O.K. You've already got a carefully selected portfolio. Are you happy with everything in it? Are you unhappy with anything in it? When was the last time you checked?
So you're a conservative, long-term investor. That means you have a sensibly reasoned plan of wealth development, protection, and maintenance, with milestone goals. How is it going? Are you on track, satisfied, and meeting your targets?
If so, stop reading this and spend your precious time more enjoyably and productively. That's not an unreasonable decision, because these moments are precious, only here for now, will be gone tomorrow, and can't be re-acquired or re-spent. We all should try to spend them as well as we can. Seriously.
It's doubly so with investments. As a long term investor, think about having long-term investments. Ever own any Eastman Kodak stock? A great, quality, company, a Dow-Jones blue chip; best in its business - once. Then the business went away.
So did virtually all of the shareholders' wealth invested in it.
For long-term investors, long-term investments have to be maintained. That means they need to be regularly, periodically, re-examined and compared to alternative choices. Buy and hold is a dangerous strategy, because it easily becomes buy, hold, and forget.
Then, it seems, suddenly, we get reintroduced to risk. Because we didn't carefully maintain the long-term plan with regular, timely, periodic, and thorough re-examinations of holdings and alternative investment comparisons.
Buy and hold is a discipline. It has to be maintained. Its danger lies in the temptation to believe that the necessary, time-demanding maintenance is not necessary, and can be put off: "It's long-term investing, not trading. It's having a long-term plan to meet long-term goals. It shouldn't be time-consuming work, there's other demands on my time, that's why long-term investing is appealing."
Then better buy someone else's time to do the necessary work of protecting and maintaining your investment capital, or be prepared for the dangers and disappointments of long-term, hammock investing. Junior's college tuition money in Kodak is gone, and now he's about to graduate from high school.
Wealth-building is work. If done with or through investments, be prepared to commit time, effort, and emotional purpose to it, because it always comes with some loss (risk) experiences. The trick is to find a balance between the beneficial and the costly commitments. Time, effort, and risk, versus return. Discipline vs. satisfaction.
One productive way to harness the challenge
Ration, and commit, part of your time, attention, and thoughtful judgment to maintaining the necessary updating of the portfolio's holdings. All of them, but the equity allocation will take the most. Start by setting a patience limit - not yours, but the market's. Depending on your situation, it should not be longer than 6 months, and for many 3 months is better.
Every holding should be put to the task of reaching its intended goal by that patience time limit from the date it was initiated, or was last reviewed. If it has not reached its goal, it should be eliminated and the resulting available capital recommitted to the best current alternative. That means that every holding and candidate must have a target objective price.
The focus is on market price because that is where both wealth gains and losses come from in today's markets. Prices provide many times more (in frequency and in size) than annual dividend yields. And because the reality is that price gains often are fleeting, they must be captured when presented, by closeout sales. Not just by a warm, fuzzy feeling of satisfaction coming from a broker's monthly statement -- this month.
These days, a dime a share loss on its price will often cost you more than the transactions will.
The reality is that there are dozens of contender equities every day, with equal or better risk-reward tradeoff propositions to compare with your recent winner's current challenge.
What happens when following this approach is that holdings come to fruition (or frustration) spaced irregularly throughout time. Attention to their results forces timing diversification in their reinvestments, and provides adaptation of the portfolio's asset allocation to the areas now most promising - in the current risk-reward tradeoffs.
How to implement the plan
Now for the hard part. "All" that is needed is up-to-date (each day) credible (and demonstrated reliable) price forecasts for each alternative investment, made from the same source, using the same economic, political, and global competitive environment outlook for every candidate.
I have worked for organizations that sought the resources to do that and attempted to manage them to accomplish the objective, and I'm here to tell you "it ain't easy, if even possible, to do." The world is a complex operation, full of surprises, and the investment corner of it is even worse. But there are strivers attempting the near-impossible, given the recognition that doing it perfectly is impossible. Trying to do it "at home" without help is not advisable.
We believe that an approach that has far better than average odds for being a help for investors trying to manage portfolios in a disciplined way does exist. The agent providing the environment is in fact the interrelationships of investment markets.
The folks that "make markets" (cause transactors to come to agreement on price so that they will complete transactions, buying & selling securities) act in their own competitive best interests to minimize their risks necessarily taken in equities markets, by buying price-change insurance in related ("derivative") markets provided by other folks willing, for a sufficient price, to accept those risks. The process is called hedging.
What the market-makers [MMs] will pay for that protection, and the way they structure the insurance, tells just how far both the buyers and sellers in that protection market think the subject of the insurance may travel (up and down) during the period the insurance is in force.
