myfinancialmarket.com

First some numbers for the day: As of February 19th, 2009, the DOW is down -14.47 % for the year (having Bank of America, General Motors, and Citigroup, along with General Electric sure hasn’t helped the DOW this year and last).

When talking about an Allocation plan, this is achieved in at least two ways. The first method relates to the percentage of your investment dollars that you choose to have in the overall Market, with the remainder being in a money market of CD account. The second method assumes you are always invested in the Market 100% and with diversification of Investments in Stocks, Mutual Funds, Exchange Traded Funds (ETF’s), Bonds, Options etc., you allocate a certain percentage of your investment dollars to each.

This note will talk about an Allocation approach along the lines of the second method (except allowing some fixed income investments), in particular for this note the investment is done for you by what are called Target Funds. These are Mutual Funds in which the fund company has establish a group of Target Funds identified to a specific year, say Target 2050 for example. If 2050 is your target date for retirement, the fund company will initially be aggressive in their investments and as you approach your retirement age, the fund company will change the mix of investments, adding more fixed income to the mix in order to be more conservative. These type of funds are being offered now in 401K type programs for investors who wish to have their investment exposure amount automatically selected for them without getting involved in trying to decide which mutual fund to buy on their own. Usually these Target Funds are a group of funds already offered by the underlying fund company and the Target manager just picks from these funds. The big Target Fund companies are Fidelity Investments, Vanguard, and T. Rowe Price. There are other Target funds, but these are considered the biggest.

Using Fidelity as an example, they have Target Freedom 20xx where xx can be from 00 to 50, thus the most agressive would be Freedom 2050 and the least aggressive would be 2000. The earliest dated funds become even more conservative as time goes on and eventually merge into an Income Fund which still maintains about 20% in stocks. As expected the Fidelity Freedom’s 11 Target funds had performances in 2008 that matched their Target dates with early Target Funds, which are conservative, showing less loss than the later, more aggressive, Target years. Freedom 2050, the highest risk fund, lost -40.61% in 2008, whereas the Freedom Income Fund lost -12.37% last year. The other 9 funds varied inbetween these values.

An investor can do a secondary allocation here as well in addition to the allocations by the mutual fund company. For example even though a future retirement may be out there at 2050, an investor may opt for a Target fund that is 2030. Again this decision would be along the lines of investing in something you can sleep comfortable with and not anguish over potential losses of your investment. Again using Fidelity as an example, the Freedom 2030 fund lost less in 2008 than the Freedom 2050, although still a large amount at -36.93%.

Selecting a Target Fund family is somewhat a personal choice as to who you do the most business with. However when I look at performances I see that in both 2007 and 2008 the T. Rowe Price group had several funds near the bottom, although so far this year, they have many near the top with Vanguard holding the current bottom spot.

These Target Funds have some downside and that there may be hidden fees as Target Funds hold other funds so there would be a management fee (hidden in the performance results) on top of management fee. Also an astute investor or financial advisor can likely do much better than these funds.

You also may want to check a neat Asset Allocation calculator at T. Rowe Prices’s web site:

http://individual.troweprice.com/public/Retail/Mutual-Funds/Retirement-Funds

You slide a bar to your age and up comes your asset allocation. For example at the ripe old age of 35, this is 90% stocks, 10% Fixed Income and they suggest investing in their Retirement 2040 fund. (Just a side note here as it has been shown by some studies that holding 10% in Bonds or Bond Funds results in a better long term performance than simply 100% stocks or equity mutual funds, which is why I suspect they came up with this ratio. )

Now at the youthful age of 65, the bar suggests 55% in stocks or mutual funds, 35% in bonds or bond funds, and 10% in money markets or CD’s. The suggest their Retirement 2010 fund in this case. (my side note here is that this kind of market exposure seems to go against an old rule of having your investments in stocks being 100-your age, so this one seems a little high by that rule.)

Okay seems like enough for now on Allocation — Part III coming next.

