Questions & Answers

A: Ira: We are in a market environment that could be best described as insane or absolutely nutty, because nothing matters other than the “words of wisdom” central banker spew about in their attempt to prop the markets up and maintain the illusion that the recovery is alive and well.

As such, I can’t find fault with you exiting ahead of Brexit. To me, the most important aspect about investing is your comfort level, which is far more critical than what any investment methodology can provide you with. So, you’ve missed a little upside, but you also avoided a big potential downside disaster, which at some point is guaranteed to strike.

If you do decide you want to ease back in, simply use by incremental buying procedure, which is described in the video “How to know your investment risk tolerance.”

A: Smokey: Yes, while you are correct, you are also extremely lucky in that the markets did not collapse in mid-February as the Fed’s jawboning prevented the S&P 500 from slicing below the 1,800 level. The subsequent rebound saved many buy and holders from losing their shirt.

Had you done what you did back in July of 2008, you would have suffered severe financial hardship. I for one will not take any chances that next time the market tanks we will get lucky again and see a repeat rally of March 2016.

A: Chris: I appreciate your feedback. Yes, when the markets eventually head south in a big way, it pays to be quick pulling the trigger and getting out and also not having a lot of positions to worry about. I agree with your SPY/XLP assessment.

In regards to Buffett, many investors try to emulate what he does forgetting that they are not in the same financial position he is in. So, if he wants to have 90% of his money buying and holding an S&P index fund, then fine. He can afford to lose 50% when the markets tank and still continue to live a charming life. For the average Joe, another 50% drop will prove to be quite devastating and very difficult to make up.

10% in a short-term bond fund maybe OK, but should interest rates “normalize” at some point, that will be a losing proposition as well, unless, he buys the actual bonds and holds them to maturity.

A: Chuck: Remember that all 10 ETFs in the Spotlight were chosen based on their ability to withstand sell-offs better than most as measured by my MaxDD% indicator. Given that this was the main criterion, I am sure there are other ETFs that maybe better proxies than IOO, but they may have more volatility as well.

A: Don: It all depends when the next Buy signal is triggered. If it happens fairly fast, such as it did last October, I used the same ETFs we owned before. If, on the other hand, we sink deeper into this bear market, and some time passes, I will re-evaluate and consult my High Volume ETF list at that time.

As far as individual allocation is concerned, I sometimes have favorites, so I don’t necessarily invest equal amounts. For example, during the last Buy cycle we had a larger allocation to Healthcare, which performed very well and helped average out the performance of those ETFs that were less than stellar.

A: Kathy: Actually, the big drop and the meltdown occurred after our “Sell” signal. However, this is nothing new and one of the reasons why I never put in sell orders ahead of time but use day-ending prices only to make my decisions. I then enter the order the next day as a “limit” order; never ever as a market order!

It avoids a lot of headaches, as I posted back in 2009 in “Front Runners.”

This is an old issue that gets put on the front burner every time the markets hiccup.

A: Tad: Good observation. If you are the aggressive investor, you can. In my advisor practice, we’ll wait a while longer until volatility has subsided and the bearish trend has become clearly established. Right now, the market is still at a point where a whip-saw signal is a distinct possibility. (8/28/2015)

A: Larry: The answer is simple. I update the TTI prices daily to not only show the changes but to also to be prepared for a trend line crossing and the resulting ‘Buy’ or ‘Sell’ signal.

Since I use a weekly moving average (M/A), that number is only calculated every Friday, and I usually have it updated/corrected in the ETF/Mutual Fund Tracker by about 6 PM PST. It remains the same until the following Friday when it gets recalculated again.

A: Nitin: I do not recommend it for the following reasons:

1.It would put us out of sync with the major trend, which remains up until my Domestic TTI, or our trailing sell stops signal otherwise.

2. The Greek situation is a known so, in my view, while market reaction in Europe may be severe, it should be limited in scope here in the U.S. Actually, it may be just a temporary pullback followed by a rebound.

3. Should things deteriorate to a point where the bullish scenario turns bearish, our exit strategy will point the way to the sidelines at that time (we’re not all that far away).

A: Bob: At this time, I personally would not touch any bonds at all. If you look around the world and see the erratic behavior of yields, crushing bond prices in the process, it’s best to stand aside from that asset class for the time being. Cash would be the better option, at least to me, rather than some of the funds you mentioned. I would stick with whatever portion you have invested in equities subject to my recommended sell stop discipline. Let others take chances with the bond market. There will be a time again where they make more sense than right now. Again, my advice is always the same: If you are hesitant at all, don’t do it, just because some joker thinks the 60/40 allocation scheme is suitable for anyone at anytime.

A: Chris: There are many possible scenarios with Greece leaving the Euro. If it’s an ugly divorce and the EU has to swallow the losses of the unpaid loans, which is very likely, then the contagion could spread to the peripheral countries like Portugal, Spain and Italy. Eventually, it will mean the demise of the Euro as we know it, but the timing is unknown. However, if the Euro crumbles, the dollar will rally, and we’ll have to wait and see how domestic equities will be affected. Keep in mind that we are in uncharted territory with this situation, and no one really has a clue how this will play out. One thing is for sure that you are better off having an exit strategy in place, because things could get ugly in a hurry, and there will be no place to hide except on the sidelines. If you are holding IOO (I don’t), you don’t have to panic simply follow the trailing sell stop discipline and execute when the market tells you it’s time to do so. That will eliminate any guesswork or having to listen to predictions by others who don’t know either what the future will bring. Hope this helps.

A: Ed: It’s nice to hear from you. 7% stops on stocks don’t work well due to the volatility. I only use the 7% rule on ETFs/Mutual funds. Personally, I don’t put in the stop ahead of time (I track it on my spreadsheet), because I only use day ending prices to avoid what happened to you, namely market manipulation and/or front running by the HFTs. If my stop has been triggered based on the day-ending price, only then will I enter the sell the next day as a limit order. When using day ending prices for stops, you may get stopped out at worse price, but I am not interested in intra-day fluctuations but only how the markets end up once trading is over. That way I can better determine if the long-term trend, the basis for Trend Tracking, remains intact or not.

A: Scott: Once we go into Sell mode, and out of equities, volatility is usually very high, along with the uncertainty of future market direction, so, our first move is into the safety of our money market accounts (cash). I then observe and evaluate if there is any asset class that bucks the trend and offers us an opportunity for further growth. In the past, bond funds have provided some of that security, although at the next market drop, I can’t be sure as bonds are in a bubble of their own. We really need to get there first, before I can make an assessment as to what we might be investing in. If the bear market trend is confirmed, some exposure in SH (short S&P 500) maybe a possibility.

A: Norman: The time to use a 3X leveraged ETF like CURE would have been at the beginning of the cycle and not this far into it. However, if your risk tolerance allows such leverage, then by all means go for it. I prefer the slow and steady approach, because it is more suited to trend tracking as it minimizes potential whip-saw signals.

A: Chris: I don’t like to make wild guesses about the direction of any ETFs I own I like to use clearly defined price points to make my decisions for me. Most of the time, a trailing sell stop will be triggered before a trend line crossing occurs. When some ETFs rally strongly, such as biotechs and others, their respective trailing sell stops serve 2 purposes: 1. To limit downside risk should a sell off occur shortly after a purchase has been made, and 2. To lock in profits once an ETF has shot into the stratosphere and is bound to correct more quickly than others It does not matter what the reasons for a sell-off are, I simply prefer having the sell stops be my guide as to whether to exit or not, rather than me trying to make an educated guess. Remember, one of the reasons we engage in Trend Tracking is to take the emotions out of the equation and become less attached to the decision making process.

A: Bob: Thanks for your kind words. No, I have no intention of starting the model portfolios again. The 10 ETFs in the Spotlight offer far better choices and have proved to be superior in terms of performance. I have recently added the M-Index for the latest 5 weeks, so you can quickly identify which of the 10 is demonstrating better or worse momentum.

A: Ed: While there are many ways to use the ETF/MF tables, I personally prefer to select a mix of funds, preference being ETFs, which demonstrate good upward momentum yet have shown historically some decent resistance to market pullbacks. You can do that by dropping down the ranking list from the top a few spots, which would eliminate those high performers that tend to collapse quickly during corrections. Our goal is to remain invested as long as possible during up trends while minimizing any potential whip-saw signals. To make it even easier, I selected 10 ETFs in the Spotlight, which are featured and updated in my daily market commentary. They were chosen based on performance and above average resistance to sell offs along with the fact that they are all trading in high volume. Times change and ETF performance rotates, but you can select from that list and/or find the equivalent at Vanguard, if you prefer. Hope that helps.

A: Freden: As I said yesterday (2/12/15) in my commentary, barring any major sell-off this Friday morning (2/13/15), which did not occur, a new Buy signal for the international arena has been generated. As with any other Buy signal, use my recommended incremental buying process depending on your risk tolerance and, of course, never forget to implement my sell stop discipline. With all that is going in Europe, things could reverse in a hurry. There is no one alive that could tell you whether this is another head-fake.

A: Chuck: When I scanned through the ETF criteria for those to be included in the ETFs in the Spotlight list, none of the REITs made the cut. That does not mean they are not a viable investment option, it merely means that they did fulfill the requirement to make it on this particular list.

