Watch Out for the Media

Ulli Uncategorized 5 Comments

This is the time of the year when the media is having a field day again. Over the next couple of months, you will find headlines such as the following:

  • 10 top stock picks for 2007
  • The perfect portfolio for 2007
  • My best stock for the year ahead
  • 2006 losers ready to rebound
  • 10 stocks for 2007 and beyond

It always amazes me where the reporter finds the ability to predict the future as to which investment may be ‘perfect’ for the next 12 months. Perfect for whom?

What are you supposed to do? Sell every investment that did well in 2006 and buy these new favorites? That’s ridiculous.

Keep in mind that these are nothing more than wild predictions and about as accurate as you can forecast the exact amount of money you will have in your checking account by 12/31/2007.

My preference is to hold my (and my clients’) no load fund and ETF positions, with no emotions attached, until economic circumstances change and my trailing stop loss points get triggered. That eliminates the silly guesswork and allows me to have a plan in place that can be easily monitored and adjusted.

Of course, this presumes that you work with an exit point strategy. You do use sell stops on your investments, don’t you?

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Comments 5

  1. Ulli,
    I am constantly amazed at these articles hyping the latest stocks, even in respected magazines like Barron’s. But I guess they are in the business of selling, and those flashy headlines do cause magazine sales.
    Unfortunately the losers are the unsophisticated investors who trust that these Wall Street types must know what they are doing.
    Mutual funds preach buy and hold since they are compensated by the amount of assets under management. They hate market-timers, since they make nothing when the money is out of stocks and in cash. They have spent huge sums of money convincing people that buy-and-hold is the only way to go. I personally know many buy-and-hold whose assets are just approaching the values of early 2000; fundamentally they have lost six irreplaceable years of compounding.
    Sanjoy

  2. Ullie, as usual, your clear thinking has helped me throughout this year, but I must admit I don’t use trailing stops. I am a long-term buy & holder. That is not to say I didn’t get out in June 2000 & preserved 96% of my gain but rather than riding the in-out theory on a short term theorum I take much broader approaches & move in & out as overall forces dictate. I would add I am not a stock invester, in the sense that I pick individual equities, rather I invest strictly in Funds. As a Federal employee my choice of funds is rather slim & they are all indexed & they are all the very lowest cost managed funds (passively) that can be found. So I take solace in these salient facts. But I just calculated my gain this past year & from moving money in & out of the 5 different funds my litle pile went from 43,666 to 57,488, a gain if my calcs are correct of better than 30%. I’m taking the amount as of Dec 31 2005 & multiplying by 30% & the figure is still less than this years total as of Dec 29 2006. But I am no mathmetician. Still I am very happy with the gain.

    Thanks for all your input & I look forward to another year of better than average gains.

  3. I wish I had followed your advice a few years ago.

    There is definitely a point at which you need to cut-and-run. During the dot com boom, I was making a killing selling puts on QQQ. When it started downhill my intention was to roll down once, and if that didn’t work, then bail out. For some reason, I hung in there, and let the puts be exercised and rode the decline down most of the way. Never again!

  4. For Sanjoy:

    Yes, I have had many readers tell me the same thing about this year being back to breaking even.

    Once an investor realizes that his financial life is so much shorter than his physical life, he will hopefully decide to use a different approach than Buy & Hope.

    Ulli…

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