Returns for week ending 7/17/09
Model portfolio, hypothetical returns for past…
1 week: -0.2%
52 weeks: +10.5%
Value of $10,000 invested at inception in 2003: $55,031
S&P 500 Index, returns for past…
52 weeks: % -25.4%
Saturday, July 18, 2009
Friday, July 17, 2009
How the Stock Market Works
How the stock market works
Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.
The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort.
He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.Soon the supply diminished even further and people started going back to their farms.
The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.
In the absence of the man, the assistant told the villagers; "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each."
The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere!
Now you have a better understanding of how the stock market works.
anonymous
Sunday, July 12, 2009
Thursday, July 2, 2009
No Run-of-the-Mill Recession
Today, the Labor Department reported that nonfarm payrolls (jobs) decreased by 467,000 in June. The stock market declined sharply on the news. This chart puts that decline into perspective by comparing job losses during the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1954-2006 (dashed blue line). As the chart illustrates, the current job market has suffered losses that are nearly three times as much as the average. In fact, if this were an average recession/job loss cycle, the number of jobs would have begun to increase three months ago.
Monday, June 29, 2009
RIP Buy-and-Hold
The above chart shows the model portfolio returns since inception.
Note that there are three timing signals. BUY signals an intermediate-term uptrend is underway within a long-term market uptrend; this is usually a profitable time to be invested in a stock portfolio. A NEUTRAL signal calls attention to an intermediate-term correction interrupting a long-term market uptrend; usually a good time to remain invested and perhaps add fresh capital to your portfolio. SELL signals that both the intermediate and long-term trends are down; usually a good time to go to cash or take a short position against a market index.
When I initiated this live test in January, 2008, many market pundits were encouraging individual investors to stay the course, and remain fully invested in their stock portfolios, even though it was clear to many at the time that the economy was at the brink of recession. At the time I had no idea how deep the market downturn would be, only that the system's Thrust / Trend Timing model was signaling poor market conditions.
Over the past 40+ years of a secular bull market leading up to this secular bear market, "buy-and-hold" had become dogma. To assert that an agile investor can profitably time the market still invites ridicule from many so called professionals. For many, their primary goal is to retain control of your assets. This is how they are paid, by having your assets under their control. Unfortunately, they are less concerned about growing your assets. Many have been coached that the best way to retain control of your assets is to encourage a passive buy-and-hold mentality.
Now a year later, most of those professionals are busy explaining why their clients' portfolios have been halved. You will often hear, "Nobody saw this one coming." and "There was no safe place to hide." What more can they possibly say. They didn't have a clue!
If nothing else, this live test has shown that a basic Thrust/Trend Timing model can help investors positions their assets in alignment with PREVAILING market conditions, helping to avoid the big loss that can take years to recover.
Subscribe to:
Posts (Atom)