The Best Laid Plans

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I mentioned in last Friday’s update that a couple of our holdings triggered their sell stop points and were scheduled to be sold yesterday. As I have talked about numerous times, I do look at market activity first; just to be sure a rebound is not in the making before pulling the trigger.

As it turned out, a rebound was indeed in the making, and I held off liquidating my positions. One retreated back above its sell point while the other one still hovers slightly below it.

I pointed out in Subjective Reasoning, once sell stops are executed, the danger of a whipsaw exists and it pays to watch market activity the following day before entering the sell order. If the markets head higher from here, we’ll be glad we stayed in; if it drops off again, we will have another opportunity to get out. This is one more reason why I use end-of-day pricing only when establishing my exit strategy.

If you set up your sell order on an intra-day basis, which some readers seem to prefer, you will not have the flexibility to sidestep a potential whipsaw. While we accept whipsaws as a necessary evil to avoid going down during adverse market moves, avoiding one will alleviate having to hunt for a new entry point should the markets head further north.

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Comments 10

  1. Hi Ulli,

    Thanks again for all you do for the individual investor. I have a question regarding something I havent seen you address. I have not seen the actual results of using your buy signals and stop losses/exit points. I was wondering of you could publish these using broad based ETFs or mutual funds. I was thinking SPY, and a broad based intenational ETF, or a large broad based international mutual fund, like Artisan International.
    Thanks again,
    Chuck

  2. Ulli,

    Yes that would be interesting to see what the results were that Just Chuck ask about above. I believe we are all wondering what your true record really is for a common investment vehicle such as SPY over the last 10 years of so called lost decade where the SP500 index had a loss.

    Thanks

  4. Ulli,

    Thanks for your reply. I respect your privacy, and any legal issues (?) you might face as far as posting performance. I realize that your fund selection will change. I was just interested in hypothetical returns using broadly based fund. I have no doubt that you have outperformed SPY over the last decade. I just thought it would be interesting to see by how much.

  5. Ulli,

    I have done some back testing over the years using your buy/sell dates listed on your long term chart that you show each week and went back in the archives to check back further. I used some common funds that are diverse and I found that about 9% annualized (compounded annual rate of return C.A.G.R.) returns were the range that I got by going long only. Not too bad considering that the S&P; 500 lost quite a lot over the lost decade period. Your sell signals however didn't work very well with bear funds.

    Thanks for your sharing with us.

  7. Yes, thank you anonymous. I too appreciate your effort. I am curious to know the time periods you backtested, and the funds used. 9% annually certainly well outperforms a decade at 0%.

  8. Ulli,

    Could you provide the legal reasoning behind whatever reg limits financial advisor/fund manager from making their results public. I certainly would never inpume the integrity of you or anyone in the field. But I have discussed with several in person upon considering whether to have them run my money and everyone states the same legal ramifications. On the surface, it would seem to me it would expose the Bernie M's of this world. Just about every other company industry publishes all kinds of data on their products. I just find it curious, that there is no look behind the onion skin of those that I might turn over a life time of savings. Again, I hold you in the highest regard but not sure I could say the same for some of the others I had discussion with especially those pushing anuities or recommending such as the portfoilo that was best for myself.

    I am sure its a simple explanation. I was told that it was to protect the customer from those that would advertise bogus results a la Bernie M. As stated above anything north of avg 9% would be a dream if the results were not skewed to 1 or 2 years.

    As always great news letter.

  9. I woud refer the above anonymous poster to Mark Hulbert and the Hulbert Financial Digest. I believe he currently tracks several dozen services and newsletters. According to him, no one outperforms the averages by more than a point or two over the long term, or even an intermediate term.

  10. I looked into it a little further, HFD tracks over 500 e letters, newsletters, services etc. One of the worst strategies is buying last years big winner, it typically results in a 50% loss. Buying last years worst performer typically results in an 80% loss. HFD has a lot of rspect for advisor who beat, match, or come close to the average market return and take less risk doing so by either timing the market so they are in maybe only 50% of the time, or by recommending stocks/funds with very low volatility.

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