Don

To Start, here are the Numbers for Feb 17, 2009:

Dow is down -3.79% for the day, -13.97% year-to-date, and this is on top of the -33.8% loss in 2008. It’s been plain Ugly!!

When I started writing this Financial Blog, my thought was one of education into the stock and mutual fund investments for those reading the various postings. Perhaps a few suggestions on Portfolio Diversification, along with some fund suggestions would come forward, that was the original plan — how times have changed! Most everyone has either an IRA, 401K, or 403B type investment - perhaps in addition to a basic brokerage account, thus the desire to know how to make these investments work best for themselves. I think this Blog is still a work in progress, hopefully to continue to help many of you with your own investment decisions.

Here is a little background on the investment philosophy I have been mostly approaching for the stock market. Having studied very long term overall stock and mutual fund performances going back to the 1970’s (not far enough it seems in today’s environment) I decided to become what is called a “Swing Trader” an investor who buys for short term trades (but not day trading). Later I decided to hold a group of funds for at least one year, sort of a “Buy and Hold” process, yet not a a major part of my portfolio. This was sort of hedging your bets as timing the markets can be good, yet there are times when this approach under performs. However with the direction of the markets over the last year being definitely down, I believe Market Timing has finally proven itself to be viable in spite of all the academic studies of the past that suggest otherwise. I think you will see my thread here as I am encouraging you (or your favorite financial advisor) to look at Allocations plan for your portfolio (in or out of the Market, or somewhere in between) as a minimum. If you are lucky, you have a sixth sense for this, if not, then finding a good advisor or developing the needed fundamental and technical kills will surely make a difference in the long run for your nest egg.

I want to eventually get into an Allocation approach that I like for investing, but first I’ll bring up a couple of daily comments I have received from the stock downloading service I receive from Telechart 2000, or TC2000 (http://www.tc2000.com/). They are an online service that provides a data base of stock and/or mutual fund pricing history plus tools for users to come up with their own, or else suggested inputs from subscribers including various trading algorithms.

The first TC2000 comment I will make was in The Worden Report (Wednesday, November 21,2007)

“The Primary Bear Is Here!

Who would have thought the Dow would plunge into a Primary Bear on the day before Thanksgiving (2007) (or any holiday for that matter). The Dow sliced through the level of its own closing low of August, coming to a halt in the mud-puddle about 62 points below the last support level. The SP-500, however, closed about ten points above the abyss, the traditional abode of evil spirits, and in so doing staved off the nebulous moniker, “bear market.” (The Nasdaq Brothers aren’t quite ready for such a big step.)”

Then, more recently, The Worden Report (Wednesday, February 4, 2009)

I , (the author, who is Don Worden) feel I should point out for the lazy guys out there, that if you had merely followed the Primary Trend on the Trend Table below (not displayed here), you would have turned bearish in October 2007 (note: he meant November), by continually following the Primary Trend Designations. You would still be out of the market with no diversions along the way. You could have gone fishing, if that is what you like to do. And you would still be out there–providing a shark didn’t get you.

Well, I suspect few investors (including myself) followed the Don Worden comment above (based on Dow Theory), thus we continue to hold various equity positions along with bonds and cash. The point here is this simple Allocation approach would, if followed, have saved most of us a lot of lost dollars along the investment trails.

I am not quite a fan of an all or nothing approach when it comes to long term investments (and for many investors there are tax issues that are of concern as well). One allocation approach to the TC2000 observation is to start removing yourself from the Market on a timely basis when long term indicators suggest so. This is because indicators tend to whipsaw or turn around just after you made a position adjustment. Thus perhaps selling 10% of your holdings each week or month while the primary trend is down would have been an appropriate approach here, with the intent to follow the long term signal, yet still having enough positions in the market to recover in case the sell signal was false. The converse is true too, that is to move back into equities when conditions of the market are more bullish. Quite often this approach is referred to as “Dollar Cost Averaging.” We cannot predict with a lot of accuracy just where the market is headed today, or any day. This is where dollar cost averaging comes in, that is to make small timely adjustments in case your assumption or estimate was wrong.