By understanding what the hedging markets are saying, we have the means to measure whether what they have said in the past has provided any useful future price guidance. To that end, we have collected, live as they occurred over the past decade-plus, over 7 million daily price range forecasts on some 2,000+ stocks, ETFs, indexes and REITs.
Some of them are no help. But many of them are, in many cases, a lot of help when the results are compared with the norms of "long-term investment."
Instead of laboring for decades with 9-10% annual rates of net investment returns, time-efficient, disciplined, active investment management can, and does usually, produce multiples of those kinds of net annual rates of portfolio returns, often with smaller interim declines in overall values. Less angst and worry.
Here are some specifics on current candidates' prospects
These are not the top ten stocks for all time, they are merely ten of the best from dozens of stocks and ETFs at this point in time and price, in a comparison based on several criteria. The principal concern is over which ones have the greatest likelihood of adding value to a portfolio in the next few months at a competitive rate of gain while encountering the least likelihood of interim substantial decline in value.
The prospects are based on an expectation that the price experiences for each stock encountered in 3-month periods following similar forecasts like today's, have similar odds of like gains-less-losses payoffs in the next 3 months. The forecasts are derived from daily hedging by market-makers across the past five years.
The most right-hand columns of the table indicate how many days of the past 5 years have seen a forecast like today's, the specifics of which are detailed in the left-most four numeric columns. The sell target potential is the percent change between each stock's Price Now (9/13/2013 close) and the top of its current forecast range.
To contrast with this promise, the Range Index tells what proportion of the forecast range lies in the opposite direction, the percent of the range below the Price Now. The two percents (target up change and downwards proportion of range) are not the same, my apologies for the confusion, but the Range Index is a very useful metric in relating an MM-implied forecast to its current price.
Our standard performance test is applied to each stock's similar prior forecasts, to see what was the typical worst-case price drawdown below a cost of investment, made at the close of the market day following each forecast.
On the benefits side, each forecast reaching its sell target at end of day is closed out at that point, and failing to do so in 3 months, it is forced into liquidation at that time. The ODDS / 100 column tells what percentage of the experiences ended in gains above cost, and the PAYOFFS column gives their net average gains. The Days Held column records the number of market days positions required to be held on average. Annual rates contemplate the 252-day year of the market, based on daily compounded average net change.
Remember that these scores are based on how well market professionals have had their prior forecasts borne out by actual events, not by how logical, rational, and competitive the actions of corporate managements may have seemed. It may appear strange to some investors to see stocks like Ford (F) and Amazon (AMZN) on a comparable footing of investment attractiveness in the same potential portfolio.
But we're not here to win friends, just to help make money, in the surest, least painful way. If that is not the way you want to run your portfolio, it's your capital, your choice, and we have nothing to say about it. We're only providing cost and benefit comparisons. It's your job to decide what to do with them.
In addition to the line details for each investment candidate, an average of the ten is provided, with the contrast of what a similar portfolio management discipline would produce if applied equally to all 2100+ issues for which we have implied price range forecasts.
By focusing on the names where MMs have demonstrated skill in foreseeing specific timely price outcomes these ten candidates may offer future price return outcomes more than twice as large as the whole population (+10.6% vs. +4%) and drawdown exposures nearly half as large (-5.7% vs. -9.5%). The MMs insights provided gain captures in holding periods allowing capital compounding more than 7 times a year, instead of the population's only 6. That turns the annual rate of wealth building up to four times that presented by the population at large (105% vs. 24%).
Compared to a typical buy and hold with minimal turnover compounding returns at a rate of +10% a year, these candidates, along with some work and discipline, may produce ten times as much wealth building capacity as conventional approaches.
Don't believe it if it bothers you. We are not here to insist on irritating investors. Rather, our mission is to help those who can accommodate what it takes to get ahead faster, and more surely. We intend to be able to implement that aid in a public enough way for all to appraise its accomplishment or failure. Your patience will let us soon enough display that answer.
Please pardon what may appear as a "commercial" but is necessary for a better understanding by the bulk of investors who have long been encouraged to follow practices more productive for investment managers than for the investors themselves.
Additional Disclosure: The author has an investment interest in the website blockdesk.com which, while not yet open to the public, is in conversion from being a delivery medium of information to institutional investors to a new life of providing similar help to do-it-yourself investors. Both brief and extended-time subscriptions for single or multiple issue inquiries should be at quite reasonable and manageable costs for individuals. Announcement of its opening is hoped for in the 4th quarter of this year.