How to use Trend Tracking for your 401k

Ulli Uncategorized 1 Comment

Recently, I received some e-mails from several investors who have run into problems with their 401k plan providers with early redemption charges and frequent trading accusations when following my Trend Tracking methodology.

I have several clients, whose 401k/annuity accounts I personally manage, that are housed at Fidelity and Vanguard, two companies known for their restrictive policies. I have not run into problems with holding periods, but we had to pay one short-term redemption fee last year, which was well worth it due to the market severely retreating. My client had no problems with that, after all, capital preservation is on the top of our list.

Having discussed this with several clients, I have come to the conclusion that there is one common denominator which may contribute to this problem and which you can easily rectify.

When setting up your 401k, you are asked to make a decision as to how to allocate your future contributions. While you can change that at anytime, most investors never bother. For example, their set up determines a percentage to go into Fund A, B and C.

If you are on a bi-weekly pay period, you are purchasing small amounts in each of those 3 funds every 2 weeks. While that is the basis of dollar cost averaging, it will work against you if you all of a sudden decide to do some trend tracking and sell all of your positions because market behavior dictates that you do so.

The bottom line is that you have created a bunch of purchases, the last one of which may very well have been executed just prior to you liquidating all of your holdings. I believe that these buy and sell patterns are being tracked by software using sophisticated algorithms to determine if you are a frequent trader or not. If the software determines that you are, a letter is automatically being sent to you.

There may not be any human being involved in this process until your name gets kicked out.

I had this very same experience, even though not investment related, with this blog, which is hosted by Google. A week ago, I received a computer generated letter from them that their “automated classifiers” detected that my blog had characteristics that resembled spam. They disallowed any further postings (not comments) until a real human being had the opportunity to look at it to determine if in fact spam was involved or not.

This big moment arrived today, and I was cleared of all charges…

I believe that this type of evaluation is being applied to your trading habits in your 401k or annuity account as well.

Here’s the gist of this story: Have all your 401k contributions go into the money market option of your account. Once you have accumulated a sizable sum, such as $3,000 or more, make your investment into the fund(s) of your choice.

I believe that this will cut down on recorded trading activity and still will afford you the opportunity to get out of your positions when it is in you best interest to do so.

ETFs on the Bubble

Ulli Uncategorized 7 Comments

This year’s small pullback in the market has affected mainly volatile ETFs in the orientation of country, sector and specialty funds. These have been the top performers over the past few months, so it’s no surprise that they are the first ones to correct more sharply.

If you follow a 10% trailing sell stop discipline, the following 13 ETFs have exceeded that point and should not be held. The list below shows the drop off from the high point for each ETF that has exceeded the 10% limit:

TF (-25.69%)
TKF (-23.39%)
IFN (-15.23%)
PXJ (-14.11%)
VDE (-12.97%)
PXE (-12.48%)
FXI (-12.24%)
DBC (-12.06%)
XLE (-11.93%)
IYE (-11.89%)
IXC (-11.80%)
IGE (-11.01%)
IIF (-10.23%)

This list is not all inclusive; it is taken from the 159 most widely held ETFs that I currently track in my data base.

Beyond Ridiculous: A Portfolio for all Seasons

Ulli Uncategorized 9 Comments

Every so often you find a reporter’s story analyzing a fund manager’s portfolio or coming up with his own (in theory, of course) group of mutual fund/ETF holdings allegedly suited for all seasons.

You can recognize this by psychologically appealing names such as “The Lazy Man’s Way,” “Gone Fishing,” or other esoteric ones indicating that this certain portfolio combination is all you need — and you won’t ever have to worry about it.

This happened again a few days ago when a reporter interviewed and analyzed a well known money manager’s portfolio (over $20 billion under management). Apparently, his approach is to hold a variety of 11 inexpensive Vanguard Index funds allocated in certain percentages. Nothing wrong with that.

Investment returns were given for 2006 (about equal to the S + P 500) and over 3 and 5 years, where he outperformed the S + P 500 handily.

Since all ticker symbols and percentage allocations were listed, it would now be easy for the casual reader to imitate this portfolio with the assumption that, the way it was presented, this is a portfolio to duplicate and forget.

That’s the problem I have with this scenario. Fund managers and mutual fund companies are chomping at the bit that 5-year return figures are now showing some positive numbers (without the bear market), with a 5-year reporting period now covering 2002-2006.

Let me make it crystal clear. As great of a performance as this above portfolio has shown over 3 and 5 years, it was a big loser in the last bear market!

How do I know? I plugged in the numbers. Here’s how I did it. As you know, my trend tracking methodology had us on the sidelines in cash from 10/13/2000 until 4/29/2003.

To see a comparison, I applied the closing prices for the funds using the dates above in combination with the Vanguard portfolio. What a surprise! It turned out that this portfolio lost exactly 30% during the dates specified while the S + P 500 lost 33%.

The best portfolio component gained 17%, while the worst one lost 46%.

In Wall Street’s perverse thinking, a loss of “only” 30% is great, because the S + P 500 lost 33%. That’s one way to outperform the S + P and earn recognition among peers.

My point is, be careful when you read these stories. Don’t ever assume that there is a portfolio for all seasons. As much as we all would like one, it doesn’t exist.

How to get Investment Tax Advice — FREE!

Ulli Uncategorized 4 Comments

I am sure that during your investing endeavors, you will come across a situation where some qualified input from a tax professional might be of tremendous help. Or, maybe you just like a second opinion?

One of my newsletter readers, a former corporate CPA, has offered to answer any questions you may have in that area. His blog contains a wealth of information and, if you are in need of assistance, feel free to post a question in the comment section of his blog:

I hope you find this useful.

The most commonly asked Mutual Fund/ETF Investment Questions

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Over the years, I have received hundreds of investment related questions from my newsletter readers.

These questions, and my answers, represent a wealth of knowledge, which has been archived and is readily available to you. The archive dates back to May 2003 and contains over 200 Reader Q & A’s.

You can view it at:;

Whether you are new to investing, or a seasoned veteran, there is bound to be some information contained in this archive which can help you become a better investor.