In the next posting I’ll begin to introduce a weekly or monthly allocation approach using 4 Market Indicators. To skip ahead a bit, this allocation approach has been out of the market since Sept16th of 2008. I am now mostly following this approach for trading Fidelity Mutual Funds and will begin to purchase new funds when this indicator begins to show positive.

Don

First things first:

The overall stock market, as defined by Vanguard’s S&P 500 index fund has lost -8.14% through the beginning of Valentine’s weekend. Definitely the Second Mouse is still waiting for fresh cheese, while the Early Bird investor is sporting a sling on it’s wing. It is simply hard to say if now is a great time to buy, or to continue waiting in time.

I can only say what I have done since the beginning of the year so as not to suggest I’m offering any advice, but just to describe what I am doing investment wise. As I mentioned in previous Blogs, I ended up the year with a sizable cash position. At the very last day of trading in 2008 I purchased equal amounts of 6 Mutual Funds (see previous Blog) , something I do every year, and hold these funds to the end of the year. I started the year with just a few ETF’s in a trading portfolio, not a hold to the end of year group, mostly bond ETF’s. I now own AGG, LQD, GLD, FXF and CIU ETF’s for my ETF portfolio. Tuesday I will be adding TIP to the ETF portfolio group. This group can expand to 10 ETF’s, so I could and will add more as buy signals appear. The YTD performance is - 0.83% for the ETF model. The 6 Mutual Fund holds on the other hand have lost -6.20% again (yet beating the overall Market) showing the ETF trading group doing better than just holding Mutual Funds.

I also have a stock trading portfolio based on earnings surprises which started the year with 100% cash and had been that way for several months before that. Just two weeks ago, stock TSYS was purchased and on this next Tues., at the market open I’ll be buying CKSW. Keep in mind that these are short term trades, not day trades, and I may sell them after any adverse market action. The performance to date is a postive + 0.7%, which if this portfolio continues this way will beat out the market again.

Bottom line is I’m cautious, yet adding a few positions as I write this.

Don

When starting today’s Blog, I thought of a song from the 1950’s song by a popular group of the time, the Kingston Trio who were well known then, especially in the San Francisco area. The song tells of a man named Charlie who was trapped on Boston’s (what was then known as the) M.T.A. as he didn’t have sufficient change to exit the train. I have taken a lot of liberty in altering the words quite a bit… listen in as they say.

Spoken Words:

…These are the times that try men’s souls. In the course of our nation’s history, the people of this country have invested hard earned money for their future. Today, a new crisis has arisen. The Stock Market has taken away so much of these investments…

(Eight bar guitar, banjo introduction) — now starts the singing.

…Well, let me tell you of the story of a man named Charley on a tragic and fateful day.
He put 10% into his IRA, another amount into his 401K and kissed his wife and family, and went to work for more pay…
Chorus:
Well, did his IRA or 401K ever grow? No, it never returned and its fate is still unknown.

…The definitely modified song is now finished.

It’s that last part of the verse however, “its fate is still unknown.” that faces us all now when trying to figure out just where our economy will go and specificially where our investments are going.

you can find the correct lyrics to M.T.A at http://www.musicsonglyrics.com/K/kingstontriolyrics/kingstontriomtalyrics.htm

Then if you are really curious, here is a uTube video:

http://www.youtube.com/watch?v=3VMSGrY-IlU

When I started writing this blog, the thought was to periodically write about various equity investments - stocks and funds of stocks, describing the various types of investments and which ones are doing well. For many years of investing, there was always a sector to find doing well, whether it be technology, medical, energy, real estate, international, or even gold. Then along came 2008 (and now so far 2009) in which we had a “Perfect Storm” condition — that is to say there were really few harbors to find safety from the economic storm, keeping in mind that even in stormy seas, a submarine is a okay place to be. So it is with the equity markets, everything was sinking — yet there was safety in shorting the markets, either via stocks or ETF’s that did this for you.

