bricki

Fractured Wall Street Fairy Tales #2: Awful News Is the Same as Good News

Ahh sigh. Gotta love these articles about how if you take a short position and the market goes up the reason is manipulation, irrational investor behavior, PPT conspiracy, the volume is too low for it to be a real rally and dammit this thing had better retest the lows according to my technical analysis. Not to mention that the Dow and Gold are going to be equal real soon now.

Well here is the clue. The market doesn't care about these theories. The market is going to go up or down despite the best intentions and well laid plans of investors.

What the real story is that you have to be nimble and brave. Get in when the corpses are rotting in the street. And get out when the touts are saying "all in" the market can't ever go down again.

Bogle: Investors 'Getting Killed' in ETFs

OK I give that ETFs as people use them are not working in aggregate.

However I like them as I can often find ETFs that have lower costs than a mutual fund on the same topic. Many of these low cost ETFs are in fact ETFs offered by Vanguard.

Leveraged ETFs are a tool for market professionals. All too often they are a means of capturing losses but not gains.

Vanguard's Bogle: Buy and Hold Is Alive and Well

Nobody is saying buy and hold just one company like the poor souls who put all their savings in GM bonds did.

Good approaches should recognize when stocks are expensive and when they are cheap and adjust holdings accordingly. I don't think pure asset allocation goes far enough in this regard.

Trend following can be dangerous because it can suck you into bubbles.

On Jun 17 11:37 PM untrusting investor wrote:

> Yes, that's true that buy and hold works if you pick the right ondstocks
> such as JNJ, PG, etc. However how does that work when you pick GM,
> Enron, Worldcom, Citi, or hundreds of similar once high quality stocks?
> Picking all the exact right stocks is easier said than done. For
> example ask some of the GM bondholders who invested most of their
> retirement savings into GM bonds 5-10 years ago for the great yield
> (when GM looked fairly solid) how they like it now.
>
> Personally I think you would do a lot better following major trend
> changes, such as dshort.com shows on his site. Thus getting out of
> stocks when major trends change and getting back in when the major
> trend changes again. Of course you will never catch the exact highs
> nor the exact lows, but you will be in the market for the majority
> of the up move which is what really counts. And just as important,
> be out of the market for the majority of the down move.
>
> And probably just as important is Jeremy Grantham's work which shows
> that it is important to buy stocks when you can get a "great value"
> on them. Such is Buffett's approach as well.
>
> Finally, in my view, if you really want to develop better performance,
> you need to use options as well. Primarily, covered calls and selling
> put options. The premiums you receive can contribute even more than
> dividends to your return.
>
> A simplistic pure buy and hold strategy is thus not all it is cracked
> up to be. If an investor is willing to learn and use other tools
> as well, then they should be able to do much better than just buy
> and hold. But it is time consuming and hard work, so most investors
> probably can't or won't do it. Which is also why most investors really
> don't do very well in the market either.

The Top 10 ETF Model Portfolio

US small caps are essentially completely absent from the top 10 portfolio, and are very likely to be a great source of growth going forward.

On Apr 10 02:02 PM Paul H. M. wrote:

> U.S. large caps may preform better since our system of business and
> law is still so much better than emerging markets.
>
> Emerging markets have more growth, but are also more prone to a spectacular
> collapse (like the U.S. had when it was an emerging nation).

The Top 10 ETF Model Portfolio

This portfolio is grossly overweighted in US large cap stocks. As a result returns will underperform the market as a whole. Not to mention that the only exposure to commodities is gold.

I wouldn't recommend this particular collection of ETFs.

Please, Let October Be the Worst of It

We are in a secular bear market. The last secular bull market ended in 2001. Buy and hold is a successful strategy in a secular bull market but will earn you nothing in a secular bear market. To be successful in this type of market you have to move in and out of stock. I moved out a bit early - May last year, but am not regretting it one bit. I started buying a bit in August, maybe too early but still I am only down a couple of percent this year.

Defensive investing is going to be the way to make money for the next decade. Buy and hold? Maybe in 2020 that will start working again.