A: Nicholas: Let me address your questions as follows: 1. In regards to the rankings and which funds to buy, I personally prefer not being exposed to the top performers as they tend to correct the most when markets retreat and cause more whip-saw signals than I like. So, from the StatSheet, I drop down from the top and usually make a middle of the road selection. I have improved on that process by featuring daily updates of the 10 ETFs in the Spotlight that have been selected due to their favorable criteria. If you missed the announcement, you can again read it here. 2. I have found that most investors over diversify. The most extreme example happened a few years ago when a prospective client had me review his portfolio, which consisted of $50,000 invested in 35 mutual funds! As I have written in my e-book, How to beat the S&P 500?Ǫwith the S&P 500, you can manage an entire portfolio with just SPY. In my advisor practice, a $300k account would currently be invested in 3 ETFs that could change depending on market conditions. To do so conservatively, you may want to consider my incremental buying procedure, which is presented in this video. 3. There is always some sector rotation going on as the markets bob and weave. I observe the ETF performance of my holdings constantly but only make a change if one them is severely lacking while the others are sprinting ahead. I might give it 3 months or so and then decide whether it’s time to upgrade and dump the loser. Sure, predictions abound as to what the markets will do next, although it’s nothing but a wild guessing game since no one actually has a crystal ball. That is with the exception of the Fed, who can by shear public jawboning change market direction in a second. Having said that, that’s what makes the use of Trend Tracking such a comfortable investment choice, since we don’t care who or what moves markets we are OK with the fact that we have an exit strategy in place that we can rely on and that has the potential to control our downside risk should the bear strike again. You sound very hesitant when it comes to entering the markets, and I can’t blame you. To me, there are 2 choices that might make sense for you at this time. If you don’t like the environment we’re in, simply don’t invest! Alternatively, if you want to participate but having trouble making a decision, consider using our managed account service. That would take the emotional decision making out of play and you can be comfortable in the thought that all will be executed according to plan.

A: Marty: Thanks for your kind words. The first move, once the Domestic Trend Tracking Index (TTI) breaks below its long-term trend line indicating an upcoming bear market, is to the safety of the money market funds, as markets tend to get extremely volatile during a severe correction. Then we can evaluate, without being emotionally attached, if there are any asset classes, such as bond ETFs, that are rallying despite the equity meltdown. If that’s the case, we may get invested in those areas. If things look uncertain, we will remain safely on the sidelines until the fog clears. Alternatively, once the bear appears to have settled in, and we’ve seen no major bullish spikes, I may consider the short S&P 500 ETF (SH) and ease into the market with a small percentage at first. In that case, I will use the same trailing sell stop discipline that we use on the bullish side. I am not a friend of leveraged inverse ETFs, as they tend to be too volatile for my risk tolerance.

A: Angela: There are various issues here. First, my sell stop discipline does not work with individual stocks very well, since they are too volatile. My exit strategy is designed to be applied to broadly diversified mutual funds and ETFs. Second, you need to track the high prices of your ETF/mutual fund every day. Say, you reach the $70 level, and then the price slips to $68 before resuming its trend and touching $72. Then $72 becomes your new high price from which to calculate your sell stop. You can’t do that with an automated system such as you describe. Third, as I posted on various occasions, we only used day-ending prices for our calculations in order to avoid intra-day whipsaw signals and/or market manipulation. Having said that, you should be able to take a couple minutes at night to see if your sell stop, based on that day’s closing price, has been triggered or not. If it has, then you can place your order the next morning. Hope this helps.

A: Ed: Whenever a Buy or Sell signal occurs I post it to the blog the same day. It also gets emailed to all subscribers, but I recommend you check the blog when we appear to get close, since email delivery is not always very reliable.

A: Dick: Yes, that’s been an old problem that we avoid by using ETFs. I manage a few 401k accounts for clients, where mutual funds are mandatory, but I predominantly use the equivalent index fund for the S&P 500. Since a whipsaw does not happen very often, this has not been an issue for us.

A: Ed: The most important thing when investing is your personal comfort level. Nothing else matters more than that neither the investment method, nor any news, opinions or even my suggested exit strategies for that matter. If you have any discomfort, simply don’t invest until such time that your risk tolerance allows you to do so.

A: Larry: Sure, you can buy put options on the indexes to protect part of your assets from a sudden decline. Your timing has to be pretty good otherwise the cost of the put options will eat into your gains.

A: John: I have done some back testing but most has been real life experience. Whenever you have new money to deploy, your risk tolerance should be your guide. I talk about that in a short video, which you can watch at: http://www.youtube.com/user/theetfbully

A: Dennis: I arrived at the -7% level via trial, error and experience. Remember, that 7% is a soft number. As I’ve posted before, we never put in sell stops ahead of time but use day-ending prices only. The -7% level is my alert point if I see a break below -7.5%, I will take action the next day unless there is a rebound in the making. Via this approach, our exit point ends up being closer to -8%. Sure, selling some assets at -5% and the balance later on, is possible. However, over the past 25 years I have found that this approach can have merits in certain environments and does not work well in others. In the end, you have to make up your own mind to decide what works best for you. In the bigger scheme of things, the goal here is to avoid going down with a bear market. There is not just one way to accomplish that.

A: Dennis: Yes, the TTIs affect the 10 ETFs in the Spotlight. Absent of any major downturn and, while the TTIs are on the plus side of their respective trend lines, the trailing sell stops give you the signal when to exit the market. However, if the TTIs move into bear market territory before a trailing sell stop is triggered, then they will override the sell stop discipline. It is the indicator which has reliably signaled major trend changes in the market for some 25 years. To clarify again, if the International TTI drops below its trend line, it will affect all broadly diversified international mutual funds/ETFs. If the Domestic TTI drops below its trend line, all broadly diversified domestic mutual funds/ETFs are affected. Sector and Country funds should be sold based on their respective sell stops giving the signal.

A: Steve: Yes, I believe that avoiding the big drops is a far more important issue than tax consequences. In my view, tax issues are secondary while protection and preservation of capital should always be the primary goal. Those that have experienced the bear markets of 2000 and 2008 can certainly attest to that.

A: Steve: When I developed the Trend Tracking Indexes (TTIs) in the 80s, I found the 39-week SMA to be the most effective average that minimized whip-saw signals and produced reliable Buy/Sell signals.

A: Ray: There are many ways as to use the tables in the StatSheet. The more conservative one, which I recommend at these elevated market levels, is to make your selections from the 10 ETFs in the Spotlight, which are featured as part of the daily market commentary. The idea here is to avoid unnecessary whip-saw signals caused by ETFs that are too volatile, and try to stay with the long-term trend until our trailing sell stops and/or trend line crossings signal a move to the sidelines.

A: Cole: If you currently own any of the listed ETFs, they are considered to be in Hold mode as opposed to Sell mode, which occurs once they drop off their highs by 7.5%. The Action column will reflect such a change. For new money, I recommend the use of my incremental buying procedure as described in the following video: https://www.youtube.com/watch?v=9bMzdkYY-hk

A: Roger: Sure, you can use it as a standalone portfolio, as some readers have done, or, you could use only those ETFs that are showing strong upward momentum, such as I do in my advisor practice. More importantly, you need to follow my recommended sell stop discipline, to make sure you limit your downside risk should this bull market die all of a sudden.

A: Mark: Yes, ideally, you would add or establish new positions when the TTI green line is in close proximity to its red trend line. However, that is not always practical, since it may take months for this to happen while we are in a bull market, and you’d be missing out on upside potential. A better way is to determine your risk tolerance, and then invest incrementally in the markets regardless of where the TTI stands. If you combine this with my recommended sell stop discipline, you’ll know exactly the risk you are taking with your portfolio at anytime. Click on the below link to watch my video on this topic: https://www.youtube.com/watch?v=9bMzdkYY-hk

A: Jim: No argument there. That’s why it’s important not to focus on the superficial news events but only on the long-term trends in the market place, as they are the only true directional measure one can use to make investment decisions.

A: Chris: No, I have not heard about any reader attempting that. Value is such a vague definition. When markets rise or fall, all equities will follow that trend, the only difference is the degree of change. A good case in point would be yesterday’s (7/31/14) price action where SPY dropped 1.94%. Its low volatility cousin, SPLV, which some consider a value play, surrendered 1.87%. That is hardly non-correlation. To me, it’s far more important that you employ an exit strategy that gets you out of the market before a major disaster strikes, such as the bear effects of 2000 and 2008. Trying to distinguish between a Momentum ETF and Growth ETF is nothing but an exercise in futility.

Tarentola: I can’t give direct advice, since I don’t know your circumstances. You should make your selections based on your risk tolerance. Sure, you could use all of them, if you have a larger portfolio or just some of them. As a general observation, most investors diversify too much. For example, for a $500k portfolio, I have used as few as 4 ETFs. Whatever your mode of operation, be sure to use my recommended sell stop discipline.

A: Joe: The first move, once the Domestic Trend Tracking Index (TTI) breaks below its long-term trend line indicating an upcoming bear market, is to the safety of the money market funds, as markets tend to get extremely volatile during a severe correction. Then we can then evaluate, without being emotionally attached, if there are any asset classes, such as bond ETFs that are rallying despite the equity meltdown. If that’s the case, we may get invested in those areas. If things look uncertain, we will remain safely on the sidelines until the fog clears…

A: David: For simplicity sake, I use dividend adjusted prices for the basis as the YTD table shows. Therefore, dividends are not reinvested, and the performance displayed represents the change in prices only for the period shown.

A: Roslyn: Yes, I will reevaluate all 10 ETFs at some point, probably the end of the year and replace them with those that fall within the stated guidelines of having a low MaxDD percentage. In the meantime, stick with those that are performing well or make your selections from Thursday’s StatSheet.

A: Jason: The M-Index is the ranking based on all momentum numbers and shows how funds/ETFs rank comparatively. The Cutline position numbers are simply showing the positions a fund/ETF has relative to its cutline or trend line. For example, the first one above the yellow cutline has the position +1, the next one above it +2 and so on. The same applies below the cutline. As time goes on, you can quickly determine which funds are bouncing around the cutline and which ones are developing upside momentum by steadily climbing higher and developing positive momentum numbers.

A: Adrian: I’m reading most of these wild predictions with a sense of amusement. No one really knows and, to my way of thinking, it’s not only an exercise in futility but a total waste of time. It’s so much easier to put an investment plan in place and let the long-term trends, and their changes in direction, be your guide as to when to exit and head for the safety of the sidelines. On the other hand, if everyone would follow this type of sensible approach, there would be nothing to write about in the financial media and some publications and TV channels might cease to exist.