Now onto my personal investment style going into 2009. First of all throughout the fall of 2008 as the Market dropped I unloaded many mutual funds which I previously had considered long term holds and decided to go back to my roots as being more of a what is called a “swing” trader - that is to hold stocks or funds for perhaps on the average of slightly less than a month. I would still hold some long term funds, but these would be on the Conservative side, such as Permanent Portfolio (PRPFX) which lost in 2008, yet only about 8%. I’m also holding James Balanced Golden Rainbow (GLRBX) which dropped just over 5% in 2008. On the Moderate side, Oakmark Equity & Income (OAKBX) has been a long term favorite which lost just over 16% last year. Another Moderate Fund hold is FPA Crescent (FPACX), which although considered Moderate did lose about 20% last year. Finally a last Moderate Fund, which had a disappointing loss of over 27% last year is Leuthold Core Investment (LCORX). These combined 5 funds had an average loss of 14.5% last year, not to bad considering the average fund (as defined by the SP500 fund, VFINX) lost over 37% last year.

At the beginning of each year I also buy a group of 6 mutual funds to hold for one year. The screening process starts with mutual funds that are open to new investors and have no load or transaction fee charges. Then the funds have to be rated 4-star or 5-star funds by Morningstar. Then I add a screen which makes a final selection based on a 2-yr performance basis coupled with relative strength compared to other funds in each of the 6 categories. To start 2009 I selected the below 6 mutual funds, keeping in mind that my investment is relative small here and my main reason for this is to educate myself on the overall mutual fund market. Each fund is different in category (Large Cap, Small Cap, etc) plus style (Growth, Value, Blend) from each other. Here they are:

1. Large Cap Value - Amana Income (AMANX)

2. Large Cap Blend - ICON Income Opportunity I (IOCIX)

3. Mid Cap Growth - Needham Aggressive Growth (NEAGX)

4. Mid Cap Value - Ave Maria Rising Dividend (AVEDX) - interesting name

5. Small Cap Value - Intrepid Small Cap (ICMAX)

6. Artisan International Value (ARTKX)

These are not my total investment vehicles, as diversity in investment methods is just as important as diversity in fund categories, such as shown above. I’ll write about Mutual Fund, ETF and stock trading in future blogs.

Don

You may have read about how now is the time to be buying stocks or mutual funds as the Market is nearing it’s lows. This would fall into “The early bird gets the worm” category. The thought is those who are moving cash into equities will be greatly rewarded in future years. This may be the case, yet I can’t help but wonder if the Market has further to go on the downside as we are just beginning to enter into what looks like to many, the potential for a true World Recession. Investors like Warren Buffett can afford to be buying now, as if he loses millions, well he has plenty more to fall back on.

Then there is the investement philosopy that goes along the lines of “The second mouse gets the cheese.”  This mouse avoids the mouse that was trapped trying to get the cheese and is justly rewarded. It is this category that I personally fall in. Sure I have plenty of cash now after months of periodically selling, but I am unwilling to be fully committed on the long side of the Market. Actually I am committed with buys in ETF’s that short the market, DOG (shorts the DOW) and SBB (shorts SP600 small cap stocks). This is part of my trading portfolio and I wouldn’t recommend these to anyone who is not a technical trader. I never thought I would short the market, but times have changed.

For long side stock trading I demand that a stock be within 8% of it’s 90 day high. You may ask why on this, and the answer is that if a stock sells of significantly, there are always those who missed the opportunity to sell and are waiting for a chance to sell after a significant move of gaining, lets say 10% or 20% off the bottom, thus the second mouse approach I take waits for this first sell off as starters.

If a stock later becomes within 8% of its 90 day high and I buy it there, my sell point is 15% off the 90 day high, thus a potential loss of 7%.  I do the same with the ETF’s that I buy. This is a little difficult with general Mutual Funds however, as most funds have minimum hold times without penalties, some 30 days, some 90 days, and some 180 days for example.  This approach is to minimize risk, not necessarily to maximize gain.

