With the S&P; 500 having finally closed above the 1,500 level for the first time since Sept. 7, 2000, let’s look at a bit of recent history. Incidentally, that date occurred just 1 month prior to our Trend Tracking Index giving an all out sell on Oct. 13, 2000.

This broad based index made its all-time high of 1,527 on March 24, 2000. The markets whip-sawed sharply throughout the remainder of the year until all major indexes slid into bear market territory which lasted until the lows were established. This happened in October 2002; about 2 years after our sell signal had moved us to the safety of the sidelines.

Why bring it up?

The press has been reporting about the incredible recovery as the S&P; 500 rallied 93% since the low made on Oct. 9, 2002. This does not mean that anybody recognized that low point, invested 100% of their money into the S&P; 500 and actually gained 93%. It’s simply a number—but a misleading one.

Let’s look at something more realistic as far as portfolio history is concerned. If you had held on to the S&P; 500 when we sold on Oct. 13, 2000, you would have gained (via Buy & Hold), from that moment in time, until May 3, 2007 a grand total +9.33%! That is over a 6-1/2 year period.

Not very often will you read numbers in the press that include bear markets when looking at long-term performances. All you ever hear are figures that reflect recoveries from an index’s low point. No one can identify a low point as it occurs; it can only be recognized after it actually has happened.

This is the problem I have with the Buy & Hold scenario. Most investors don’t realize that their financial life is much shorter than their physical life. There’s a good chance that you may live to your 80s, but you only work maybe some 45 years. Wasting a large part (some 14% in the above example) of your financial life on simply trying to make up what you lost makes no sense to me.

That’s why my emphasis (via trend tracking) has always been on bear market avoidance rather than measuring to see if I’m ahead of S&P; 500 performance every quarter or every year. If I can avoid the worst part of a bear market scenario, I will automatically be ahead of the S&P; 500 as the most recent 7 years have shown.

That’s my view, what’s yours?

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

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

The markets marked their 4th week in a row of closing higher.

Our Trend Tracking Index (TTI) for domestic funds made new highs as well and now sits +6.17% above its long-term trend line (red) as the chart below shows:



The international index rallied into record territory and has now moved to +10.83% above its own trend line, as you can see below:

That was the question new newsletter reader Jack asked yesterday as we were discussing my trend tracking methodology.

As an experienced investor, he was looking at all the fundamentals that can drive the markets ranging from corporate deal making to stronger than expected earnings and outlooks. Oh yes, and the revised forecast from Thomson Financial changing their S&P; 500 1st quarter earnings projections from (only a few weeks ago) 3.3% to over 8%.

Nevertheless, Jack was trying to figure out what the market might do next based on fundamentals. There is an easy answer which is that ‘nobody knows.’ The markets are so complex and intertwined that no individual, no matter how sophisticated his computer system may be, can analyze all facts in such fashion that he could come to a definite conclusion as to what the market will do next.

As an investor, Jack simply has to come to terms with the fact that “he does not know and never will.” However, one thing is for certain that all known fundamental facts are immediately reflected in the price of the underlying security.

This certainty has become the basis of trend tracking. We can measure where the ‘major’ trend in the market is. It can only go up, down or sideways. That’s it. Jack needs to accept that he does not have to drive himself crazy by following every bit of news information. He simply needs to be on the correct side of the trend.

That will allow him to establish his investment positions and provide for contingencies via an exit strategy. If he does just that, he will sleep much better at night and will be in control of his investments as opposed to the other way around.

So, how high will this market go? I have no clue, nor do I care to guess.

I can’t believe that this could actually be true. A story in the Money section of the NY Daily News features a new series of ETFs called StateShares that allow you to buy or sell portfolios based on 21 state specific stock indexes. Each of them contains some 50 issues. There will also be a composite of 500 stocks available based on these state indexes.

In other words, if the mood strikes you, you can be long California and short Texas. No, I really didn’t make this up. Had the date of this story been April 1st, I might have caught on quickly, but April 30th?

To me it seems like a glorified gambling attempt; I simply can’t see where having these types of ETFs would add value to an investor’s portfolio.

Am I missing something?

Investor’s Daily had an interesting article about the performance discrepancy of oil ETFs. In a previous post, I alluded to the fact that some segmented ETFs can easily stray from their stated benchmark, and that you can’t always be sure what you’re buying.

It appears that this happened to 2 oil ETFs, namely OIH and USO. You would think that if the price of oil goes up, so would any ETF tracking that sector. Apparently, that’s not a guarantee. Look at the chart below:

If you thought that Magellan was a behemoth of a mutual fund, think again. It just got dwarfed by the mother of all funds, American Funds Growth Fund of America, which weighs in at a hefty $165 billion in assets.

Normally, I wouldn’t even pay attention to this fund, since it has a front load of 5.75%, but an article at Motley Fool’s website made me wonder if this bloated condition might have an adverse effect on performance.

The article cites a number of amazing stats showing that this fund actually outperformed the S&P; 500 over a longer term basis. I did a quick 5-year comparison in the chart below and confirmed the findings.



Of course, the fund hasn’t always been this large, so looking at its past may not be as accurate for the present. Only time will tell.

What tickles me though is that there is currently a big debate going on as to the benefits of indexing vs. the use of actively managed mutual funds. This article sure is a feather in the cap for the folks who promote the actively managed funds, although the index people are trying very hard to come out on top.

I can tell you already that neither one is right, but I will be weighing in with more detailed opinions in future posts after finishing Larry Swedroe’s book on the subject.