A: Jack: If you look at the Total Bond Market index BND, which I don’t own, you’ll see that bonds indeed recovered this year, have come off their lows and broken above their respective long-term trend line into bullish territory. Still, I think the place to be is equities. If you are looking to get some income while participating in growth, DVY, which we own, has a 2.98% yield and is a member of the 10 ETFs in the Spotlight, which I feature daily in the market commentary. That means it has fairly low volatility, but you still need to guard against unforeseen market drops by applying my recommended sell stop discipline.

A: Joseph: While I don’t dwell on this often enough, the issues you have addressed exactly describe the main benefits of the trend tracking methodology. Having a plan in place that deals with whatever the market gives you, let’s you make better decisions and, as importantly, allows you to sleep better at night.

A: Don: Yes, when the price of an ETF is reduced by the amount of the dividend paid, you need to adjust the former high price by the same amount. Otherwise, your sell stop discipline is out of whack.

A: Tom: I don’t know which ones are the equivalents you will have to do that work yourself. The 10 I have listed were selected based on the criteria I mentioned. The fees with these high volume ETFs are very low to begin with, so I don’t concern myself with whether Vanguard ETFs are a fraction lower or not. My idea is to use a sound methodology and not try to pick up nickels and dimes?Ǫ Also, you should look not only at fees but also the bid/ask spread, which is where you really can pay more in illiquid ETFs. SPY, for example, is the largest and most liquid ETF in the universe, and I doubt the Vanguard equivalent can come close to this liquidity and low bid/ask spread.

A: Julie: Sure. A Sell for the Domestic TTI includes all broadly diversified domestic equity mutual funds/ETFs. A Sell for the International TTI covers all broadly diversified international equity mutual funds/ETFs. From past experience, I can tell you that before such a major trend line break occurs most of our holdings will have been sold as the trailing sell stops tend to kick in way before the trend line breaks. Bond Funds, Sector funds and Country funds are not included and should be liquidated based on their own respective sell stops and/or trend line breaks.

A: Ken: Sure, when I publish the newsletter, I don’t have all weekending values available by 4 pm. The update I post later in the day makes a correction to the Trend Tracking Indexes (TTIs) when the weekly moving averages are being adjusted. These data points become available later on, hence the update.

A: Duffy: The %M/A shows me how strong the upward momentum is for a fund like XLV (which I own) compared to others. Strong momentum also means that this ETF has risen higher above its long term trend line than most of the other ETFs in the Spotlight. There is no average range that I have found that might give you a better entry point. So, if you enter now, apply the trailing sell stop discipline rather than waiting for XLV to break below its long-term trend line. If the markets head south, and take XLV with it, I would sell it after it has come 7.5% off its high, as shown in the daily update. That gives me a better handle on controlling downside risk.

A: John: While I can’t give specific recommendations, I can suggest one way of carefully easing into the market. Given current high market levels and if you have a conservative bias, I recommend my incremental buying strategy, which is explained in detail in my video on my blog. It’s not the one at the top right. Scroll down a bit and look for the one titled How to know your investment risk.

A: James: Yes, you must have missed the announcement. This is what I posted in November about the discontinuation of the model portfolios as they have been replaced by the daily update of the 10 ETFs in the Spotlight: https://theetfbully.com/2013/11/7-etf-model-portfolios-you-can-use-updated-through-11262013/?preview=true

A: Kathy: As I mentioned in the NL, I am tracking 2 different items in the 2 tables. The first one shows any trend line breaks, some of which happened, while the second one tracks the trailing sell stops. I did sell my positions on a break below the trend line, but you can use the trailing sell stops as well. It all depends on your risk tolerance.

A: Don: There is a small difference. With a 39-week M/A, you recalculate the average only every Friday while when using a 195 day M/A, you would recalculate every day. I prefer the former, though in the end it may not make that much difference. Whatever you prefer, you should use.

A: Larry: As I described in the e-book, for those who strictly follow SPY, there are 2 exit strategies. You mentioned 1 of them. If SPY did NOT break below its SMA, than the old basis, or old high, that was used to figure the trailing sell stop to begin with, should be used to re-enter. Let’s take the current number for SPY. The current price is 183.52, the current High point is at 184.69 and the SMA is at 169.54. Say, the price declines off its high by 7.5% to 170.84 that would cause a sell signal. Let’s say, it was executed at 170, which is still above the SMA. Let’s assume the market resumes its upward trend without breaking the trend line. So, the new entry point is a break through the old high of 184.69, which would confirm a resumption of the upward trend. Keep in mind that this is not an exact science, but merely a way to establish some kind of exit strategy in order to avoid major portfolio disaster.

A: Don: The 7% level has been my alert point, but I always have executed once the 7.5% level was crossed. To avoid confusion, I have used the 7.5% level in my back tests as described in the e-book. Please realize that this is not an exact science and some investors sell even before the 7% level is reached while others use 8%. It all depends on their risk tolerance. The main idea is to have some kind of an exit strategy to avoid participating in the major market downturns.

A: Jack: Yes, I will update these 10 ETFs every day along with a continuation of their High points and 2014 YTD figures in a newly added Change column. Keep in mind that a new year does not change any of the calculations in regards to determining the trailing sell stop points. Of course, I need to point out that you may have different High points depending on your purchase date of the ETFs.

A: Mike: The DD% refers to the percentage a fund has come off its high. This is the high a fund has made since you purchased it, and it serves as a basis for calculating the trailing sell stop. For example, let’s assume you bought an ETF for $10 and it subsequently moves as follows for the next trading days: 10.05, 9.98, 10.15, 10.21, 10.30, 10.19, 10.14?Ǫ The high it has made in this data series is 10.30, which becomes the basis for calculating your 7.5% trailing sell stop, which would be at 9.52. If prices sink through 9.52, without taking out the high of 10.30 first, that would be your trigger point to exit the position. In my weekly StatSheet listings, you can see the percentage a fund has come off its high in the DD% column. Once that number exceeds -7.5%, it means a sell signal for that fund has been generated. To be clear, if you bought this fund at a different time than shown in the StatSheet, you need to track your own highs (no pun intended) as mentioned above. Hope this clarifies it.

A: Franz: When I developed the Trend Tracking Indexes back in the 1980s, I experimented with various SMAs but decided that the 39 week SMA was most appropriate. Subsequently, I never found a valid reason to change that.

A: Ian: The International TTI is a representation of broadly diversified international funds/ETFs. This does not include volatile country or emerging market funds. For those, you would use their own respective M/As to make your buy/sell decisions. That’s why they are listed in separate sections of the weekly StatSheet.

A: Ron: No, all reports will remain the same as before the new commentary is simply an enhancement. You were probably looking for the StatSheet Thursday night I got behind schedule and posted it this morning.

A: Joel: Actually, I am in the process of revamping the daily commentary to include exactly 10 of these, which are most suitable. They are selected by my MaxDD% indicator, which I will comment on in more detail. The scheduled change along with these new ETFs in the Spotlight will be effective as of 11/4/13 with an announcement being mailed to all readers on the prior day. Look for it.

A: Bill: Here’s how I look at it: FOCPX made a high of 80.84 on 8/5/13, which would be the number to use for your trailing sell stop. Say, 7.5% of that high would put a sell signal at a break below 74.78, which happened only briefly before this fund recovered. I could not verify the distribution of $1.19. If that is in fact correct, you need to reduce the high price by that amount, which would make the new high $79.65. Now you calculate the sell stop point of 7.5%, which brings it down to $73.68, which has not been reached yet. That’s the process I go through to determine if a stop has been triggered. If it has, I will execute the next day, unless there is a huge rebound in the making. Hope that clarifies your thinking.

A: Scott: Yes it’s the same for either. I use 5%, and we’ve been out of bonds months ago when the stop was triggered.

A: Robert: You could go that route as long as you use my recommended sell stop discipline to protect or limit the downside risk. While a couple of data points have indeed been positive, long-term, I think Europe will be a disaster. Right now, appearances are everything as the German elections loom in September. There is nothing positive in any of the countries like Spain, Italy, Portugal and even France, which are basically insolvent. I still think the U.S. is least dirty shirt in the basket, so my investment theme for this year has been domestic, and I don’t see any good argument to change that. Of course, all my thinking will change once the domestic trend line crosses into bear market territory.

A: Mo: Investing in special areas is always a possibility, however, the first move after a bubble bursts and/or a sell signal has been generated, is to cash/money market. Then you can then calmly evaluate whether there are other opportunities. In the past, bonds have been the safe play once equities head into bear market territory, but with interest rates coming off all-time lows, this may not be the case next time. We have to wait and see what other opportunities will present themselves when the time comes.

A: Rash: We have been in a declining interest rate environment for many years that it seems unusual for rates to go up and bond portfolios to head south. However, such is one of the unintended consequences of manipulating the financial markets as the Fed has done. The Fed’s goal has been to create the so called wealth effect, which in theory gets people to spend more money therefore contributing to economic growth. The tool of choice for accomplishing that has been the stock market and, via the various QE programs of the past few years, the indexes have been consistently pushed to new highs. As I have posted before, there has been a total disconnect between the stock market levels and the underlying economy, which eventually will have to re-adjust itself, in my view, via a market correction. As a result, standard portfolio allocations have been skewed and the simple holding of one or more equity index funds, as described in my new e-book, using the Trend Tracking/Sell Stop approach would have increased performance dramatically.

A: Bob: The M-Index calculation is no secret. In #6 of the glossary it states this: The M-Index (Momentum Index) shows the average non-weighted momentum ranking of a fund or ETF. The average is calculated from the existing 4wk, 8wk, 12wk and YTD momentum numbers. The higher the number, the more upside momentum a fund has. However, volatility is increased at the same time. If you’re conservative, drop down a few numbers from the top of the ranking food chain.