Keep an eye on the Markets, they are very close to recent bottoms, a break below may happen, yet a few percent may not be too bad, although a violation of recent lows could mean further downward movements.

Don

Billionaire and super investor Warren Buffett is suggesting now to be greedy on equities. As he points out when others are in a state of panic, he buys and when investors are getting too greedy, he sells. He talks about the lows of the DOW and points out that during the Depression, the Dow hit its low of 41, on July 8, 1932 and this was long before the actual economic recovery that followed.  Warren further points out that he can’t predict the short-term movements of the stock market thus he also doesn’t have the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. He feels what is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. I like his quote of “So if you wait for the robins, spring will be over.”

I’m sure he is correct for the long term, yet I just wonder how low the market will take us before it recovers. What he didn’t write in comparing the current Dow to that of the 1920’s and 1930’s, is that the peak of the Dow prior to the depression occurred in August of 1929 at a value of about 380. Given our current drop in the Dow of about 33%, that would be equivalent to a Dow of 253, a value passed easily on the downside in October of 1929. Buying stocks then would have been way to soon and an investor would have seen the Dow drop another 83% before it bottomed. I suspect we do not have this ahead of us, yet the question arises, does history repeat?  Is now too soon to buy? Certainly Warren can absorb further market declines better than the rest of us, but should we follow him now?  This is the question you should ask yourself. For now I have still kept a group of 20 Mutual Funds in my portfolio, yet am thinking that since I’m returning to my old ways of trading more often for next year, that at some point I’ll move them into cash. This would automatic start (not all at once) if the DOW breaks it’s current lows, or if there is a rally of sorts to sell into. Keep also in mind that many investors sell this time of year to capture losses for tax reporting purposes. With all the recent selling, perhaps this has already happened, yet there could be more to come.

Don

Technical Stock Traders who look at charts of stock market indexes or individual stocks like to look at recent Highs or Lows to judge where the next Market moves maytake them. In an Up Market, a technical trader would draw straight line along the bottom trenches of daily or weekly market results for a stock or Market Index. This approach is a little subjective in that the trend line doesn’t always line up perfectly. A sell signal would be when recent market data crosses below that line. For example, looking at the weekly chart of the DJ30 a line could be drawn that starts with the index lows of June 2006, March 2007, and August 2007 as the Dow was moving upward. The Dow then broke below this trend line sometime in November 2007 — certainly in hindsight a good time to sell. Each major low is considered a support level. If market action holds above this low this is healthy for subsequent moving back upward. This is referred to as “Testing the Lows.”  If you would take a look at the Google chart below and Click on a 5-day period (in the Zoom selections), you will observe that the DOW had recent lows of about 8000 on an intraday basis, although closing at about 8451. To a technician of the Markets, if the next moves in the Market can hold above this value, this is good news for long term holders. Even if the DOW breaks below the low a few percentage points that also may be okay — as long as the Market rally’s from these lows.

http://finance.google.com/finance?cid=983582&client=news

Many investors may have gone Long (Buying stocks or funds, that is) after the Market’s strong showing on Monday.  The problem is that the longer term trend is still on the down side as you can see be again using a trend line of the major highs since last November. Sure, the Market is at fire sale prices, yet these prices may even go lower, as we observed on Oct 15th, with a DOW closing of 8577.

What does this all mean for the average investor in 401K’s?  First of all, the current trend line on a weekly basis is still downward. If over the next several days or weeks the Dow holds above 8000, this is a start to the bottoming out process.  Then to break the current downward trend line, the Dow would have to break above somewhere around 10500. To further give an indicator of moving back to a Bull Market the Dow would need to move above August 2007 Highs of mid 11000’s.

