four diverse strategies
DESCRIPTION
Four Diverse Strategies. Easy to Use. Presented by Herb Geissler, Managing Director of The St.Clair Group Rational Investing Special Interest Group of Pittsburgh AAII March, 2014. Market Changes from Bull to Bear Every 15 – 20 years. - PowerPoint PPT PresentationTRANSCRIPT
Four Diverse
Strategies
Presented by Herb Geissler, Managing Director of The St.Clair Group
Rational Investing Special Interest Group of Pittsburgh AAIIMarch, 2014
Easy to Use
Market Changes from Bull to Bear
Every 15 – 20 years
50% below today’s level
Kuznets’ Infrastructure cycle averages 17.6 years for each
bull or bear phase
With History Suggesting Substantial Downside within Next Few Years
Secular Bear Markets RequireDifferent Strategies Than During
BullsDuring Kuznets’ Bull Markets:
• Find great growth companies• Ride with the Tide (buy and hold)
During Kuznets’ Bear Markets:• Find favored baskets of securities• Timing is Everything (buy and fold)
It’s not what you make;It is what you keep
Avoiding losses is more important than going after big gains
US Economy Sliding Downhill
Production of Goods and Services Been Declining for
Over Two Years
Recovery from Credit Crunch
Is Stalling
Employment Still Stagnant
Claims decreasing as workers leave workforce
All Key Measures Show Continual Weakening Since
1990
Because Rising Federal Debt
Stifles Economic Growth
GreatSociety
Clinton/Gingrich
Contract With America
911 andMid East
Wars
RedistributionOf Wealth
Yet Stock Market Advanced Fearlessly,
Sucking In Money As It Did During Roaring 90s
Market Gains Primarily From
Expanding PE Multiple
QE Provided That Liquidity
Anomaly: Stock market gains despite rising interest rates means over-abundant cash
Operation
Twist
S&P 500
BondInterest
Rate
Resulting in Only Two Corrections During Past Five
Years
Pushing Market Valuation
To A Dangerous Extreme
Q Ratio = Market Valuation to Replacement Cost
Key Points
• Federal spending, funded by debt, chokes economic growth, as dysfunctional Federal Government avoids addressing core problems
• Fed Reserve IOUs (to fund excessive debt) lubricated stock prices, but make inevitable solutions more painful
• Market Valuations are at unsustainable extremes, but can remain so for quite a while
What To Do?
• Keep drinking, as long as bartender keeps pouring cheap drinks• In January 2014, Benny’s Bar “flicked
the lights”, signaling “last call”• Remain sober and watchful to jump
out of harm’s way in rush to exit• Use disciplined decision-making
tools to know when to run for cover
How to do that?
Basic Traits of Successful Investors
1. They look at objective indicators. Removing the emotions from the investing process, they focus on data instead of reacting to events;
2. They are Disciplined: The data drives decision making with pre-established rules. External factors do not influence them;
3. They have Flexibility: The best investors are open-minded to new ideas, or revisiting previous thoughts;
4. They are Risk adverse: Not always obvious to investors, it is a crucial part of successful investing.
Investors always will make mistakes, and many of them.The only difference between winners and losers
is that winners have small losses and losers have large losses
Observations by Ned Davis
Easiest Way toOutperform The Market
1. Be in the overall market when it’s going up, to make good gains
Fewer than 1 in 10 financial pros consistently outperform the Indexes (because of their high fees and expenses)
Owning Index ETFs also outperforms stock picking, for many individual investors.
2. Be out of overall market when it’s going down, to avoid losing most of those gains
Financial pros know clients don’t like to pay fees for sitting in cash
Easier said than done????
12 Month Moving AverageHas Been Preferred
WorkhorseBut Had Severe
Drawdowns before Triggering
Tested Each Moving Average
to Isolate the Best One
From January 2007 through June 2013
CAG = Compound Annual Gain
AAG + Average Annual Gain
mmDD = Max Monthly Drawdown
Moving Average Spreadsheet Simplifies Pegging Reversal
PointsExponential Moving Average Monthly
Performance
Color-coded, when
above Price
% Difference to gauge
momentum to spot approaching
reversals
AnnualGain
Timing Market Indexes Beats Buy-and-Hold
2013 29.7% 31.5% 36.8% 8.9% -5.9% 29.7%
Can You Top
This?
Isolate Best ETFin Select Universes
• Relative performance ranking in group average monthly gain for 1, 3, 6 months
• Asset Classes• Industry Sectors• Emerging Markets
• Automate complex spreadsheet to do detailed arithmetic, consistently
• Back-test many variations in weighting• Overlay Market Timer
To diversify your strategies,
Each month, Best ETF Snaps Out in Green
Asset Class TOPs Has Been Outstanding
2013 -1.2% 29.7%
Until 2013, when defensive assets became volatile losers
Best Sector ETF needs a Timer
to Get Out of Harm’s Way
Sector Strategy Provides Great Results with Modest
Draw-Down
2013 18.5% 29.7%
Similarly, Emerging Markets Offer
Strong Gains, but with More Volatility
Monthly Updating is Easy
Month-end Closes from Yahoo Finance
Data is Easily Available
In Summary
• Stock market is at a dangerous extreme• FED keeps pushing the highs, higher• Proven tools to avoid major downturns
are readily available and easy to use.• A few disciplined minutes at end of
every month can protect your wealth
Any Questions?
CDs with spreadsheets and tutorials are available for $50 here or by mail
• Send check to 1792 Taper Drive, 15241Coaching sessions available
• Phone 412-221-7338 to schedule session