Investment Strategies 01 (Nov 08 - May 10)

[winston]

The Formula for Investing Success

To achieve long-term investing success, an investor has to do two things, Fitz-Gerald says. First, you clearly want to be sure that you're there to capture the market's best days. But it's just as important to avoid the ruinous damage that can be inflicted by the worst days. And ironically, that's not achieved by market timing, which investors too often see as being either "all in" or "all out" of the market.

The five strategies in question consist of:

1. A Winning Allocation : From an overall portfolio standpoint, Money Morning 's Fitz-Gerald advocates a proprietary 50-40-10 allocation (Base Builders/Global Growth & Income/and higher risk-higher return "Rocket Riders"). This incorporates a set of built-in safety brakes, which are there whenever needed. Many investors discover the hard way that they can't handle as much risk as they thought. This allocation structure enforces portfolio-preserving discipline and risk control.

2. Careful Individual Security Selection : From an individual-security standpoint, investors should look for companies that possess strong global brands that derive a substantial portion of their sales from faster-growing markets overseas, that have strong balance sheets and that feature a strong and safe dividend.

The post-financial-crisis economy is no longer fueled by suspicious profit numbers and fancy accounting tricks; investors will increasingly favor large global companies with strong credit access, savvy management and bulletproof financial foundations (and balance sheets).

3. Protect Your Winners : Take the emotion out of the equation - maintain a trailing stop loss (Money Morning typically recommend 25%) on each of your winners. If the stock continues to go up, the stop loss moves up in tandem. If the stock reverses course and starts to fall, chances are you'll keep the lion's share of your profit on that security - automatically .

4. Dodge the Downside : Where market timing often involves being all in - or all out - of the market, the combined use of stop losses and selective hedges allows the investor to focus on risk management in terms of each individual security.

Each stock you buy should carry a trailing stop loss - and 25% is as good a place to start as any. . Not only does this help capture gains, but trailing stops can help minimize losses before they get out of control, too.

5. Winners Hedge : Hold 2% to 5% of your portfolio in truly non-correlated assets. One example: Inverse funds such as the Rydex Inverse S&P 500 Strategy ETF ( RYURX), which moves opposite the broad index. When the S&P falls, this rises in value. With such a strategy, you add a measure of stability - rather than timing - to your portfolio. And that ultimately makes things a whole lot more stable overall.

"Clearly it's important to capture the gains from the market's best days," Fitz-Gerald says. "But history shows that it's even more important to avoid the damage that can be inflicted by the market's worst days - especially if you can do it without destroying your upside by staying in the game and managing risk appropriately. Market timing is simply not cracked up to what most investors expect it to be."

Source: Money Morning

[millionairemind]

Not sure if I agree with the 25% stop loss. That's a bit too wide. If you are looking at a 25% stop loss, what is your plan for gains? 2009 is a special year where almost every stock went up 100% (or more). On a typical year, how often do we catch a stock that moves 100% or more?

For a brutal year like 2008, that will mean taking a 25% loss in your overall portfolio. That still sucks (at least for me)

[iam802]

The other thing to note is.....when do you take profit?

Only when it retrace 25%?

[kennynah]

i think whether the stop loss is set at 25% or 10% or whatever %....it only makes sense when it is viewed in the context of risk appetite... it is no doubt that 25% stop loss approach is a high risk strategy.... but it also means that it allows for higher volatility without being whipsawed...

and to view this 25% stop loss from an even more macro picture, the investor must have proper portfolio sizing...eg. 50% on properties, 12.5% on commodities, 12.5% stocks, 12.5% on options...now, when this happens, a 25% of a 12.5% of stock position now becomes not so significant...as compared to 100% on stocks and a 12.5% stop loss...

[winston]

I was watching a documentary on Bruce Lee and his Jeet Kune Do on the Discovery Channel recently ....

If you know martial arts, you will know that Karate uses a lot of hand techniques, Tae Kwan Do uses a lot of leg techniques, Judo uses flipping techniques, Tai Chi uses avoidance techniques and so on..

Jeet Kune Do uses whatever that is practical from any school ...

Investing should be like Jeet Kune Do. Just use what you like and discard the rest

Why do you need to be a pure 'Value Investor"? a pure "TA" ? a pure "WB"? a pure "George Soros"? a pure "John Templeton" ? a pure "Peter Lynch"? a pure "CANSLIM"? a pure "Itchy Mushroom" ? etc..

I have no problem blending anything from any school if I think it's useful and reasonable ...

Ha Ha ... my technique is "Rojak Investing"

[kennynah]

It is like water... You put in a cup, it takes the shape of the cup... You pour it into a teapot, it takes the shape of the teapot... It is formless. - Bruce Lee on 接拳道 (jeet kun do)

[winston]

Lithium touched on a very good subject about using different techniques for different parts of the investing cycle.