Given the continuing down trend in the Market, it is definitely hard to suggest to anyone to be buying, let alone holding onto the funds or stocks they now own. I can only write about what I have done over this last year and that is to move slowly into cash positions, keeping in mind that if a major Market rally took place I would still have positions in the Market. I have a 401K account which I continue to contribute to as well. Also, for years I resisted shorting positions, however I have to be realistic and own small positions in DOG, an ETF which shorts the DJ30, and RWM, an ETF which shorts the Russell 2000. I will hold these until they either drop 15% from their 90 day high or if they under performover a month’s time period on a relative strength basis their relative Indexes. You, as an investor, should decide for yourself if investing in funds that short the Market fit into your own investment objectives.

In the meantime, lets hope the Test of the Market Lows holds,

Don

I suspect it is likely that investors of retirement age will recognize this Bob Dylan protest song of the mid ’60’s, yet these words seem appropriate yet over 40 years later as we are seeing a Market Meltdown like I haven’t seen in my investment time in the stock market (21 years), yet likely this is also an experience you are suffering from, unless you trade on the downside of the Market by shorting stocks or buying ETF’s which short various segments of the Market.

Since this Blog is about my financial markets, I will write a little about my investment years. Going back in time just a few months prior to Black Monday in October of 1987 when the Dow Jones Industrial Average fell over 22%, I became a technical trader, actually developing a trading method for Fidelity Mutual Funds prior to October of that year. I did this with a momentum (think of this as a price acceleration of daily ending prices approach.) For many years I traded Fidelity Funds using this approach. I even allowed for holding periods that Fidelity imposes which varies from 30 days on upwards. it was successful even through the downturns of 2000-2002. The method would follow what is moving best. If Foreign Stocks are hot, I would hold a mutual fund which bought these stocks. When gold is hot you buy gold, when bonds are hot, you buy bond funds. In subsequent years, I became less interested in doing daily downloads of Mutual Fund data and wished to find at least a weekly only or monthly only trading scheme. This would minimize my active involvement in the Stock Market as life does offer so many other pleasures than watching the minute by minute, hour by hour, or day by day movements in the Market.

During the last Bear Market of 2000-2002 I found myself moving out of the overall Market (call it “Fold em”), yet in the investment club I belonged too, I could hear the members suggesting they would like to have a longer term (than 30 days) approach to investing. So I took a look at this and came up with a once-a-month trading scheme.  What I did was to back test algorithms, using the same Fidelity Mutual Fund data base, yet instead of short term trading utilize a monthly trade whereby I would sell a bottom ranked fund from a group of 10 funds being held and buy a top ranked fund. This is referred to as Market Rotation - a technique utilized by one of the best long term investment newsletters, No Load FundX.  I modified my trading formula to fit the monthly time period and started trading Fidelity mutual funds monthly. This is still likely a good long term technique, yet because of the short term swings of the 2008 stock market this method has not been positive so far in 2008.

Although the monthly approach on a back testing basis would have lost a bit in 2002, the overall 1996-2007 results were quite impressive. In 2007 alone, the monthly trade method achieved over 25% gain. This year however, I see declines of about 30% — the method was no longer working. One lesson I have learned about trading the Markets is that there are indeed time periods when a trading system will not work and 2008 is one of them for monthly trades

A second change I made was to expand beyond Fidelity Funds only and to hold a basket of non-Fidelity Funds for at least one year. The one year hold was partly a result of fees that would be imposed for short term trading of non-Fidelity Funds and also to match the approach taken by the investment club I belong to where they would pick at the beginning of each year a group of 10 mutual funds to hold for one year. This allowed me to become familiar with what other investment club members were holding for their mutual funds, and to also allow me to recommend various non-Fidelity funds to others I know. This approach also introduced me to many good funds including conservative funds such as PRPFX. I liked this, although being at heart a technical trader I was always nervous about what I considered a long term commitment.

