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Fear & Greed Trader
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INDEPENDENT Financial Advisor / Professional Investor- with over 30 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • Managing Your Portfolio - Keep It Simple! 4 comments
    Oct 6, 2013 4:45 PM | about stocks: CVX, TGT, XOM

    Every investor needs to start portfolio management by considering managing the risks in your strategy, the returns will take care of themselves !

    You should not try to be a "genius", or make an attempt to be "clairvoyant" going "all-in" or "all out" based upon some index, omen, or advice from a "talking head" on TV.

    When you go to 100% cash, something changes in your mind. You get to this mindset where mentally you won't be satisfied unless you pick the perfect entry point. It's harder to do some buying at 100% cash than it is at 75% cash or 50% cash - at least then you're "adding to positions" rather than taking a stand from scratch. Price will drive you crazy without an existing position or average cost to anchor you, whether it's higher or lower than the current quote.

    We can change our exposure as we go, assuring that we'll never be fully exposed to a nasty fall or completely on the sidelines during a rip-your-face-off rally. This isn't just market sense, it's common sense.

    It has been taught that you need a low-volatility anchor for your portfolio. Traditionally, this has been the role of bonds.

    However, most will advise that bond mutual funds are now too dangerous - they are likely to be losers as interest rates move higher.

    Here are some suggestions in the investment environment we find ourselves in at the present time to maintain balance and mange risk .

    Consider a bond ladder. This allows you to get the interest rate you expect and principal on maturity. You can then roll out to the higher rates. The exit strategy is built into the program, unlike a bond mutual fund. You might only make 3% or so, but you can adjust to rising rates and it provides a conservative anchor to your portfolio. Investment sites such as Ameritrade and E Trade offer research and assistance in setting up either a 'ready made" or "build your own ladder" program in Bonds.

    My personal favorite : Dividend Growth Stocks that are "reasonably" priced. I mention "reasonable" because the quest for yield has driven some dividend plays into territory that in my research is overvalued.(i.e. Utility sector) There are plenty of companies offering solid 3-4% yields, while growing dividends year after year. Some are priced below their historical and the overall market PE, with great balance sheets. For starters, consider XOM, CVX, TGT as three names that I have just added.

    A Productive strategy :

    I have often mentioned selling calls against positions in your portfolio, and reserve a portion of my holdings to do just that.

    The latest installment to that portfolio can be seen here :

    An actively managed portfolio, focused on selling the rapidly-decaying short term calls, can dramatically increase the return from a quality stock portfolio. This is a good plan for those who are not seeking gangbuster market returns. It is safer and more dependable in a sideways market. It offers a great mix for those who have a bond ladder and some dividend stocks. The "Enhanced Yield" approach serves as a bond substitute, reducing portfolio volatility while delivering solid yield and cash flow to you account.

    I also like to sprinkle in MLP's and REITS for yield and diversity.

    Quite often I am questioned about using gold as a "hedge" or insurance. My response is the same, if you "must" own gold , and you feel "safer" , so be it, but consider this :

    The insurance and hedge that most perceive in the ownership of Gold doesn't seem to be as effective as most think. During perhaps the worst financial crisis we have witnessed, the S & P dropped from Jan '08 (1378) to the low on March '09 (666) . In that same time period in Jan '08 Gold was 900 , in March '09 Gold was 892.. Not exactly rip roaring gains to "hedge' stock exposure. So unless you put ALL of your assets in GOLD at precisely the RIGHT moment, u would have stayed "even", preserving some capital.. I doubt many did just that , since the "gold owners mantra" is to have only a small percentage ownership in Gold. Having 10 - 20% in Gold and not practicing risk management gives one no "insurance" at all to your holdings.

    That is why I personally have a hard time calling ownership of Gold a hedge or insurance.. If it didn't work as insurance then , when is it going to work ?

    IMO ,The only way to successfully protect yourself, is to practice prudent " risk management" in whatever asset class you possess. Just as it is now time to practice risk mgmn't. by limiting bond exposure. With that I see no reason to have Gold In MY portfolio, especially since it entered into a bear market earlier this year.

    The percentage allocation in each area mentioned should be decided on an individual basis, depending on age , station in life, risk tolerance , etc. One size does not fit all.

    Best of Luck to all

    Disclosure: I am long CVX, TGT, XOM.

    Additional disclosure: I am long numerous stock positions - Full list can be seen here on this blog I am short Gold Via DZZ

    Themes: Portfolio, Risk Management Stocks: CVX, TGT, XOM
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Comments (4)
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  • dc984
    , contributor
    Comments (637) | Send Message
    Good, common sense advice. Thanks!
    8 Oct 2013, 01:15 AM Reply Like
  • dc984
    , contributor
    Comments (637) | Send Message
    What's your thoughts on the possibility of another 2011 correction? What % would you consider to stop loss?
    8 Oct 2013, 01:15 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5096) | Send Message
    Author’s reply » streak,


    There is always the possibility of a correction, and they usually come when no one expects them. During the 4th quarter of 2011, the S & P corrected about 14% . I have maintained my thoughts that the S & P can correct down to 1560 as my "worst case" scenario. That would be approx 7% down from here (S & P 1676) , or 9 - 10% from the highs .. If i had to speculate , i would put the chances of that to happen by year end at about 20%.. IF that occurred it would be well within the "norm" as far as pullbacks go. However that would feel like the "end of the world " to most as we have become conditioned that the market has to trade "up" all the time.


    My preference is not to use stop losses on my portfolio. First the whipsaw that can happen may take you out of positions for a week , only to have them recover & trade higher. If you are in quality stocks , especially those that pay dividends , realize that corrections are part of the game..


    If you are speaking to a complete change in the "trend" that is a different story and my views on what to do when that occurs :



    The LT trend that has taken the S & P higher is still in place. I don't see this as any "major" top ... we still have more room to run.


    If you are a trader , well then most of these comments don't apply. You will need to be more protective after this type of run. If i set up a 'trading" position I have a 'mental " stop at 12-15% . and will act based on what i see at the moment ...


    Best of luck
    8 Oct 2013, 09:43 AM Reply Like
  • dc984
    , contributor
    Comments (637) | Send Message
    Thank you very much sir for your expert analysis. Much appreciated!
    8 Oct 2013, 09:48 AM Reply Like
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