A recent cartoon in my daily newspaper showed two guys sitting in a bar. One is saying to the other: "I did learn something from my broker...how to diversify my investment losses."
While this struck me as funny, there is certainly an element of truth to it judging by the number of tragic e-mails and phone calls I have received over the past couple of years.
This was brought home even more so by a reader who responded with strong disagreement to one of my articles. I advocate a methodical, disciplined approach to investing in no-load mutual funds. It keeps me invested during up markets and on the sidelines during down markets. It was exactly this approach that got me and my clients out of the market in October, 2000 and put us back in to take advantage of the April, 2003 upswing.
Judging from the reader's e-mail it appears that he works for a major bank and is adamant about Buy & Hold and Dollar Cost Averaging. Maybe it's the approach he has chosen and he doesn't like hearing that the emperor is wearing no clothes. Nothing personal, honestly, but I find it incomprehensible that anyone, after the bear market and the financial disasters most people experienced, can even consider such theories. The results are just too black & white.
Here are his three main points:
It appears that the only thing that I can agree with him on is, as he says, there is no reasonable way to "know" whether the market is going to be up or down. However, this statement also underscores that he is not familiar with trend tracking methodologies and the idea that one does not need to "know" or "predict" in order to make profitable investment decisions.
I've put together the composite for my trend tracking index in the 80s and it has consistently served me and my clients well by getting us into and out of the markets in a timely manner.
The reader cites Warren Buffett's success. Sure, he is legendary, but remember that he made most of his fortune during one of the greatest bull markets. He is probably now considered beyond good and evil. But what about the numerous stories in the press over the past 3 years of the heavy losses he sustained in Coca Cola and other stocks, by stubbornly holding on to this positions. When you have enough money invested in a wide range of holdings, you become almost bullet proof. Do you fit in that category?
Furthermore, Buffet has resources available that the investing public simply does not have. Saying that he is successful only because of his buy and hold approach, and everyone following this technique will be too, is an oversimplification and does not factor in all the issues.
How many non-millionaires have enough spare capital to keep buying and holding and buying some more while stocks plummet? How long can they wait for the upswing when their cost-averaged holdings will start to show a profit? Do the math! Yes, the market will eventually turn up. But will it recover enough fast enough to reverse your losses in time to do you any real good? If you're 20, then maybe. If you're 60, who knows?
I have received countless e-mails and phone calls from individuals who have been led astray by brokers, financial planners and others using buy-and-hold and dollar cost averaging. Stories abound of retirees having to go back to work just because someone told them that "the market can't go any lower" or "let's dollar cost average."
As for his last point, when I gave the signal to cash out on October 13, 2000, it had nothing to do with either luck or intuition. I had no clue how good of a call that would be; I simply let my indicators be my guide. They pointed to a sell, we considered, and then followed through based on our experience. We held true to our philosophy and kept our emotions, speculations, fears or greed out of the equation. This disciplined approach is what I advocate.
This year it has led us to buy back into the market on 4/29/03. And my detailed analysis and evaluation of a range of funds led us to select some of the best; my top fund being up some 50%.
So, not to be cynical, but to me dollar cost averaging is just a way to spread the pain over a longer period of time and to cloud the obvious with the hope the market will turn around tomorrow. After all, it can't go any lower. Can it?
About The Author
Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped countless people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: http://www.successful-investment.com; http://www.successful-investment.com
Biggsville limousine Chicago airport .. Lockport Chicago limo O’HareSomeday you may want to retire and continue to live... Read More
Have you ever thought of investing? Do you have a... Read More
One of the basic laws of physics is that a... Read More
The stock market can present you with a lot of... Read More
The bulls and bears of the stock market are both... Read More
There is no question that the stock market is being... Read More
Recently I watched my favorite football team lose a vital... Read More
The gleam and bright lights of Wall Street lure in... Read More
For the year 2000 we have seen hundreds of mutual... Read More
Every publicly traded company is required by the SEC(Securities and... Read More
Duck! No I don't mean a quack, quack. I meant... Read More
The fight continues to rage among traders who use technical... Read More
Disclaimer: Please note that I do not necessarily purchase, own,... Read More
Many people would like to diversify their portfolios to expand... Read More
This is a rather simple strategy with which I am... Read More
No, this is not a symbol for some Latin number.... Read More
You remember (they show it on TV every year) the... Read More
Inverted interest rates? What's that? Who cares? Even if you... Read More
Question: How does it get better when it gets worse?Last... Read More
You have decided to buy some stock or mutual funds,... Read More
In one of my previous articles (Investing in the stock... Read More
Financial markets provide their participants with the most favorable conditions... Read More
Maximizing a stock market investmentThere are several factors an investor... Read More
I cringe every time I hear a novice investor tell... Read More
∙ Make every investment in the stock market a long-term... Read More
to o hare transportation Arthur ..This is an extract of an article which was first... Read More
When it comes to buying a stock or mutual fund... Read More
If you have talked to a stock broker or financial... Read More
Do you own any mutual funds? In an IRA or... Read More
This article describes the model of a natural relationship between... Read More
Right now there doesn't seem to be any "gold fever".... Read More
Options trading can increase the profits you make when trading... Read More
What does it take to be a stock trader? It... Read More
As I said in Part I everyone in the insane... Read More
Most stock market traders have a favorite technical indicator.The one... Read More
I know there are a lot of you out there... Read More
The following are a list of nine things you want... Read More
Its dinnertime and the phone rings. It's Joe Noname with... Read More
I receive emails from Morningstar. This company provides statistics and... Read More
If you have a pension plan at work you will... Read More
I constantly hear the talking heads on CNBC-TV, the radio... Read More
Maximizing a stock market investmentThere are several factors an investor... Read More
The debate rages all over Eastern and Central Europe, in... Read More
One of the basic laws of physics is that a... Read More
Index Fund Trading can be one of the most profitable...or... Read More
You probably have been told that options are risky. Even... Read More
Let's say you are interested in this one company. You... Read More
From the book 'The Stockopoly Plan' by the author Charles... Read More
One of the main reasons many of us get into... Read More
Never lose money in the stock market again. Yeah, I... Read More
Stocks & Mutual Fund |