The one year hold method I chose was to hold 6 mutual funds (Non Fidelity). I utilized an evaluation approach that required high price momentum over the previous 3 years.  The 6 funds would be diverse in style so as not to be too correlated. For example, one fund may be a Large Capitalization Growth fund, whereas another may be a Small Capitalization Value fund. The risk was small, the investment was minimal. Given a few good Market years since 2002, a person soon forgets those years when the NASDAQ lost about 50% following the bursting of the dot-com stock bubble of the late 1990’s. (as a side note, we now are experiencing a bursting of the real estate bubble)

Continuing on this path of one-year holdings of funds,  I looked at holding 20 Mutual Funds which offered greater diversification into the other segments of the Market (once again how quickly we forget what a Bear Market can do to our portfolio). Twenty funds were selected so as not to hold more than 5% of assets in each fund. So in addition to the usual selections of Large Cap to Small Cap, Growth to Value to Blend, I added in holdings of 3 International mutual funds including the segment of Emerging Markets. To further diversify and to reduce overall risk, 3 Bond funds were included. More diversity was achieved by adding in a Real Estate fund along with a Convertible Securities fund. To complete the list the conservative fund mentioned above, PRPFX, Permanent Portfolio was included. This fund invests in Swiss Francs but also has a good portion in gold. The thought for what I called the Lazy 20 was that with a wide diversification, I would always have one of the segments doing well. Today when I look at the performance for the Lazy 20, I see this thought didn’t live up to its expectations as the group is down about 32% for the year as I write this.  Real Estate is actually the worst performer in this group with a decline of 58% for EGLRX (as of Oct. 6th) and the best is a bond fund, BTTNX, with a positive gain of over 5% for the year. To be on the disclosure side of things, my total holdings in the Lazy group is about 15% of my total portfolio, as I’m still not basically a buy and hold type of investor. Also my holdings in the Lazy 20 are not currently evenly balanced as I’m overweighted in Bond funds as well as PRPFX.

So the question really is where do I go next? For sure I will re-evaluate which funds to hold in the Lazy 20 group as well as to relative percentage of holdings. For the future I’m leaning to more trading of ETF’s (Exchange Traded Funds) which include shorting-of-the-market type of funds. This way I effectively can create my own Hedge Fund ( A fund that can either go long on the Market, or short the Market). I will also continue trading individual stocks, which as an investment style, has done the best for me this year with a year to date positive result.  More on these in future writings.

Don

Morning of October 3rd, 2008

As I write this morning, the Market is moving upward, yet yesterday the Dow was down over 3%. Since I look at stock charts on a daily basis, the so called good news is that it did not fall below Monday’s low. On the note of viewing stock charts, I sure like how Google provides stock charts with News about the chart. You might start with this one for the DJIA:

http://finance.google.com/finance?cid=983582&client=news

Years ago I had the intention of playing in the Options market and had developed a daily trading system, even opening up an options account with a Options Broker.  Although the results for the few months that I traded options were positive, I stopped options trading for a couple of reasons. The first is the volatility, watching quite large moves in my portfolio I had allocated for options. The second is the time it took to enter in the daily information in the model. The third is that at the same time a Mutual Fund trading model was performing well enough, and it didn’t require constant daily inputs into a model. Of course with the ability today to download stock and fund values, the effort now is easier.

The point here is that with the huge swings in the Market these days, it is tempting to once again go the options (or futures) route. In a way though, you can do a little of this by trading select Exchange Traded Funds, or ETF’s as they are called. ProShares and Rydex both have ETF’s that move at 2X to the Market, either going with the Market or against it. Before I continue here, a short disclosure is warranted, as given that this group of ETF’s move faster than the Markets, you may lose quite a lot on trading these. Continuing on though, ProShares as a series of ETF’s with Ultra or UltraShort attached to them. Check out symbols SSO or SDS, for example which go approximately twice that of the SP500. Rydex has a similar set, RSU and RSW.

