I have mentioned from time to time that many investors (or advisor clients for that matter) have very good intentions, but seem to fight a constant battle with their short-term fear pitted against their long-term resolve.

Many times, the former wins handily and the latter, which is more important, succumbs to the fear of being too worried about short-term losses. I suppose that any psychologist would confirm that fear is a far stronger emotion than great intentions.

Even if you could have omnipotent abilities to look into the future, your emotions most likely would not change. Let me prove that point.

Take a look at the following set of numbers:



Assume that, with your omnipotent abilities, you could be assured that two investment approaches (A and B) would be able to produce those annual returns over the next 5 years. Which one would you select?

If you’re like most investors, you would choose the one featured in column B. Why? It’s off to a great start, and your short-term fears about losing are alleviated.

However, if you knew your numbers you would have realized that this was a trick question. The figures are identical in both columns, only the sequence is different. After 5 years, the returns are exactly the same!

The point is that an investor with a long-term resolve in an investment approach would have done just as well with the figures in column A even though the first two years might have had him question the soundness of his selection.

The key to using any investment approach is twofold. Don’t let emotions get in the way of sound thinking and find one that you are comfortable with so that you can stick with it for the long term.

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

http://www.successful-investment.com/newsletter-archive.php

Big swings in the marketplace left the major indexes with little to show for.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -3.40% thereby confirming the current bear market trend.



The international index now remains -8.84% below its own trend line, keeping us on the sidelines.

For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

Despite last week’s bounce in the market, we really have gone nowhere. The S&P; 500 started the month at 1,280 and closed at that number yesterday. Despite some sharp drops during the first couple of weeks in July, it’s questionable whether the subsequent rebound rally has legs, as economic circumstances have not changed.

Sure, lower crude oil prices helped matters, but who knows what’s around the corner. Financial institutions are still settled with bad debt and, until all skeletons have come out of the closet, there is no way to assess the total damage.

With the major trend having gone nowhere, here’s how our Trend Tracking Indexes (TTIs) currently stand:

Domestic TTI: -3.20%
International TTI: -7.56%

There are no changes to our investment positions and cash or hedged positions remain to be king.

Most likely, you’ve been reading the Fannie Mae and Freddie Mac debacle, and the various plans for a bail out, along with banning naked short selling. Bill Fleckenstein had an interesting piece on the subject called “Feds can’t fix Fannie and Freddie.” Here are some highlights:

Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) do not have a liquidity problem that can be solved by the Federal Reserve or even by an injection of Treasury capital. It’s a solvency issue. Short-term cash isn’t the real problem. Over time, the mortgage giants’ liabilities are quite likely to swamp their assets. Thus their assets are contingent, but their debts are forever.

This business of blaming short sellers for lower stock prices (and speculators generically for high oil prices) is getting ridiculous, especially when the real perpetrators suffer minor consequences as they walk away with giant piles of money.

Bill hits the nail on the head with his analysis. Only time will tell if any of these attempts of rescuing insolvent institutions will fail or succeed. My guess is that they will fail, and the tax payer will ultimately be the only one left to pick up the tab in one form or another. Déjà vu!

While there are not many mutual funds suitable to buy and hold forever, some do better than others depending, of course, on the current economic environment.

Earlier in the year, we started to diversify into Swiss Francs and gold as the dollar continued its descent to new lows. Since many clients have several accounts with me, and some being of smaller size, I opted to invest in PRPFX, which has a variety of hard assets that automatically take care of diversification.

Yahoo Finance describes the profile for PRPFX as follows:

The investment seeks to preserve and increase the purchasing power value of its shares over the long term. The fund invests a fixed target percentage of net assets in the following investment categories: gold, silver, Swiss franc assets such as Swiss franc denominated deposits and bonds of the federal government of Switzerland, stocks of U.S. and foreign real estate and natural resource companies, aggressive growth stocks and dollar assets such as U.S. Treasury securities and short-term corporate bonds.

One reader apparently discovered this fund as well and had this to say:

Would you please look at PRPFX? It holds a number of assets and its trend line is always above an upward sloping 50 day MA and 200 day MA. When you look at the 200 day MA, am I correct in saying that you want the MA line to have a positive slope (and not be flat) – indicating increasing stock price?

Would you please tell us what you think are the pros and cons of investing in PRPFX. Many thanks for your wonderful service.

The reader is absolutely correct as the 2-year chart shows:

If you are following trends, this chart is as ideal as they come. Low volatility makes this a good fund to have a portion of your portfolio invested in. For the first half of the year 2008, it’s up +5.19% vs. the S&P; 500’s loss of over 12%.

Over the past 12 months, it has not come off its high by more than 5.20%, which occurred on 8/16/07 and means a trailing sell stop would have never been triggered. Of course, trends can reverse, but should you decide that this fund is a worthy addition to your portfolio, be sure to use my recommend exit strategy.

I have always maintained that country ETFs are a leveraged play on the United States. In other worlds, when the big dog goes down, so will most of the rest of the world.

One reader had this to say:

Would like to have your thoughts on ILF. Though your trend tracker indicates being out of the market for international ETFs, can investors still invest in ETFs which are trading above their 200 day MA? For example, ILF trades just above its 200 day MA. Is it prudent to invest in such ETFs or not?

Let’s look at a chart of ILF first:

The price has clearly broken its long-term trend line to the downside by -2.14%. The high for the year occurred on 5/19/08 and since then, ILF has dropped some 16.65%.

Unless you are an aggressive bottom picker, which I don’t recommend, this fund has entered bear market territory, following the U. S. market with some delay. Personally, I would not buy ILF until it crosses its long-term trend line to the upside, which should be accompanied by our domestic Trend Tracking Index (TTI) turning bullish again.

Remember what happened with the China Fund (FXI), where many investors got their head handed to them on a silver platter as they tried to engage in bottom fishing.