  Nobody is going to take care of our money if we don't.  Please, learn how, if you don't know enough already, and please learn more even if you do!

Who's Counting?
In my own family, my Aunt switched advisors at one point, and her new advisor replaced everything in her portfolio.  The only reason, in my humble opinion, for doing so would be to have all the fees and commissions go to the new advisor.  I understand they have to get paid, but we are the only ones, currently,  who care enough to actually do anything about any abuse.  Of course there is the legal system, assuming we have any funds left and sufficient time to wait.

Anyone have stories of their own?  What did you learn from your experience?

Friday, January 4, 2013

December Returns

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Over, But Not Gone
When it comes to New Year's resolutions, this year's replace last year's.  Too bad we can't say the same for the equity markets.  Although we are turning the page on the calendar, the world economy brings along much unresolved baggage.  The pop in the markets this past week has many cooing about what a good omen it is for the coming year.  Never mind the fact we still haven't solved the problems of 2012 - Europe in general, out-of-control spending in the U.S., large inventories in China, and one that hasn't got much media attention -  Japan's bond bubble.  If we can Ignore all of that, though, 2013 has the potential of being a swell time for investors!?!

Looking Back
More importantly, the end of the year is a good time to reflect on what went right and what went wrong.  I will say I was not active enough and/or spent too much time out of the market, but not making money is better than losing it.  I spent long hours looking for a better methodology in dealing with such a volatile market, and am happy to say I feel I have accomplished just that.  More on that in future posts.

Changed My Thinking
I also changed my thinking on something I had mentioned in an earlier blog.  Previously, I did much careful analysis in timing my entry points with the use of charts.  When I saw an opportunity I was quick to take a full position.  That approach cost me, a couple of times, last year.  I am now of the opinion the right approach is to take half of my position, then wait for a pull-back to fill the rest.  I still like my original approach, but my tendency is to bail too early when larger amounts are involved.  My newer approach causes me less stress! 

Please, and Thank You
If you are a regular reader of my blog, and even if you aren't, please feel free to ask me questions, challenge me, call me out, whatever helps you and, hopefully, others to deal with these markets.  I don't have all the answers, I make my share of mistakes, but love to share insights that come from 20 years with money in the stock market.  I am not a financial advisor, but I do want to challenge the conventional financial advice in order to help anyone interested to increase the returns of their equity portfolio.  

May you enjoy a prosperous New Year.  Hope to hear from you in 2013.       

24 month return for TSX @ December 31, 2012 =     -6.89 percent
Return for Basic Timing Model Using XIU =             13.75 percent
Return for Advanced Timing Model =                       -4.36 percent
Money for charity =                                               $0.00