Very slowly, I have been trying to digest Nassim Nicholas Taleb’s book “The Black Swan.” It’s an incredible piece of work about the impact of the highly improbable.

Nassim explains that an improbable event has 3 characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was.

The astonishing success of Google was a black swan event; so was 911 (you can add Microsoft and a host of other companies to this list, including any past bear market events). For Nassim, black swans underlie almost everything about our world, from the rise of religions to events in our own personal lives.

Why do we not acknowledge the phenomenon of black swans until after they occur? Part of the answer, according to Nassim, is that humans are hardwired to learn specifics when they should be focused on generalities. We concentrate on things we already know and time and time again fail to take into consideration what we don’t know.

For years, Nassim has studied how we fool ourselves into thinking we know more than we actually do. We restrict our thinking to the irrelevant and inconsequential, while large events continue to surprise us and shape our world. In his book, Nassim explains everything we know about what we don’t know. He offers surprisingly simple tricks for dealing with black swans and benefiting from them.

This is not casual reading but very demanding, and it requires your full focus. If you like a challenge, and learn how to look at the world with a slightly different view, this book is for you.

Even though ETFs represent “only” indexes for just about every conceivable investment orientation does not mean that they don’t have any muscle to propel your portfolio higher. A quick look at my dbase containing over 1,200 no load funds and some 500 ETFs shows that the 2 top performers (based on my M-Index ranking) are ETFs, namely FXI and PGJ.

Disclosure: While we hold small positions in FXI, we have none in PGJ.

It’s not secret that FXI has been the top performer last year; however, its tremendous volatility has kept many investors from taking the plunge. How can you participate in that powerhouse investment without taking too much risk?

For some of my more aggressive clients, I have taken a 10% position. During the recent market roller coaster, FXI lost 6% on some days and gained 5% on others. On balance, the week we purchased it turned out OK with a 5.25% gain.

Here is a plan you can follow if you are aggressive and attracted to the long term prospects of China via an investment in FXI. Ease into the market via a 5% position and, if it goes your way, add another 5%. The crucial part is to have an exit strategy in case this investment goes against you. I recommend a 10% trailing sell stop on your positions.

What’s the risk? If you invested 10% into FXI and got stopped out with a 10% loss, the total effect on your portfolio would be a negative 1%. If, however, FXI moves higher, as in the above example, and gives you an immediate 5% gain, you will have cut your risk in half.

If your risk tolerance is above average, this may very well add some desirable firepower to your portfolio.

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

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

Sharp downside action caused by a weak payroll report pulled all major indexes lower, but the current Buy signals were not affected.

Our Trend Tracking Index (TTI) for domestic funds/ETFs moved lower to +2.91% above its long-term trend line (red) as the chart below shows:



The international index also remained +0.60% above its own trend line, keeping us still on the positive side.

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

Tom Lydon from ETF Trends had a blurb about the increased usage of ETFs by RIAs (Registered Investment Advisors).

He says that the fastest growing advisor segment are those advisors with affiliations for providing fee-based advice. The trend towards independent fee advice continues to grow exponentially and RIAs are catching on to the ETF advantage.

I have written about the fee-based benefits as opposed to dealing with a sales person peddling preferred company products before, so this is no surprise. In my own practice, I have too increasingly used ETF products, but only when appropriate.

There are some advisors who have totally dropped no load mutual funds from their menu of investment choices, but I think that is a mistake. There are times when no load funds are better performers, and there are investment areas where you are better of using ETFs. Of course, you can only evaluate that if you actually rank both to see which performs better in a given environment.

After all, it’s nothing but performance that will get us to our financial goals and not the vehicle.

Continued bad housing news, and lingering credit problems along with dimmed hopes for an interest rate cut, pulled the major market indexes lower. Our Trend Tracking Indexes (TTIs) retreated as well but are remaining above their respective trend lines as follows:

Domestic TTI: +3.34%
International TTI: +1.59%

Today, I ventured back into broadly diversified international funds, as announced yesterday. Because of the proximity of the International TTI to its trend line, I will use the 7% sell stop point of my new fund holding as my exit strategy. This will allow me to give the market some room to move and will hopefully avoid a whip-saw signal in case the International TTI heads south again.

I will keep you posted as to any changes.

With Wall Street’s big guns having returned from their summer vacations, it was time again to push the buy and sell buttons. Today, despite low volume and short covering, the sentiment was bullish.

Our Trend Tracking Indexes (TTIs) are now positioned in regards to their long term trend lines as follows:

Domestic TTI: +3.65%
International TTI: +2.51%

I can no longer ignore the fact that the international TTI has now moved solidly above the line so, effective tomorrow, Wednesday, I will move back into that market. Depending on portfolio size, I will use an allocation to broadly diversified international funds/ETFs of anywhere from 15% to 30%.

As always, I will set my trailing sell stop at 7%.