A: Jeff: Yes that is correct. However, there are 2 re-entry points. If VNQ breaks below its long-term trend line, then a crossing back above it would be the signal to buy back in. If, however, it does not break below its trend line, then the breaking of the previous high of 78.15 would be the re-entry point. I have elaborated on this in my latest e-book as well.

A: Larry: Yes, you are absolutely correct. Before I execute any buy/sell order, I check market activity to be sure that a major reversal is not in the making. If it is, I hold off another day’that’s where active management comes in. For testing purposes in this research project, we did not make any management decisions but went straight for the execution.

A: Jeff: Either on a trend line break to the upside or, once the old highs, from which the sell stops are calculated, have been taken out. I described that in my latest e-book. In case you missed it, you can download it here: https://theetfbully.com/newsletter-sign-up-thank-you/

A: Maghar: We are having a totally distorted and manipulated market environment and risk on and risk off tendencies switch at a moment’s notice so that alleged less volatile ETFs all of a sudden can get very volatile.

A: Thomas: As you know, I let my trailing sell stops make those decisions for me, so that I don’t have to be emotionally involved. Depending on your risk tolerance, you can use a 5% or 7% trailing stop. Figure out your high point from the time you purchased these ETFs, reduce that number by the dividends received, and then apply your sell stop. If it gets triggered, you sell if not, you continue to hold. That’s what I would do.

A: Jake: Yes, I indeed am working on this e-book, which will be made available for free to anyone who is interested in this topic. It covers the past 13 years and shows the many advantages of using trend tracking vs. Buy-and-Hold backed by hard evidence and many truly enlightening charts. Barring any unforeseen circumstances, I hope to have it finished by the beginning of July.

A: Ed: I don’t own it, since it is hovering below its long-term trend line. There are far better opportunities in low volatility ETFs.

A: Dan: You are correct with your first paragraph?Ǫ Once you have sold, you can stay in cash, depending on market conditions, and re-purchase the same ETF once the old high, from which your sell stop was calculated, has been taken out again. Or, you could purchase another fund/ETF depending on your risk tolerance. You can use my weekly StatSheet, which is published every Thursday, as a guide. The latest issue is posted here.

A: Doug: For bond ETFs, I use a 5% trailing stop loss, but overriding was the fact that some of our holdings BND, TIP, TLH had not only broken below their long term trend lines but were showing poor performance. While some did recover, I found better opportunities elsewhere, like in low volatility equity ETFs. Again, in regards to stop losses, for broadly diversified domestic/international funds/ETFs, I use 7%, for bonds, I use 5% and for sector and country ETFs, I use 10%.

A: Don: Personally, I don’t like ETNs. They are uncollaterized loans and expose investors to default risk of the issuing bank in addition to market risk. With ETFs, I only have to concern myself with trend direction.

A: John: The reason is that you have a different view of the rankings. Some readers prefer looking at the Cutline report wanting to track those funds/ETFs that barely have or are about to cross their respective long-term trend lines to the upside, in order to get aboard early. Others prefer using the M-Index to make that decision. So, a different sorting order will better accommodate the various investing styles.

A: Steve: All terms are described in the Glossary section, which is posted on the top of every StatSheet. In case you missed it, you can read it here: http://www.successful-investment.com/GlossaryOfTerms.pdf

A: Semserus: I use the following trailing sell stop points: 1. Bond Funds/ETFs: 5% 2. Broadly diversified Domestic/International funds/ETFs: 7% 3. Country/Sector ETFs: 10% Hope that helps.

A: Mike: No, as stated, when funds are marked zero or -100% it simply means that price data was not available at the time of publication?Ǫ

A: John: Well, the ideal time is always at the beginning of a buy cycle. However, once time has passed, I try to add new money on down days. Say, we are in bullish territory with my TTI, and I want to add some more VTI, then I would wait for a day when equities are pulling back and place my order at that time. If I am looking to add a bond position, I use the same approach in that I look for a down day in bonds. For most investors, I recommend a balanced portfolio as opposed to an outright equity one. While it gives you a lesser return, it also decreases the risk quite a bit. Personally, I am not in favor of adding small amounts on a monthly basis. My preference is to wait until I have say $5k or more and then invest it in a fund/ETF that is appropriate at the time. Again, there is no right or wrong it’s simply my preference.

A: Brad: Of course, you can piece your own portfolio together using the information I provide in the StatSheet. However, many investors prefer not living too much on the edge and prefer using a ready-made portfolio designed not on maximizing gains but achieving a balance within various asset classes in order to better deal with market volatility. It’s all about risk tolerance, and if you can stomach it, you can select only the high performers.

A: Chris: You could look at this way, but I don’t. The International TTI has gone up almost vertical, which means that it would most likely correct more severely once the bottom in Europe drops out. I believe that it will, I just don’t know the timing of it. As such, my preference would be the Domestic Market, which is also at unreasonable levels to underlying fundamentals but not to the extreme Europe is.

A: Joyce: If you buy an ETF or Mutual Fund, you are only concerned about the highs that are being made since your purchase date. For the model portfolios, I use the highs since their rebalance date on 12/31/11. I track any changes on a daily basis and update the models as necessary. Once a dividend occurs, you need to reduce the high price by that amount. That’s why you could not match up my numbers.

A: Joy: Yes, your understanding of my trailing sell stop discipline is correct.

A: Paul: We came close as I mentioned in Wednesday’s blog post as our TTI was positioned at +0.01% above itslong term trend line, and it slipped barely below it by -0.10% as I wrote on Thursday. While the overall markets have come down hard, it did not affect our most conservative equity holding in DVY. However, we have close to its trailing sell stop and its own respective trend line has been broken. So, unless there is a big rally emerging on Friday, we’ll be out of DVY. Be sure to tune into my blog when you have time, since I write about it daily.

A: Dom: First, the proceeds go into the money market portion of our account. Then you look for either other opportunities (ETFs that are trending up), or you wait for a market turnaround to reinvest. If you review the model ETF portfolios, you’ll note that we had been stopped out of various holdings, but reinvested later on as the upward trend resumed.

A: Ken: Yes, the TTIs get recalculated on a daily basis, but their respective moving averages (M/As) get recalculated only on Friday. So, when I publish Friday’s numbers, they include Friday’s price and the latest M/As.

A: John: Yes, I have owned a variety of bonds all year, as shown in my model portfolios. They have balanced out market fluctuations quite well, and I consider them an important portion of any portfolio during these uncertain times. Nevertheless, I still advocate using a 5% trailing sell stop on all bond ETF holdings just in case interest rates suddenly head the other way.

A: JR: Yes, you can use any model portfolio that suits your risk profile. However, once you have established your positions, you need to track the high points of your trailing sell stops on a daily basis. You should execute your sell stops when the price of an ETF drops more than 7% (for domestic equities) from its high since you purchased it using day ending prices only. Much of this has been discussed in my free e-Book on that subject.

A: Freden: While buying when the major trend is down goes against my personal philosophy that does not matter as there are many ways to enter the market. The one that matters most, and the one you should use, is the one the matches your risk tolerance. After all, if you are not comfortable, stay out! We are at high market levels and, given the global economic slowdown, which has not been discounted by the markets, the downside risk is far greater than the upside potential.

A: Lise: This might be the worst time of the year to add any equity positions with the notoriously volatile October staring us in the face. You’ve waited this long, why not wait a little longer until we get to the historically stronger market season starting in November or so? Unless you are very aggressive and execute a strict sell stop discipline, I would not add new equities at these highly elevated levels.

A: Keith: I do the same thing whenever a trend line crossing to the upside occurs. I wait a few trading days to be sure that the break is for real and the crossing has some staying power. This simply reduces potential whip-saws signals, but it will not eliminate them. If you are an aggressive investor, you can jump in earlier if you like. It’s simply my preference to approach this a little more conservatively at these lofty levels, but that does not mean you can’t act quicker than I did.

A: Frank: Yes, the use of low volatility ETFs can be extremely valuable in that you can avoid the sell stop triggers occasionally. I especially like SPLV, which has done better than its index, and I will add it to the data base, since it now features sufficient volume. Personally, in my advisor practice, I have preferred lower volatility products this year. For example, while my preference has been model portfolio #2, I had substituted DVY for VTI for many clients with the result that we never got stopped out and therefore have handled the usual market fluctuations much better.Actually, when you chart the S&P, DVY and SPLV, you will see that the less volatile of the 3 have outperformed the index. While I don’t own SPLV at this time, I may very well make it a part of some of the model portfolios in the future.

A: Rett: No, I have never used the TTI as a forecasting tool. It’s simply designed to let us determine the major direction of the market, so that we don’t go long when this indicator slips into bear market territory. In other words, in order to grow/preserve capital and to control downside risk, we need to be in sync with the major trend and neither against it nor make any wild guesses as to what should happen in the markets.

A: Larry: That’s one of the reasons why I set up the ETF model portfolios, which are updated every Wednesday. Here’s the latest link: https://theetfbully.com/2012/07/7-etf-model-portfolios-you-can-use-updated-through-7242012/ You simply pick the one that meets your risk profile and set up your trailing sell stops, which will take you a couple of minutes to monitor on a daily basis. That way, you don’t have to go through the StatSheet and Cutline tables. Hope that helps.

A: Roger: As in 2008, my views are based on the trends in the market place. Right now, we are still in buy mode on the domestic side after having slipped below the line in the international arena back on 5/15/12. With the global slowdown accelerating, and the Europeans continuing to excel in talking but not in coming up with solid plans to solve their debt crisis, another sharp market pullback is a distinct possibility. As I have commented many times, the only thing that keeps the domestic market at these levels is the hope for more QE by the Fed. I would expect another sharp sell-off but we need to cross below the Domestic TTI trend line to the downside first, before I become very bearish. At that time, anything is possible and a domino effect will be likely. Actually, there are many trigger points that could cause a sudden market reversal. One is Spain, a country that seems to have run out of money and may be defaulting on their debt well before Greece does. That’s just a guess right now, but stay tuned to the direction of the Domestic TTI, as it has been a great guiding light in avoiding major market crashes since the 80s.

