One anonymous reader had these comments a few days ago:
Can you please explain how someone who appears to advocate Market tracking investing using stop losses can also advocates hedging “the simple hedge strategy”?
The 2 strategies seem to be completely opposite approaches to investing.
Can you please explain to me why you advocate both approaches, and the advantages of both?
When following major trends in the market, there will be prolonged periods of time where our Trend Tracking Indexes (TTIs) are in bearish territory and therefore keeping us out of the markets.
Case in point is the past 1-1/2 years. Our domestic TTI generated a sell signal effective as of 6/23/08. The markets subsequently crashed, recovered towards the end of 2008, dropped again 22% until making a low on March 9, 2009 and then rallied some 50% as measured by the S&P; 500.
Our domestic TTI did not cross above its long-term trend line until 6/3/09 when a new Buy signal was generated. That’s almost one year later after we headed to the sidelines.
Just because our TTI is in bear market territory does not mean there are no other investments opportunities. However, with the markets having shown the volatility they did, going outright long (against the major trend) or outright short had huge risk factors attached to it.
This is why I developed the SimpleHedge Strategy. It allows us, as described in the book, to enter the markets safely at a much earlier time to attempt to add profits before our regular buy signal occurs. This is exactly what happened, as the hedge strategy generated a buy late in December 08, when uncertainty reigned.
As it turned out, the hedge opportunity was profitable and allowed us the option to drop the short component of the hedge when the domestic Buy was generated. Some clients like the hedge so much, that they preferred staying with it.
However, let me be clear. In an outright bullish run, such as we’ve seen off the lows in March, a hedge will always lag in performance. Here again, as I discussed yesterday, a client’s risk tolerance would determine which path he should take.
The hedge concept is designed to fill the “lengthy gaps” inherent in trend tracking. I have found it to be a nice combination worthwhile considering by anybody but the most aggressive investor.
Comments 14
As a fellow "Registered Investment Advisor" I could not restrain myself from responding to this post as I find it troubling.
I find your post which states "Some clients liked the hedge so much, that they preferred staying with it" to be ridicules! My Clients pay me to make hard decisions with their money, not to give me their bad investment advice.
As Investment Advisors, we are obligated to give our Clients good advice, and being Short in a Bull Market run is as bad of advice as I have ever heard.
The whole concept behind Market trend investing is to maximize returns, and hedging by its very nature does not allow this.
Bottom line no single investment Strategy will ever replace a good nimble Money Manager. Any Money Manager pushing a one size fits all investment Strategy should be avoided at all cost.
Anonymous, I have to agree with your post hear. Although I am not familiar with the Simple hedge Ulli is advocating here, I am familiar with PBRCX and Bearx two fund many investors use to short with.
Both of the above fund have performed exactly as advertised and have lost approximately 15 + percent of their value since the first of the year.
Did I read Ulli's post correctly that he left some of his investors in short positions during this 6 month bull market run?
I have to disagree. I think Ulli's methology is common sense and nimble. He advises us to get out when the market starts plummeting and has a hedge plan to keep us safer and vested while the market is extremely volatile.
I have had 2 financial advisors in the past that kept me in the market no matter how low it got. Ulli's advice has kept me safe where their advice cost me tons of money.
I value and respect his opinion more than the aggressive attitude of most financial advisors. Plus he doesn't charge for his advice.
I dropped all of my short positions in April and went long with my entire portfolio using 8 percent trailing stops. To date I'm up almost 50% from my low.
My brother who bought into the Simple Hedge as advocated by Ulli after seeing its performance record from one of his friends, is down 1% year to date.
If hedging is such a fool proof way to make money in all Market conditions, every mony manager in america would be using it.
signed,
A Skeptic
Yes, I watched my "nimble investment money manager", not to mention several 5 star Morningstar mutual funds, lose a big chunk of my investments last year and early this year. Yes, it appears like we are in a bull market that will never end (like rising house prices) but it looks very tentative to me. That's why I believe the hedge position is smart.
How carefully does this nimble adviser study the financial and economic situation in this country?
Namely, the Fed is printing money like it is going out of style, employment is rising faster than the government is willing to admit, Congress is doing nothing while arguing about trivia for the most part, consumers have cut their spending four times more than economists predicted (who have never been right), banks are still teetering near bankruptcy (except those who got bailed out with taxpayer money and had their bad investments foisted onto the taxpayer courtesy of Paulson and Geithner), etc. etc. Doesn't look like a bull market I can believe in. Nor in any money manager that preaches that same worn out Wall Street gospel. Hence, I prefer to lose some profit but protect my rear.
Ulli,
Do you still have the Simple Hedge in place in any of your Clients portfolio's? If so why, and what percentage of the portfolio is invested in it? How do you determine when to entirely drop the hedge and go entirely long?
Well I am glad I dont have my money with you. You sound just like the typical pompas *** investment mgr that has destroyed so many portfolios. So you are aggressive (with other peoples money). What is your longest client? How much you made them. So when did you dive in the mkt with both hands. You knew, your foretold, you forcast, you consulted a crystal ball that March was the turn around. You read the tea leaves that this was not just a bully rally head fake. Certainly, real profits have not been made. Go past the fed pumping all the money into the economy and wall str making their money off the FED and there is no real bull rally. How can you be so "sure" this is such a great bull.
Its really just different strokes for different folks.
Its really about risk/reward. That is lesson #1 but perhaps you skipped that lesson not about maximizing profit with possible huge downside. Go read the later post where a reader said they were afraid to enter the mkt. Surely Ulli suggestion doesnt maximize profit but it deals with the psychology of the reader.
You just seem to be the type of advisor that helped me lose 140K during the dot com mkt meltdown who always told me he was the professional.
Heck I have a professional financial advisor in our extended family. He made millions and while visiting he informed my brother during that downturn he disconnected his phone and kinda laid real low as ""his"" clients were besieging him. He worked for a major wall str firm.
Ulli,
Whoever this so called investment advisor is that just wrote the message above just doesn't get it. Glad this person is not my financial advisor if he/she really is one and I have my doubts making this kind of loose statement I would fire him/her very quickly.
Anon,
No, we did not remain in short positions, but some clients (due to their risk tolerance) preferred the hedges. They gained nicely, although lagged outright long holdings.
Ulli…
Anon,
Your brother apparently did not rebalance the hedge as suggested. If you follow section 7 of the StatSheet, you'd recognize the importance of that.
Ulli…
Cacurmudgeon,
Agreed….
Ulli…
Great posts everyone! Here's my two cents. I've never used a Money Manager, never had the need. I also have never used a hedge in my portfolio, but to each their own!
Below are 3 of the Top Money Market news letter in the Country, I subscribe to all three, any of these 3 News letters and many more would have warned you to get out of the Market during the 2008 / 2009 Market meltdown, as I was.
Dan Sullivan of the Chartist, Dale Woodson of the Woodson Wave report, and Christopher Cadbury of the Cadbury timing service.
My recommendation is that everyone use their own common sense. The Markets are up 50% percent from their March lows, evaluate your portfolio, if its flat, or has lost money, and you use an Adviser, maybe its time to take over your own finances again, or find a new Adviser.
Signed,
Lets all be Friends
Hey Anon,
Thanks for the 3 market letter names, I will be looking into their track records. I like TimingCube.
The Holy grail of market timing is the "Timers Digest" news letter.
You really owe it to yourself to go to their site and get a free copy.
This new letter rates all the top timers and their market models. It also gives you the top 10 ten market timers current opinion on the market Bull or Bear.
Best of all it pretty inexpensive, much less than having a money manager.
Signed,
Check it out