Investing Wisely -- Update with Recommendations and Personalized Follow-Up
Update & Recommendations:
In my last Update, a couple of weeks ago, I suggested that the - September to date rally is exhausted, and you should either be in cash or on your way to cash.
I continue to believe that is a fact. There are many confirming factors that tangible support this recommendation.
Over this past week, the market is now quite possible setting up for yet a second attempt at a Pullback. Next week or perhaps shortly beyond, the needed Bearish Inflection Point (a second one) and my important "Conformations" should materialize. This situation (two Bearish Inflection Points in a row) normally does not occur all that often, which means the coincidence of yet another Inflection Point at what the technicians will call a "double / triple - top." That too suggests that holding long position is not all that wise.
The next few weeks, as we wrap up the year and begin 2011, there should be a great deal of directions offered by the marketplace. This will cover both the economy and investing wisely (in the stock market). I'm listening carefully, are you? Obviously, I am bearish on both.
I hope you are following my - personal / private Blog.
Something to Ponder:
Note: I am repeating this missive because - a) it's important to your annual bottom line and b) to encourage a response with your questions.
Being Selective! Part II
Initially written: 011/1976 and Updated: 12/02/10
This is my 7th Article in a series I call: "Why Most Investors and Nearly All Traders Lose Money." It is also expanded in one of the chapters I have in my (un-published) book. The title of my book is: Decoding Wall Street.
Being Selective: In my Part I (posted here in SafeHaven - November 21st) of sharing the importance of "Being Selective," I made the following observations:
* If you want to avoid losses and invest in the companies with the lowest possible risk and the highest possible probability of profit -- you had better start to "Be Selective."
* I introduced the term "Weeding the Garden" -- that means - have a long hard look at what you are holding currently in you portfolio and it also means having a long hard look at what you are about to take positions (buying or shorting) before doing so.
* I pointed out that - at the time of approaching bullish or bearish inflection point, bullish or bearish, that the list of low risk and high potential profitable securities is very short. That means that the companies you invest must be within a 5.0% (or better) range of your universe. (See my Simple Version Graphic of a Bell Curve below). My universe of securities is about 1,500.
* I warned about being "married" to any company at any time. An expensive divorce will surely come along somewhere down the line.
* I shared that your batting average of winners vs. losers had better be 9 out of 10 or better. And, that pizzazz or a sales pitch from a financial planner, broker or your best friend is a sure way to lower your batting average.
* And more ...
A Bell Curve Helps Explain Why "Being Selective" is so Important: (Fancy Version):
Note: The following few paragraphs are likely to be nothing but a boring explanation of how mathematically a bell-curve is formed. You might want to skip this section.
In mathematics, a Gaussian function (named after Carl Friedrich Gauss) is a function of the form - (that's kind of fancy math talk).
for some real constants a, b, c > 0, and e ≈ 2.718281828 (Euler's Number).
The below graph of a Gaussian is a characteristic symmetric "bell curve" shape that quickly falls off towards plus/minus infinity. The parameter a is the height of the curve's peak, b is the position of the centre of the peak, and c controls the width of the "bell."
Gaussian functions are widely used in statistics where they describe the normal distributions, in signal processing where they serve to define Gaussian filters, in image processing where two-dimensional Gaussians are used for Gaussian blurs, and in mathematics where they are used to solve heat equations and diffusion equations and to define theWeierstrass transform.
Gaussian functions arise by applying the exponential function to a general quadratic function. The Gaussian functions are thus those functions whose logarithm is a quadratic function.
The parameter c is related to the full width and falf maximum (FWHM) of the peak according to
Alternatively, the parameter c can be interpreted by saying that the two inflection points of the function occur at x = b − c and x = b + c.
Gaussian functions are analytic, and their limit as x → ∞ is 0.
What does the above mean: Absolutely nothing, except the fact that the Bell-Curve has substantial validity mathematically. Using this application has provided a much more 'Simple Version" which I offer below.
It (the bell-curve) comes from the fact that the graph itself depicts a normal distribution and consists of a bell-shaped line. This is considered as a normal distribution. The highest point in the bell curve, or the top of the bell, represents the most common possible event. Therefore, it makes sense that all other possible occurrences are equally distributed around the 'Top' which then creates a downward-sloping line on each side of the top.
