ETF/No Load Fund Investing: Are We In A Bubble?

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Reader and client Nitin pointed out an article in the NYT called “Is It Just A Strong Market, or The Bubble, Part 2?

The story goes on to compare the differences between the events of 2000 and the market in 2007. Several academic studies suggest that current sentiment isn’t likely to be low enough to prevent another bubble form forming.

Professor Porter pointed out that a typical pattern for a burst bubble (2000) is to be followed by a somewhat less extreme version of the original—something he refers to as a “bubble echo.” He said that this pattern has appeared so consistently in psychological experiments that “you could almost set your clock according to it.”

There are some interesting points he makes, but he also admits that his research can’t be used to predict when a bubble echo might burst.

Too bad, I thought I had something of value here that could be used to somehow improve my investing prowess. I guess it’s back to tracking trends and monitoring sell stops.

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Comments 2

  1. Ulli
    I’m interested in technical analysis. Due to previous investing mistakes, I now primarily invest in mutual funds to limit my risk, and to provide a diverse portfolio. Although I’m now primarily investing in mutual funds, I’d like to do more or use more than just fundamental analysis.

    Technical analysis of mutual funds appears problematic, most technical analysis needs both price and volume, but mutual fund data typically has only price.

    Based on this, a good idea for a post for you might be to describe how technical analysis might be used for mutual funds.

    It seems like there could be a few options.

    One might be to find an ETF that resembles the mutual fund, and track the ETF, which has both price and volume.

    Another might be to make up a sample portfolio of stocks that resembles the mutual fund, and track that. i haven’t tried that yet, but I assmue that I could do that with Metastock.

    In either case, there also seems to be the problem that we don’t typically know exactly what the mutual fund portfolio is.

    Morningstar does publish the top 25 holdings and % of portfolio for most funds, but these are ususally 6 months old, and only make up a small portion of the overall portfolio.

    I’m currently using the fundamental and technical analysis tools at E*trade, as well as those at Morningstar. Additionally, I am also using Metastock.

    I’m not looking for any detailed system, rather I have a more general question of what the alternativews are for technical analysis of mutual funds. Any suggestions?

    Pete M
    http://www.coolaqua.blogs.com

  2. Pete,

    I use a trend tracking approach for investing in no load funds and ETFs, which includes limited technical analysis.

    I have found that the simpler you can keep your approach, the better. If you use too many technical analysis tools, you will end up with information overload since some indicators always seem to oppose others.

    My main goal is the avoidance of a bear market, for which I use 2 tools. The TTI, (Trend Tracking Index) which identifies the main direction of the market, gives me an idea as to where the market is and where it might headed. If it’s up, we then use the momentum indicators from our StatSheet tables to select those funds/ETFs that are in an uptrend and align with your risk tolerance.

    I don’t use the host of available tools ranging from volume, stochastics, MACD and many others, because I found them not to be of any value for long-term investing.

    If you haven’t, you can sign up for my free weekly newsletter at http://www.successful-investment.com.

    Ulli…

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