A: Jack: You are correct. As of today, the international TTI has reached a point that is -0.41% below its respective long-term trend line, which means we are within striking distance of a potential new Buy. To avoid any potential whipsaw signal, I want to see a convincing piercing of the trend line to the upside along with several days of staying power above it. Generally speaking, that translates into somewhere 3-5 trading days above the line in the area of +1%. While this does not guarantee that a whipsaw will be avoided, it enhances the odds of getting in as upward momentum accelerates.

A: Chris: You can go either way, because this is not an exact science. In the past, I have based my purchases strictly on appreciation, although I have taken into account large year-end distributions, especially with mutual funds. Use your comfort level. Alternatively, if you find incremental buying too cumbersome, you may consider any of the Model ETF portfolios, which I publish every Wednesday. For example, I have preferred the use of model #2 this year and have substituted DVY for VTI for many clients with the result that, due to its lesser volatility, we still own it as opposed to the more wildly fluctuating VTI.

A: Don: All terms are explained in the Glossary posted at the top of the weekly StatSheet. In case you missed it, here’s the link: http://www.successful-investment.com/GlossaryOfTerms.pdf As I said, the higher the number the more volatile the ETF. There is no such thing a sweat spot. I use it to merely compare one ETF to another. In the end, the best way for most investors is to use one of my Model ETF Portfolios (when the domestic TTI is in Buy mode), which gives you a good balance of bond and equity holdings. Use one that fits your risk tolerance. When that is combined with my recommended sell stop discipline, you have a better handle on downside risk, which is essential in today’s volatile global market environment.

A: HB: Where the markets are at currently, your best bet is to use one of the model ETF portfolios as opposed to stringing together a variety of ETFs. Pick the one that best suits your risk tolerance. They have a mix of bonds and equities to balance out market fluctuations and, when used with my recommended sell stop discipline, will clearly define your downside risk.

A: David: I am not stressing them for any particular reason other than they pop up as part of my daily ETF report about winners and losers. They have been on the losing side for a long time, so it’s no surprise that occasionally they demonstrate a dead cat bounce and move into winner’s column.

A: Duffy: It has no significance in regards to the momentum numbers. It merely shows the count of the funds from the cutline. The first fund above the cutline is #1, the second one is #2, etc. Below the cutline, the first fund is -1, then -2, etc.

A: Rae: If you are using my recommended trailing sell stop and you set up your position at the same time we set up our ETF model portfolios, then you would have been stopped out just as we did. PRPFX has shown a disappointing performance YTD, just as it did during the second half of 2011. Right now, it is stuck in bear market territory and has currently broken its long-term trend line by -2.09%.

A: Walt: Yes, when an ETF rallies, the DD% will improve and go lower. The 0.00% means that this ETF has just made a new high since the cycle began and is therefore in a solid uptrend?Ǫ. That’s a good thing. If you look at the StatSheet every week, you see some DD percentages improving and others worsening depending on market direction.

A: Doug: We came close to selling PRPFX in our model portfolios a week ago. It had dropped -7.25% off its high, but I decided to hold on another day’just like I did with VTI. I ended up liquidating it on 5/31, as it had reached almost the -7.5% point.

A: Mark: Yes, I should have been clearer on VTI and reiterated the fact that the sell point depends on when you bought the original position. The model portfolio VTI holdings were set up on 12/30/11 and signaled a sell as indicated when the drop of 7% from the highs occurred. However, in my advisor practice, we purchased VTI at various dates thereafter, as new client money was invested, hence the difference in sale dates. So at this point, we have 99% of VTI sold and are holding only one position for one client, but that has reached the -6.19% level, so I anticipate that to be sold when the markets sink further. Hope that clears it up.

A: Kent: Well, long term you could be right. However, in the short-term, yields could go a lot lower due to the Europe crisis unfolding and worsening every day. Once a crash/contagion happens, the flight to safety will be on, which will be into US Bonds and similar instruments. In case you forgot, I recommend a trailing sell stop of 5% for bond ETFs/funds.

A: Sam: Sure remember, different asset classes have different sell stop points. For broadly diversified domestic and international funds/ETFs, I use 7%. For more volatile sector/country funds/ETFs, I use 10% and for bond ETFs, I use 5%. DBC falls in the sector fund classification.

A: May: There is no way to anticipate the timing of a potential sell signal. It happens when the price line of the domestic TTI crosses its long term trend line to the downside. However, before that happens, we will have been stopped out already via my recommended trailing sell stop discipline.

A: Duffy: Yes, you are correct, however, but I am just reporting what the numbers are, so, if you had owned these funds from the beginning of the cycle, then you would be selling now. If you had purchased them at a later date, then your high point, from which to calculate the sell stop, would be different.

A: Dee: Once you are stopped out of a position, you should first be in cash on the sidelines. You can then either replace that position with another fund that is trending up, or wait to reenter until the sold fund takes out its old high that you used as a basis to calculate the sell stop.

A: Duffy: No, you have to set up your own spreadsheet to do the tracking, just like I do in the model portfolios. You need to follow the high point your ETF has made since you bought it. That will form the basis for the sell stop calculations as mentioned before. The formula to change from sell to hold is: =IF(N903?lt-7%,Sell,Hold). You need to have some spreadsheet knowledge to make that work.

A: Nile: I sold all of PRPFX last summer as it got very volatile because of the metals breakdown. For the past few months, I preferred using my model portfolios #2 and #4. Currently, PRPFX is barely hanging on by only being +1.14% above its long term trend line. For me, it’s not under consideration right now.

A: Kent: That’s why I have favored the Total Bond Market index (BND) as opposed to others. However, if the sell stops get triggered, I will abandon bond ETFs for the time being. This recent sell off may have been just one of those unintended consequences of reckless Fed policy, and we may see a bounce back to the upside. Since I can’t be sure, if this will continue, I just focus on the trends and the sell stop points. There is a lot of fog ahead, so I can’t give you a clear answer.

A: Mark: During bear markets, you will face some the most violent bullish rebounds. Most investors can’t handle that type of volatility. On a chart, with the benefit of hindsight, it looks pretty easy and straight forward to go short, but it simply does not resemble reality nor addresses an individual’s ability to deal with extreme adverse market moves.

A: Mike: No problem. The what to buy is the easy answer as all ETFs are listed in the model portfolios. You should buy the domestic ETFs/bonds when our Domestic Trend Tracking Index (TTI) is in bullish territory, which it is. The total amount of the investment is determined by your risk tolerance. I have a short video on that topic on my blog. Notice my welcome video on the right then scroll down past the first ad and view the risk tolerance video. Just because the market is in bullish territory does not mean it will stay there. So you need to protect yourself via trailing sell stops just as the matrix in the model portfolio shows. For domestic ETFs, I use 7%, for sector/country ETFs, I use 10% and for Bond ETF, I recommend 5%.

A: Chris: I always take a cash distribution, which I let accumulate and then, once the sum is meaningful, I re-invest. In taxable accounts, it eliminates tedious cost basis calculations of re-invested dividends.

A: RW: Interesting Renko charts. They seem to track things more on a short term basis than I do. Nevertheless, their Buy of around 10/5/11 was fairly close to our Domestic Buy effective 10/25/11?Ǫ In regards to taking on a new customer during mid-cycle, which happens all the time, I establish their risk tolerance as shown in the second video clip on my blog’s main page (below the first 2 sponsors on the right). That will determine how much I deploy. Just a couple of days ago, I set up 2 new clients in a 100% invested position one of them in model ETF portfolio #2 and the other one in #4. Remember, if you are working with sell stops, you can be a little more aggressive as long as it goes along with the client’s risk profile.

A: GH: Well, you could be a contrarian indicator?Ǫ I agree with what you said in terms of targets and your overall skepticism. That’s why my preference is not to make market interpretations but let the trends be my guide. I have found over the past 25 years that my personal assumptions and opinions are not necessarily aligned with market direction. It’s far more effective to follow the long-term trends and use trailing sell stops to control downside risk while accepting the fact at the same time that you will be wrong occasionally and that subsequent whipsaw signals are simply part of the equation.

A: Don: You are right there is no perfect answer. My preference is to use trailing sell stops as my signal when to take profits or limit losses, whichever case it may be. If you’re happy with your current gains and are worried about giving them back, simply take them.

A: GEH: If you personally invest only smaller amounts of money, you can pretty much choose any ETF that appeals to you. As an investment advisor, I move larger amounts of client’s assets into and out of ETFs, so volume becomes a critical factor to me. It allows me to exit, when our sell stops get triggered, without too much slippage in price. That’s not an issue with most mutual funds, but I still won’t use any with assets of under $50 million.

A: David: No rules of thumb for any of your scenarios. I simply let the current momentum carry a fund/ETF to its eventual high point, from which a reversal will occur. If that reversal is strong enough, it will trigger my trailing sell stop and get me out of the market. I attribute the various scenarios you posted simply to the volatility differences of a specific fund/ETF but have not seen a way to use that information in making better investment decisions.Sorry, I can’t be of more help.

A: Mel: I have always favored bonds and cash along with some selected sector funds. I use the HV ETF Cutline report to make my selections from those ETFs that have crossed their trend lines to the upside. There are more to choose from now than a few months ago. The amount of allocation depends strictly on your risk profile. Have I increased some of my equity holdings? Yes, I have added exposure.

A: Kent: Yes, you are correct. If you plan on buying a bond ETF, simply purchase it on a day when it’s down. That’s how I do it as I have not found a good way to buy on pullbacks.

A: Maghar: The #7 portfolio is the ETF equivalent of PRPFX. We got stopped out of it in September 2011 and have not reentered due to PRPFX having remained below its long-term trend line. In other words, that portfolio has been in cash since.