A Bell Curve Helps Explain Why "Being Selective" is so Important: (Simple Version):
Notes for the above Bell-Curve: The far left is where the very best (Top) bullish candidates for buying currently reside at a given time. The far right is where the very best (Bottom) bears candidates for shorting currently reside at a given time. The blue line or Bell-Curve has three important areas of consideration. The Top and between -2 and +2 are where most companies are most of the time. It is vitally important that you understand that the companies are constantly rotating and cycling into and out of favor over time. That means that at one point of time, say the period of one year, there are only about 5% or less of all the companies in a given universe those are "Top Bullish or Bearish candidates for investment. Therefore, consider the bottom line (axes) also as a time line. Offering you an analogy or perspective for understanding: Remember in school that in every single class of students there were very few A's and F's, more B's and D's and lots of C's. It's the same with "Investing Wisely." Buy only the "A's" and Short only the "F's" is my advice.
For me, "the good old bell curve" means - that when I feel the stock market is approaching an Inflection Point, Bullish or Bearish, that is the time when my analytics process begins a very comprehensive review of all sectors, industry groups and individual companies. Put simple: I am working to identify the possible "A's" or possible "F's" - depending if my focus is bullish or bearish.
In addition, the different technical "theories" and "charting systems" both in the text books and currently used big time by financial analysts have not, over the years, and do not today produce consistent profits. For me, it is a puzzlement why Investors and financial analysts who have not and are not doing well continue to follow the same path of analytics.
Conclusion: So, I hope my sharing has made it quite clear that in today's marketplace the old dartboard is of no value any more, other than for enjoying a game of darts. I might add that the good old days of nearly everything going up are gone and gone forever - you must "Be Selective."
Most importantly you, as a serious investor might well want to consider taking the time to read (more than once) both Part I and Part II of this article. It is telling you something that is a very crucial and necessary part of making money in the stock market.
In a nut-shell, please understand that the far right of the graphic represents Bull Market investment opportunities and the far right of the graphic represents Bear Market investment opportunities - offer the very best - why would you settle for less? The base line is just a time line that is constantly cycling. Bullish on to bearish and back again to bullish conditions repeatedly. At either end of the Bell-Curve, there is a small percent of companies that have "rotated" fundamentally into favor (on the far left) and a small percent of companies that have "rotated" out of favor (on the far right). Add to that - the fact that coincident (at the same time) there are even a smaller percent of companies that have "cycled" into favor (on the far left) and a definitely a smaller percent of companies that have "cycled" out favor (on the far right).
Hopefully, this information and data make clear that paying asset management fees to a mutual fund is not a very equitable arrangement for you. They definitely do not invest in the top 5% or better and often not even in the top 50%. Something else for you to ponder...
This missive is just one of my keys to "Investing Wisely." That is with regard to "Being Selective" and through dedicated fundamental and technical analysis. Using My Three Pillars - within my Methodology (My Rotation Model, My SHB Cycle and My Inflection Points) I believe you can consistently profit in the stock market regardless of the economy and in bullish or bearish conditions that are / may be prevailing at the time.
My Current Bottom Line:
* I am holding 100% Bearish Positions. These are from my recommendations of November 23rd.
* Patience and Discipline - waiting for my list of Fundamental, Consensus and Technical - "Conformations" to all fall into place is part of the necessary process for "Investing Wisely."
* Inflection Points have occurred historically about three - five times per annum. We have already had 5 clear and meaningful Inflection Points so far this year. Investing at or around the time of my Inflection Points has proven to be a consistently profitable way to invest.
* One of these days this choppy and bifurcated market (late April to date) will do something meaningful and the next possibility of that is a - Pullback.
* High Volatility may not currently be showing up on VIX - lately, but it is clearly - alive and well.
If you would like to have:
* After my making specific Recommendations - An Email from me at the time I Sell / Cover each of my specific Recommendations.
* Information about my - Work / Methodology / Services, or of my personal and professional background.
* A second opinion based on an article or something said on the financial networks.
* My performance record while contributing with SafeHaven and more. Portfolio performance for the year 2010 was very positive (profitable), and I expect that to continue.
* My on going Research / Analytics Commentary, 2 -3 times each week you may want to become a "Follower" of my personal / private Blog.
* And you are a -- Serious Investor ...
Just send me an Email, and I will respond promptly.
Thank you for your time in reading my "stuff" and continued interest in my work / analytics.
Smile, have Fun - "Investing Wisely",