The Real Estate Confusion

Ulli Uncategorized Contact

Lately, a frequently asked question in my advisor practice has been related to real estate.

Last week, the government reported that new homes sales fell 17% last year — the worst decline in 16 years.

However, sector real estate funds/ETfs gained on the day. In fact, the leader of the sector listings in my newsletter, based on a 4wk sorting, was real estate, as you can see from the following table:

The reason for that apparent discrepancy is that most readers look at all real estate as being the same, which is not the case. When you hear reports about a real estate recession or a downturn, so far this has been strictly related to residential property.

All sector real estate mutual funds/ETFs invest in REIT’s, which in turn are exposed to commercial and industrial properties and not residential ones. With the economy humming along just fine, based on the performance of the stock market, commercial real estate has rallied sharply due to higher demand and other factors.

Will this go on forever? Of course not. That’s why, for all of our positions, we have trailing stop loss points set up to protect ourselves from the downside whenever this market reverses its trend.

This may not be in the near future, but you have to be ready to act whenever the facts change.

No Load Fund/ETF Tracker updated through 1/25/2007

Ulli Uncategorized Contact

The latest No Load Fund/ETF Tracker has been posted at:

The tug-of-war between bulls and bears continued this week. Our Trend Tracking Index (TTI) for domestic funds remains +4.06% above its long-term trend line (red) as the chart below shows:

The international index still remains stronger and currently sits +8.30% above its own trend line, as you can see below:

For more details, please see the above link.

The Ignorance Game: Index Funds vs. Mutual Funds

Ulli Uncategorized Contact

The year 2006 has barely come to an end and the battle goes on. Which one has been the better investment? Index funds or actively managed mutual funds?

Standard and Poor’s reported that the S + P 500 index outperformed 69% of actively managed large-cap mutual funds in 2006. Additionally, the S + P SmallCap 600 outperformed almost 64% of actively managed small-cap mutual funds.

The story goes on to say that over the past five years, the S + P 500 index has beaten 71% of managed large-cap funds. The S + P SmallCap 600 has beaten 78% of managed small-cap funds in the same period.

I have no problem with these numbers, since in my advisor practice we use index funds/ETFs as well whenever they make sense in any given economic environment.

However, there is an ignorant part of that story that totally neglects to point out that markets don’t always go up. What will happen during a bear market?

A casual or inexperienced reader of the above figures could easily interpret them as an argument that index funds are the investment for all seasons. This is not the case. When a bear market strikes, such as the during the period of late 2000 to early 2003, index funds, as well as actively managed mutual funds, will go down sharply.

Some of them were pushed to such low levels that it took a Buy + Hold investor over 5 years just to get back to a break even point. What difference does it make that an index fund may be a better investment when you can lose just as much with it when the bear rears its ugly head?

If a bear market has the potential to devastate an investor’s portfolio, shouldn’t the primary emphasis of investing be to try to avoid that scenario, rather then some chest pounding over a couple of percentage points?

That’s my view, what’s yours?

No Load Fund/ETF Tracker updated through 1/19/2007

Ulli Uncategorized Contact

My latest No Load Fund/ETF Tracker has been posted at:

Despite sloppy sideways action in the market the upward bias remains. Our Trend Tracking Index (TTI) for domestic funds remains +4.91% above its long-term trend line (red) as the chart below shows:

The international index still remains stronger and currently sits +9.24% above its own trend line, as you can see below:

For more details, please see the above link.

When (NOT) to Buy ETFs

Ulli Uncategorized Contact

With new ETFs being offered to the public as quickly as sponsors can get regulatory approval, it’s no surprise to see investors jumping at any new offering that comes their way.

Is that really a good idea?

I don’t think so. While there is a need to have as many ETF choices as possible, it doesn’t mean you should buy the latest one just because it is available. If you are following trends, you still need to make sure that the latest ETF is moving in the right direction to help you achieve your investment goals.

Here’s how I look at it in my advisor practice: I will not invest in any ETF which does not have at least a 9 months track record of price data.


I need that much information to determine where the long-term trend of this ETF is headed. Looking at only a 30-day period, for example, is simply not going to give me any idea about where this ETF has been and where it is at in the bigger scheme of things.

That’s why my Fund Tracker StatSheet contains only 160 ETFs, although there are over 300 being offered today. As they gain price history, I will add them to my data base, if they fall in the categories I am tracking.

How to use Trend Tracking for your 401k

Ulli Uncategorized Contact

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.