A: Mark: There are plenty of opinions that’s for sure. It’s also a given that nobody can predict the future, so these are all wild or in some cases educated guesses. To me, it all boils down to trends. As we go forward, the simplest way to identify whether an asset class is worthwhile considering as an investment is by looking at my weekly Cutline reports, which are published every Monday morning. They clearly identify if an ETF/mutual fund is in an uptrend or not. While that does not guarantee a successful investment outcome, it enhances your odds of being able to better evaluate as to which ETFs are rising and which ones are falling. No matter whether we’ll have a bull market, a bear market, a recession or depression, trends tend to tell you what’s real amidst the onslaught of news and data, which always seem to cloud the clear vision.

A: Ian: You have the right idea, just be sure to use my recommended trailing sell stop discipline should any of your positions go against you by too large a margin. The markets have been on a roller coaster ride throughout 2011, as I detailed in today’s (12/10/11) post, which has made it very difficult to hold on to any positions for a longer period of time. With Europe being in upheaval, I expect that volatility to continue until their structural issues have been resolved’whenever that may be.

A: Ian: Much depends on your risk tolerance. I prefer buying back in when the domestic TTI is in bullish territory and when individual ETFs/MFs have also crossed their trend lines to the upside. Take a look at Monday’s HV ETF Cutline report, and you’ll notice a few equity funds on the plus side. As an example, I have added a small position in DVY a few days ago, since it’s less volatile due to its dividend paying feature. There are several other ones and, as I have disclosed before, we have exposure in XLP as well. Again, the final decision will have to be yours. I can only provide you with data to help the decision making process.

A: Vicky: I treat bonds like any other asset class. I invest in them when their major trend is up and hope for more appreciation as the economy weakens and demand from flight to safety drives prices higher. I protect myself against downside risk via my 5% trailing sell stop discipline.

A: Steve: It all depends on the custodian, but I don’t think a small $10k early redemption will get you kicked out from this fund. My custodian, Schwab, has a $50 early redemption fee for all mutual funds, so you may get stuck with an amount like that. Should you run into a problem, you can always use the PRPFX ETF equivalent, as shown in my model portfolio #7. Hope this helps.

A: Randy: I use most of the ones you mentioned, in particular BND, TLH and some TIP. For those, I use a 5% trailing sell stop point.

A: Richard: Sure, that is one way to get back in, and an acceptable one with ETFs. Since mutual funds have trading restriction, my preference is to delay the entry point and see PRPFX close back above its long-term trend line, which it did recently. Alternatively, if you prefer an earlier buy point, you could use the ETF equivalent of PRPFX as featured in model portfolios (#7).

A: Marty: Yes, buying in at a higher price is what keeps us in tune with upward momentum. I purchased some PRPFX last week for a variety of clients. The key here is to move back in when the long term trend line has been crossed to the upside, which just happened a few days ago. Be sure to track your trailing sell stop in case the markets head south again.

A: C: I did announce a couple of weeks ago that, while we were at the lower part of the trading range, I would suspend the Cutline reports temporarily, since there was nothing to look at but red numbers. With the markets having rallied, I have posted the cutline updates again this past week, but the links have become part of my market commentary. Be sure to look for it in the late afternoon PST.

A: John: Whatever you are comfortable with. The key here is, when the bear strikes, to be out of the market and in the safety of funds without market risk. Returns are immaterial what matters is trying to keep your portfolio intact and not go down with the masses of investors. Always remember 2008.

A: Lew: As I said before, they are too volatile for my taste. If you have an aggressive risk profile, go ahead. But be aware that, during bear markets, you can have huge rebounds, which will test your resolve of being short. This past week demonstrates my point and will have many investors, who shorted the market, scratching their heads wondering about the wisdom of their decision.

A: Americo: Well, it’s good for almost any situation. The sell stop is 7% off its high since you bought it.

A: Mike: There is not much I can recommend since you are not a client, and I don’t know your particular circumstances. You need to invest according to your risk tolerance. I’ve just done a video on that it’s not official yet, but you can preview it here: http://www.youtube.com/watch?v=69gNJ56EOGQ

A: George: The reason was simply that we have a different view of how portfolios hold up. I did hedge a couple of my ETF equivalent portfolios in my advisor practice, but most of them were with PRPFX. As I said before, #7 tends to hold up much better in down markets.

A: Kent: The hedge is there for a reason, which is to cover downside risk by being neutral while providing us with potential profit opportunities when the markets correct, such as today. Consequently, I don’t use 7% on the short side, but work mostly with the direction of my Domestic TTI. Right now, we’re stuck in the middle, although today was a perfect day for the short position, and I will remove SH next Tue/Wed, after the Labor Day, when the effects of today’s jobs reports have been absorbed’assuming that the markets hold up.

A: Andy: No, I am not in favor of most investors going that route. Yes, while there are rewards playing the short side of the market, the volatility and extreme sharp market rebounds can turn this more into a casino atmosphere than an investment environment. As such, I believe it’s only suitable for those with a high risk tolerance.

A: Rahul: You should not invest in a new portfolio at this time. Wait till our domestic TTI signals a buy again. Right now, we’re sliding into bear market territory and have our #1 portfolio hedged as shown.

A: Don: Say, you have an order in to buy PRPFX today, then, ideally, you want to buy SH at the close today to have the proper ratio to start with. It’s usually not exactly possible, but you can come close if you buy within 10 minutes of the close.

A: Dick: Yes, I read Harry’s book some time ago and agree with the composition he proposes. I don’t agree that PRPFX can always be held. Sometimes you just have to get out of it, or hedge it a good example would have been 2008. I will talk about the hedging part in a post this coming Sunday. I have tried the 4 ETF combinations, and they have not worked very well, which is why I came up with my own version. Sometimes the copy is better than the original, at least for this moment in time.

A: Al: There is no reason to worry about things you can’t control. Just make sure you have an exit strategy in place, and your investing life will be much easier.

A: Leslie: Nothing has changed other than the format of my blog. The weekly StatSheet is still being published every Thursday, and the Market commentary and StatSheet info are being mailed out every Friday. If you like to access the latest version directly, go to www.TheETFBully.com, look for the heading ETF Newsletter on the black ribbon in the header and select Latest Newsletter. That will give you easy access to the latest StatSheet. Hope that helps.

A: Richard: Yes, for all of my clients, I have the no re-investment of dividends selected. Whenever you re-invest within a taxable account, this tiny amount becomes a new cost basis, which has to be accounted for at year end. That can be an accounting nightmare, even though Schwab provides the cost basis calculations. My preference is to let the small amounts accumulate and, if market conditions are favorable, invest in a select ETF via a larger amount.

A: Stefanie: The Sell is automatically determined by your trailing sell stops getting triggered. As such, they serve 2 purposes: 1. To limit your downside risk, if the markets head south right away, or 2. If a rally continues, they will lock in your profits when the inevitable turnaround occurs.

A: Don: To your sell stop questions. You are correct with all, except VWO. Remember, I use different percentages. For broadly diversified domestic and international funds/ETFs, I use 7%. For more volatile sector and country funds/ETFs, I use 10%. VWO falls under the category of country funds. However, VWO did not reach its 10% level, but dropped below its long-term trend line (%M/A column) first, which supersedes its sell stop. It happens so rarely, which is why it hasn’t come up in discussions. Most of the time, our sell stops get triggered before the respective trend line gets crossed! Hope this answers it.

A: Ron: The positions shown as hold are referring to the sell stops not to the portfolios themselves. Personally, I have been holding back deploying new money due to the recent sell off. I am looking to ease into PRPFX but have no plans, given current momentum numbers, to add any of the ETFs listed.

A: Myth: Yes, you can do that, but not right now. We are on the verge of slipping into bear market territory, and you should be watching your sell stops and not adding new positions or switching to a different portfolio.

A: Kent: Yes, I don’t really change the cash positions, since that is too cumbersome. I still show the sold positions with their value at the time of sale, but crossed out. I use that as a base for reinvestment whenever that time comes. That’s the theme I followed when I reinvested in XLV. You are very observant!

A: Dave: I can’t answer that for you, because it’s a matter of your personal risk tolerance. My preference is the use of portfolio #1, which lends itself well for all types of accounts. Because of its conservative bias, it makes it a suitable choice for most of my clients in the current market environment.

A: Robert: You must have read way back in the archives, because I no longer use the confirming indicator. It used to be the DJ Transportation Index, but that was a long time ago. With the use of the trailing sell stops, I found this no longer necessary. I too used to go with the M/A crossovers only, but we had to give back way too much in profits, before the trend lines crossed again to the downside especially during a buy cycle duration of less than 6 months.

A: Brad: Using stops for stocks is an entirely different ball game due to the higher volatility. I have found that for mutual funds and ETFs, 7-10%, generally works pretty well.

A: Gillian: You need to read the footnotes when checking returns on sites like Yahoo. They are showing a 10.24% return as well, but the footnote says as of March 31st – hence the difference. Yes, the momentum numbers following the M-Index are showing the changes in price over the period specified. You may want to read up on the Glossary of terms shown in the pop-up menu above section 1 of the StatSheet: https://theetfbully.com/2011/05/weekly-statsheet-for-the-etfno-load-fund-tracker-updated-through-552011/ Yes, the fund’s annual expenses are included in all figures.

A: Bob: Yes, it would be but be sure to always use my recommended sell stop discipline, just in case market direction reverses.

A: John: HDV is too new to make any assessments, and WHX hovers below its long-term trend line making this a bearish scenario.

A: Frank: Yes, you are correct. A DD% of 0.00% means that this fund/ETF has just made a new high for the period. That translates into strong upward momentum compared to a fund showing a -3.56% number, which represents weakness.

A: Tom: No, they are not listed, but here are a few that we hold: EWM, VWO, VTI, IYZ, GLD, BND, DBC, VDE, just to name some.

