Finding Your Comfort Level

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In case you missed, it Reader BD commented on yesterday’s post about “Investment Insurance” as follows:

Today was a good example as to what happens when one buys and sells only on the crossing above or below a moving average line.

My own understanding is that one should see that moving average line turn up or down before buying or selling and in most cases the whipsaws are prevented. I am just glad I didn’t fall into that trap today and buy anything.

We are seriously overdue for a somewhat big correction, whether we get it or not remains to be seen. I don’t base my investment strategy on what I think might happen, but will wait on the moving average line to turn up before buying. I realize that I well be somewhat late, but I am a very conservative investor who doesn’t want to do like that 74 year old fellow that wrote some time back and said that he lost half his money and then thought he had done so good.

I couldn’t live with myself if I allowed myself to be that careless and allowed that to happen to me. I couldn’t sleep at night just thinking about what I had done.

The key to any successful investment approach is the comfort level of the investor and not the method employed. If reader BD’s risk tolerance is such that he needs to wait for further confirmation of an uptrend, then that is what he should do.

However, I caution against finding too many reasons as to why this is not a good time to enter the market in order to simply avoid making a decision. Sooner or later, you need to draw a line in the sand and take a stance.

As long as BD understands that, and it appears he does, then waiting for the circumstances to meet his system’s requirement is the way to go.

Again, I have no idea what tomorrow will bring, and if this international Buy signal has legs or not. That’s why our sell stops have been established, and they will be triggered if market direction goes against us by a certain percentage.

For the record, I have not found that a rising trend line at the time a buy signal is generated via our TTIs has brought improved results over time as opposed to entering the market while the trend line was still descending.

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Comments 2

  1. Ulli,

    I think what Anon was saying in this blog message was to pay no attention to the price of the TTI crossing its own 39 week SMA for buy and sell signals, but only buy or sell when the TTI 39 week line turns up or down. This is what I read into the message and I looked into that going back many years and there were very few whipsaws using that method. You must narrow up the chart to see the exact turning point which become much more clear. Hope that helps.

  2. Ulli

    I think the operative phrase in this article is your reference to “risk tolerance.” BD references an earlier post by the 74 year-old invetor, and contrasted his invetment style. I can report that as of this moment, the 74 year-old investor’s portfolio took a 44% hit from the market’s top, but has recovered to the point that his portfolio is now a mere 14% from the high. This (paper) loss falls within his risk tolerance. He adds that he did that without creating any taxable events (avoiding massive long term capital gains)and brokerage/mutual fund fees. The 74year-old investor would also offer a clarification to the apparently universally accepted on this blog definition of “Buy and Hold:” It doesn’t mean that one takes all of his assets on a specific date, invest it in the market, and leave it untended, never adding nor readjusting the original portfolio. Merely that he doesn’t jump in and out of the market.

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