I will try to put my thoughts together on this issue:-
1) Use Value Investing after a prolonged weakness to sniff out extremely Distressed Assets
2) Buy Growth Stocks ( Peter Lynch's method ) when thngs are back to normal
3) Use CANSLIM to momentum trade after the recovery
4) Use Sir John Templeton's technique to buy whenever there's blood in the street; sell after the short term buyers have bought and buy when the short term buyers have sold etc..
5) Use George Soros' technique to buy the best and worst in an industry that's turning around
etc.
6) Use TA to enter and exit a position. However, TA is not so useful for me as it does not look at future events eg. earnings announcement, a strong catalyst eg. new product etc.

The more I write about this subject, the more I like the parrallel of "Rojak Investing" to Jeet Kun Do

[bulltick]

There is a new chapter(How you could make your million owning mutual funds) in the updated 4th edition from "How to make money in stocks" that interests me. It states that Mutual Funds & diversified ETF should be held long term & it is all right to average down as it will always come back & continue its uptrend.Unlike individual stocks, it will not go down to zero like many S-chips which crashed, suspended and never come back.

For my CPF portfolio(those portion which cannot be used for stocks purchase), I am considering to use it to buy Asia Ex-Japan,Singapore, Hong Kong, China & India funds for "Long Term" investment. Will buy more if STI reaches its critical support or when IBD declares a follow through. How do you guys invest your CPF funds or are satisfied with the 2.5% guaranteed interest?

[lithium]

Lithium touched on a very good subject about using different techniques for different parts of the investing cycle.

I will try to put my thoughts together on this issue:-
1) Use Value Investing after a prolonged weakness to sniff out extremely Distressed Assets
2) Buy Growth Stocks ( Peter Lynch's method ) when thngs are back to normal
3) Use CANSLIM to momentum trade after the recovery
4) Use Sir John Templeton's technique to buy whenever there's blood in the street; sell after the short term buyers have bought and buy when the short term buyers have sold etc..
5) Use George Soros' technique to buy the best and worst in an industry that's turning around
etc.
6) Use TA to enter and exit a position. However, TA is not so useful for me as it does not look at future events eg. earnings announcement, a strong catalyst eg. new product etc.

The more I write about this subject, the more I like the parrallel of "Rojak Investing" to Jeet Kun Do

Gosh...... there are so much more to learn

[winston]

The What If Game By Bob Irish, Investor’s Daily Edge


Market pessimists have been playing the "what if" game for at least a year now. As in...

* What if inflation runs over the economy like yesterday's road kill?

* What if the government raises rates too soon or too sharply?

* What if people are too strapped to start spending again?

* What if more banks fail?

* What if Ford's and GM's new models don't take off or Boeing's Dreamliner stalls on the runway again?

In the meantime, the market has gone up over 60 percent. At Investor's Daily Edge, we don't play the "what if "game. Throughout the market's big run, our analysts recommended specific stocks and bonds, and we continue to do so.

As IDE's Steve McDonald says, "The optimists looked beyond the obvious and saw the crash for what it was, the best buying opportunity of their lifetimes. The pessimists ran for cover and missed it, and are still missing it."

Excuses

You can always find an excuse not to invest. A good one cropped up recently. It had to do with China.

China "stepped on the monetary brakes," the Financial Times reported, raising the auction yield on its three-month government bonds. How big an increase? From 1.3280 percent to 1.3684 percent. So is a 0.04 point increase any reason to panic? Some pundits think so.

The main worry isn't about China's local stock market. It's the effect a slowdown in China would have on markets around the world that has some people's panties in a bunch. If China continues to raise rates and growth declines or even stalls, the economic downdraft could be huge. Commodities, energy, and countries that supply raw materials (like Australia and Brazil) would all be impacted.

But it's still a "what if" scenario. It hasn't happened yet. It may never happen. Or the timing and degree to which it does happen could be way off.

While it makes sense to keep an eye on the future, the mistake many investors make is to allow "possibilities" to prevent them from investing. The only "what if" you should worry about is this one...

What if you miss the next great investment opportunity because you were too worried about events that haven't happened and may never happen?
Isn't the market too high?

The prices we saw in March ain't comin' back. It was a great time to buy. What about today? Consider:

* Cost cutting has made corporate America lean and mean. Most companies have been hoarding their cash for when the economy bounces back.

* It's still a low-interest-rate environment. So don't fight the Fed. Companies and the market grow hand-in-hand when interest rates are low.

* The amount of stimulus is equal to the amount of the last 10 stimulus packages put together. All that government spending may come back to bite us in the long haul. But in the short run, it's spurring demand.

* There's a big inventory rebuild ahead of us. Production was cut to the bone. Now it's cycling back up to meet rising demand.

Some of the best high-quality companies have been left behind.

In January's debut issue of Sound Profits, Andrew Gordon said, "Wall Street has just gone though a classic rebound phase. Many stock prices are inflated. And the ones inflated the most are also the least deserving companies that lured investors in with their beaten-down prices. Price-wise, those companies will fall back. Your opportunity is with the big and powerful 'beached whales.'"

Now is a great time to invest in the right companies.


Source: ETR