A: John: The DD% figure of 0.00% merely says that this ETF/fund has made a new high during this cycle. It means it’s outperforming those that have negative numbers. On the other hand, when markets correct, these ETFs tend to correct faster as well. Personally, I use the M-Index rankings first, but I do drop down a few notches from the top to reduce volatility. If I then still find a fund/ETF that has a DD% of close to 0.00%, I select that one. However, it all depends on your risk tolerance.

A: Chuck: Other than PRPFX, I don’t use mutual funds. If we have a domestic or international buy signal, simply use the fund choices that are available to you in your plan. That’s what I do with the 401ks that I manage.

A: Ken: No, I simply read domestic and global news in general. Whatever the news are, they will be reflected in the price of the various asset classes that are affected by it. I follow their trends and make my buy/sell decisions based on those and not the news reports themselves. Trying to interpret news is a fickle endeavor, and you can be very wrong with your interpretations. The only thing that is real and realistic is the trend. That’s where my focus is.

A: Chuck: Yes it is, but it may not be ranked high enough to make it in the top 100. Remember, PRPFX is a conservative fund and is an ideal holding for the longer term. With the recent pullback of gold, PRPFX is lagging YTD. But it handily beat the S&P 500 in 2010.

A: Bob: It’s nice to hear from you again. Yes, I think gold should be in anybody’s portfolio, whether held directly via an ETF or indirectly via PRPFX, as we do. No to the automation of sell stops. I use Yahoo.finance to download the daily closing prices and update the high points. Sure, because of the pullback in gold, PRPFX is lagging a bit this year. So what it was up some 18% last year and will pick up steam again once another global crisis erupts somewhere.

A: Roger: There is no hard and fast rule. All depends on your risk tolerance. Especially at these lofty market levels, I recommend dropping down the M-Index listing, because the higher rankings will also be most volatile when the inevitable correction occurs. If you’re conservative, you may also consider only investing 50% at this time, and add the balance once your original investment has gained 5% or so. If you are ultra conservative, you may want to ease into the market in 1/3 increments. As I said above, only youcan make that determination.

A: Ron: All terms are explained in the Glossary, which you can find on the first page of the StatSheet. The current link is: http://www.successful-investment.com/StatSheet/SS020311.htm The best time to enter the market is at the initial crossing of the price above its long-term trend line. The percentages of a fund/ETF being above or below that line are listed in the %M/A column.

A: John: 1. Sure, you could ease in to reduce the risk since the market has risen substantially. You can also drop down the M-Index a few notches since a high ranking translates into high volatility, which means high ranked funds/ETFs correct more sharply than low ranked ones. 2. I don’t have a specific upgrade approach. The idea is to be diversified to better deal with market pullbacks. However, if a fund is clearly lagging, I may replace it after a quarter or so of underperformance.

A: John: For bond funds/ETFs, I use a 5% trailing stop loss. This is clearly were the Fed’s QE-2 program backfired. It was supposed to lower rates and not raise them.

A: Trevor: Sure, dollar cost averaging will balance buy and hold somewhat but it won’t do you any good when the bear strikes. Look at 2000 and 2008. I don’t care what lipstick you put on that buy-and-hold pig, portfolios will still go down when the markets tank. The market activity during this decade should have taught the lesson that only stepping to the sidelines from time to time, offered true protection from adverse market conditions.

A: Bernie: As I mentioned in the first StatSheet of 2011, my data provider does not provide me with nor includes any year end distributions, which means that some ETFs are unjustly dropped down on the ranking scheme. It’s a year end issue I have not been able to solve.

A: Stewart: Hybrid funds are fine in that they give you some automatic diversification. I only have used 1 mutual fund over the past year, which I have posted about from time to time it’s PRPFX. All other allocations have been via ETFs. I still stick with PRPFX as our core holding for 2011. No, whenever I need a bond component, I use bond ETFs and not individual bonds. The hidden fees are way too high in case you need to liquidate prior to maturity. In this current environment I am not in favor of any muni bonds/funds at all.

A: John: While bonds will lead the way as far as equities is concerned, we have not experienced much of the bond downturn, since we are holding the total bond market index and not the various Treasury ETFs. Munis are a special animal, and I have always looked at them as separate from the bond market. With the tremendous debt problems and lack of cash of states, cities, counties and municipalities, I expect more fallout to come, which will eventually spill over into equities as well. When that will happen, I don’t know, but the trends will tell me when it’s time to step aside to the safety of the sidelines. Everything else is just simply guesswork.

A: Karl: When my Trend Tracking Indexes (TTIs) are above their respective long-term trend lines, we are in bullish territory, hence a buy signal. The opposite is true when we move below the line into bearish territory. Within the bullish territory we have minor reversals, so selection of funds/ETFs is crucial. Some perform better than others, so not every pick will produce the desired results. The main purpose for the TTIs is to establish market direction so you don’t buy when the markets head south. Following these guidelines, we managed to avoid the brunt of the bear market in 2001 and 2008, which is far more important than having every fund selection turn out to be a winner.

A: Tom: Whenever a stock goes ex-dividend, you will see the price adjusted down on that date by the amount of the dividend. So yes, you need to reduce your high price by the same amount. As an aside, using sell stops on stocks is important. However, 7%, as we use for mutual fund and ETFs, is a little low. Stocks tend to be far more volatile, so you need to use a larger number in order to avoid frequent whipsaw signals. I suggest anywhere from 10-20% depending on the stock and your risk tolerance.

A: Ed: I see a lot of red myself down the line. WITE is pretty new so I don’t have much of an opinion, but another blogger just addressed the subject in: http://randomroger.blogspot.com/2010/12/brite-wite-etf.html Take a look.

A: Hal: Sure, that’s one way to go. Just never forget to use my recommended sell stop discipline in case any positions go against you.

A: Tom: Yes, that would be madness?Ǫ I only recommend using short positions once we have actually crossed the line into bear market territory. Just because you get stopped out does not mean the bear is upon us.

A: Phil: Hmm, my philosophy is to sell a fund once its trailing 7% sell stop has been triggered or if we are moving into bear market territory. Fund managers leaving or not does not affect my decision.

A: Paul: Yes, while you buy back at a higher price, you never go down in a bear market. Your downside is limited by the 7% sell stop’that’s the difference. Again, as I pointed out, this is not true trend tracking, but quite amazing when considering how poorly buy and hold has fared over the lost decade.

A: Andy: Sure as long as you use my recommended 7% sell stop, you know what your risk will be. We went all in with a lot of PRPFX due to its low volatility but excellent returns along with stable prices at least they were stable in the past.

A: Lew: If you’re talking about intra-day charts, there is a free service I use from time to time at: www.freestockcharts.com.

A: Leah: I have read about it, but have no opposing view at this time. I am not sure if it is just a scare tactic or not. My belief is that you always need to be in high volume ETFs only (I define them as over $10 million of average daily volume) and, if you follow my recommended 7% sell stop discipline, you should be out of the market before everyone heads for the exit doors.

A: Tom: You are correct you need to reduce the high amount whenever a distribution occurs, whether this happens monthly, quarterly or annually. This assures that your 7% trailing sell stop will be calculated based on the correct number. If you don’t, you may get a sell signal before it’s time.

A: Glenda: Generally speaking, you want to roll over your 401k into an IRA once you leave your employer. However, in your case, before you do, check with the custodian and find out if the loan provision, if any, of the 401k is still available to you once you no longer work there. If it is, you may consider taking out a loan on your 401k as opposed to cashing in a portion of your IRA where a 10% penalty plus taxes come into play, if you’re under 59-1/2 years of age. If the loan provision is no longer available to you, then you may want to roll into an IRA. If you’re hesitant about investing yourself, you might want to consider our investment management services.

A: Steve: FISMX is an international fund while MINDX is a country fund. For country funds, I prefer the use of ETFs, which is why their mutual fund cousins are not listed. The choice of funds/ETFs depends on your risk profile. If you are in the conservative camp, you might drop down a few notches from the M-Index ranking food chain to make your selections. That usually reduces volatility and cuts down on whip-saw signals.

A: Gary: There is really not much to discuss, since it is only a matter of an individual’s risk profile. If you are aggressive investor and can handle the downside risk, you can use leveraged ETFs. I don’t use them, and neither do my clients. Personally, I think most investors are better off trying to go for slow and steady growth by limiting volatility and the vagaries of the market. Leverage does not fit into that equation too well. However, I am back testing various scenarios within the trend tracking frame work and will publish my findings once my research has been completed.

A: Gary: That’s always a crucial issue. When we cross the line from a level below (from bear market territory), I like to see the trend line broken by at least 1% before buying back in. When we reach the line from a level above, you never know whether a break is imminent. For some thoughts on that please review my blog post at: http://thewallstreetbully.blogspot.com/2010/06/trend-line-talk.html

A: Ginny: The sell stop is of a trailing nature. As such it serves 2 purposes: 1. To limit downside risk and 2. To lock in profits That means your example is correct in that the sell stop would trail to the 18.60 level. Otherwise, it would be never be able to lock in any gains.

A: Wayne: No, I approach things differently. I do not buy the highest ranked ETFs in an up market or in a down-market since they are too volatile. I scale down on the list and select some that are more in tune with a client’s risk tolerance. That means, I will also stay away from leveraged funds. If we head into bear territory, I will take limited exposure in ETFs like SH subject to my 7% trailing sell stop.

A: John: Yes, the domestic TTI does not follow exactly the market as measured by the S&P 500. It contains an interest rate component that at times tends to slow the decline. Additionally, the 39 week moving average gets recalculated every Friday and it is still rising, which also contributed to the TTI’s slight advance.