What I have been leading up to is that I decided to trade RSU, a 2X of the SP500 ETF. Yesterday as the Market was tanking I bought a small amount of RSU and today I will sell it.  A word to the wise is to use limit orders as Market orders on these may not give you the best price. Again a disclosure is that this is what I do for only a small amount of my portfolio and I accept the fact that I may lose on trading RSU or other ETF’s, so be cautious if you decide to follow this approach. My overall point here though was to introduce you to ETF’s that can move faster than the Market and represents another way for investors (or should I say Traders) to play the Markets.

Don

Watching the roller coaster ride of the Stock Market over the last several weeks, it has been hard to provide suggestions on where to proceed with investment dollars (although a day trader could have made out quite well given the volatility). Just when the Market would move up a bit, it would then tank, and vice versa. Today is different. I thought I would post some thoughts for investors.

Today the Stock Market reacted to the failure of the House of Representatives to pass a bill that many thought would help bail us out of the sub-prime mortgage mess and its subsequent fallout of many financial institutions. Our own personal bank, Wachovia, today merged with CityGroup (stock symbol “C”). Wachovia’s stock had plummeted 82% before this takeover — certainly a good lesson on not to put all your investment eggs into that proverbial basket of one company’s stock.

I am writing today, once again reminded of the 1987 crash of the stock market, yet it is hard to believe the Dow Jones Industrial average plummeted 777 points, a new record drop.  For several months some market analysts, looking at the history of the Stock Market,  have been writing about how a Bear Market will climax with a very sharp sell off — for sure we had this event today. The question though is whether this is the bottom or not?  Following the Crash in October of 1987 — yes, this would have been a great time to get back into the Market. Is today that day?  As Yogi Berra once stated, “It ain’t over til it’s over”

I have been speaking to young investors today and I reminded them that their best asset is they are young enough to recover over the next 20 plus years. Their best asset is their future career years. For most below the age of 40, this will work in their favor to recapture those 401K and IRA dollars they have seen drop in value 25% or more. By investing on a continuing basis in your 401K, this comes out of every paycheck. which in a Bear Market actually buys more shares of stocks or Mutual Funds over the long haul and you will likely recover. What you will want to do though is to examine just how diversified your portfolio is and for sure just how much risk you wish to expose yourself in order to be able to sleep at night without a lot of financial worry. Like I did almost 20 years ago, you may wish to become what is called a technical trader which is a person who uses Technical Analysis to buy and sell stocks or Funds of stocks, usually on a short term basis.  You may also chose to be a Couch Potato and simply invest in a basket of Exchange Traded Funds (ETF’s) or Mutual Funds. I did both and although being a technical trader takes more time, I still have  positive gains on a rotating stock trading portfolio of a small group of small capitalization stocks. Unlike the past 10 or more years of great results, trading of mutual funds and ETF’s have produced negative results in 2008. Or maybe you will just want to sit down with a Financial Advisor to set your financial goals and have that person suggest where to place your investments. Keep in mind, that finding a truly good one may be the hard part.

A real concern I have is for those who are closest or actually in their retirement years, partially living on yearly withdrawals from their retirement accounts, along with Social Security and with perhaps a pension. I believe I have mentioned before that financial analysts usually recommend to withdraw no more than 4-5% or your portfolio on a yearly basis (adjusted yearly for inflation). This year, for those retiree’s who are heavily invested in the Market, this means up to 5 years of retirement withdrawals have disappeared. By following this rule, the next several years will even provide them with less dollars based on the 4-5% withdrawal rule. This group, who may include those who are hoping to finance college educations for children or grandchildren, have less time to make up the losses incurred so far this year. Quite often the retirement folks have their dollars in CD’s or money market mutual funds. I owned one CD which was from a bank that went bankrupt and taken over by another, yet I was lucky that yet another bank took them over. In any case, a several week wait was necessary in order the recover this money. It would be wise for this group to also analyze their market exposure and if they have not already done so, examine their relative holdings between CD’s, bonds, stocks, amd mutual funds. Remember there is risk even in CD’s if you hold more than what the FDIC will insure.

I hope to write more soon,

Don