A: Allen: While I try to make trend tracking a simple endeavor, there is always some subjectivity involved in the decision making process. As a general rule, that applies more to those of us managing money for clients to account for their varying risk tolerances. As an individual, the process can be less complicated. Remember that there are only two trend tracing indexes one for widely diversified domestic equity funds/ETFs, and one for widely diversified international equity funds/ETFs. All other categories (sectors, Country ETFs) need to be invested in via the crossing of their individual trend lines. When a buy signal occurs,I allocate as per the client’s risk tolerance. Aggressive clients want to go all in since we have our 7% sell stop discipline to cover the downside. For those who can’t handle a potential 7% portfolio drop, I ease into the market with either 50% or 33%. The exact allocation depends on what the market gives you. Last year, the international TTI signaled a buy first, so we allocated 33% to that arena. The domestic TTI followed a month later and we allocated 33% as well. The balance was filled up on an individual basis with bonds, sectors or country ETFs. There is no hard and fast rule, although I would prefer one it all depends on which signals get generated first.

A: Sid: Yes I agree. We have a large portion of our portfolios in BND and IEF, which covers the entire spectrum.I use a 5% trailing stop loss just in case interest rates head higher.

A: Allen: While I try to make trend tracking a simple endeavor, there is always some subjectivity involved in the decision making process. As a general rule, that applies more to those of us managing money for clients to account for their varying risk tolerances. As an individual, the process can be less complicated. Remember that there are only two trend tracing indexes one for widely diversified domestic equity funds/ETFs, and one for widely diversified international equity funds/ETFs. All other categories (sectors, Country ETFs) need to be invested in via the crossing of their individual trend lines. When a buy signal occurs,I allocate as per the client’s risk tolerance. Aggressive clients want to go all in since we have our 7% sell stop discipline to cover the downside. For those who can’t handle a potential 7% portfolio drop, I ease into the market with either 50% or 33%. The exact allocation depends on what the market gives you. Last year, the international TTI signaled a buy first, so we allocated 33% to that arena. The domestic TTI followed a month later and we allocated 33% as well. The balance was filled up on an individual basis with bonds, sectors or country ETFs. There is no hard and fast rule, although I would prefer one it all depends on which signals get generated first.

A: Gary: That’s always a crucial issue. When we cross the line from a level below (from bear market territory), I like to see the trend line broken by at least 1% before buying back in. When we reach the line from a level above, you never know whether a break is imminent. For some thoughts on that please review my blog post at: http://thewallstreetbully.blogspot.com/2010/06/trend-line-talk.html

A: Jody: Sure, for right now, your idea sounds reasonable. However, you still need to track price actions and implement sell stops should the need arise.

A: Steve: There is no way to anticipate what investment will best preserve your capital in these uncertain times. You may want to review my recent blog post on the subject: http://thewallstreetbully.blogspot.com/2010/07/sunday-musings-deflation-and-double-dip.html Right now, until trends change, the safest position is in BND (and of course cash), which we own as a portion of our portfolios. Of course, sooner or later, we will get stopped out and have to re-evaluate.

A: Gary: Yes, for such a small amount, I would not hesitate using Schwab’s transaction free ETFs.

A: Gary: That’s always a crucial issue. When we cross the line from a level below (from bear to bull market territory), I like to see the trend line broken by at least 1% before buying back in. When we reach the line from a level above, you never know whether a break is imminent. For some thoughts on that please review my blog post at: http://thewallstreetbully.blogspot.com/2010/06/trend-line-talk.html

A: David: Actually, some of our sell stops were triggered the day before the 1,000 point drop, and I sold them early in the morning before disaster struck. Sure, your point is well taken, but there is nothing you can do about. Hopefully, if this event ever occurs as you have described, you will have been stopped out of most of your positions prior so that there are not too many holdings left. Of course, buy and holders will be decimated again as usual. I have found that these wild swings predominantly occur in bear markets, or when we’re below the long term trend line of the domestic TTI. Maybe this was an early indication that we’re headed there. Who knows, but I will stick to my plan of implementing the sell stops, since I have no control over any possible black swan event anyway.

A: Barbara: My exit strategy and trend tracking approach work well for mutual funds and ETFs. Stocks are too volatile, unless you give yourself more room via the sell stop. For some clients, I have used 10-15% as a sell stop discipline for stocks. After all, when a bear market strikes, all stocks go down, and my preference is to be out of the market and not hang on to a stock dividend payment while losing big on the principal side.

A: Suresh: Yes, you are correct in selecting the $51 price as your high point.

A: Bill: There are actually services promoting this approach. Anything like this is better than buy and hold. A couple of issue to consider when using this method: 1. The S&P 500 moves faster than my Trend Tracking Index and can expose you to more whipsaws.&ltbr&gt 2. Not using a trailing sell stop will expose you to more losses because on the way down, most profits will evaporate if you wait to sell until the S&P’s trend line has been crossed. Anyway, it’s a simple way that will work as well, as long as you stick with it.

A: Denny: Sorry, I don’t have specific advice for that. When we get a buy signal, we move in the next day when our stop loss points tell us to sell, we get out the next day. When adding new money during a buy cycle, I try to buy on a down day if possible. However, I have seen that backfire too as the markets kept running away. There is no fool proof way that I know of that will give you an edge over time.

A: Dick: No problem this has been discussed many times. If one of my sell stops has been triggered, based on the day’s closing price, I will enter the sell order the next day, unless there is a huge market rally. That could indicate that this pullback was only temporary and waiting an extra day or so may avoid a potential whip-saw signal. In case you missed it, I compiled all bog posts addressing sell stop issue in a free e-book, which you can download at: http://www.successful-investment.com/SellStopDiscipline.pdf

A: Homer: This was discussed in my blog. In case you missed it, download my free e-book on sell stops at: http://www.successful-investment.com/SellStopDiscipline.pdf

A: Brian: Yes, I agree with you, but these types of arguments never seem to end. Sure, FAIRX is a great fund to own, just not in bear markets. But personally, just like you, I’d rather pay more for good performance, which is why expense ratios never enter into the equation for me.

A: Debbie: The easiest way to use the StatSheet along with mutual funds that are not on the list is by using the Orientation column. Look for the orientation of the funds you have in your 401k and then match them with the same type of funds in the StatSheet. While this is not a perfect solution, it will at least give you an idea as to whether these funds you are considering are showing upward momentum or not.

A: Lu: It sounds like you are looking for an income fund/ETF to buy and hold. There is no such thing in my view since, due to the crazy time, as you called it, every fund needs to be tracked and sold if market direction changes. You can select some funds from my weekly StatSheet as listed in the Dividend/Bond section. I only recommend getting into a position as long as you use an exit strategy.

A: Judy: It’s a 39-week simple moving average of my proprietary indicator. Trend lines lag and are not designed to call exact bottoms or tops. By their nature, that’s mathematically impossible. The TTI is designed to give us the general direction of the market after major turning points. Look at the sell signal on 6/23/08. It was not generated at the top but at a point high enough to ensure getting out in time before disaster struck.

A: Ed: Using trend following, the idea is always the same whether you use equities or bonds. Set up a trailing stop loss and wait for the market to tell you when it’s time to get out. There is no sense in guessing as to what interest rates might and might not do. I think you still have the notion that once you establish a position, you are married to it. That’s not the case. If it goes against you, simply get out. If you can, use ETFs, since process of liquidation is much easier.

A: Phil: I have talked about redeploying stopped out money in: http://thewallstreetbully.blogspot.com/2009/11/deploying-stopped-out-money.html

A: Tiffany: No, that’s not what the StatSheet is for. You’re planning on doing short-term trading, which I don’t advocate. Our approach is long-term, and we select funds/ETFs from the list depending on the risk profile of the individual. The higher the M-Index ranking, the more volatile the fund and the more aggressive the investor should be. I have never selected the top ranked fund, because it will also be the first one to trigger a sell stop once the market declines. Remember, trend tracking is about investing and not trading.

A: Wayne: No, you should use the high point of the fund since you bought it as a basis to calculate your trailing stop loss. Morningstar’s data has nothing to do with it.

A: David: Sector and country ETFs run on their own respective long-term trend lines to generate buy and sell signals. Hence, selective buys refer to those funds that are hovering above or have just broken through their respective trend lines to the upside. Those below their trend lines should not be chosen.

A: Mark: A turnover rate of 50% simply means that 50% of the portfolio was replaced with new holdings during the last year. A 100% rate means that all holdings were replaced. With mutual funds, a high turnover rate could mean more taxable distributions at the end of year regardless whether the mutual funds gained in value or not.

A: Richard: You can/should use whatever you are most comfortable with. You don’t need to use a different M/A, simply reduce the sell stop point to 5% or 4% rather than 7%. There is no hard rule, it depends on the risk tolerance of the individual.

A: Frank: Yes, that is correct. You deduct the dividend from the high price whenever it occurs whether it’s monthly or quarterly. If you don’t, your trailing sell stop is incorrect and you may get a false signal prompting you to get out when in fact the 7% level has not been reached yet.

A: John: If you like the funds you got stopped out of, you could re-enter once their old high (from which you measured the sell stop to begin with) gets taken out. That’s what I do. And yes, you are correct, I do no support placing intra-day stops and prefer calculating my exit points based on day-ending prices only. However, your comfort level is all that matters just be aware that you might experience more whipsaws when using the intra-day stop strategy.

A: Ken: First, congratulations for being 79-years old and using a computer and the internet. The best way to have access to all StatSheets is via the archives, which are available at this link: http://www.successful-investment.com/newsletter-archive.php You might want to bookmark it so you can get to it quickly.

A: John: The idea still is to avoid making emotional decisions. The trends are up, and we have our sell stops in place, which will give us an unbiased opinion as to when to get out.

A: Steve: I addressed all sell stop issues in my blog over the past couple of months or so. Here’s one reference: http://thewallstreetbully.blogspot.com/2009/09/sell-stops-and-mutual-funds.html Please revisit the articles from October, November and December, which are easily accessible on the right side of my blog layout.

A: Greg: It’s not a matter of which is better, but which is most appropriate. If you want safety, use CDs if you want to invest and occur market risk, but also have potential for higher rewards, then consider mutual funds/ETFs.

A: Srini: I try to keep those funds in my data base that are true no load and have no transaction fee nor any early redemption fees when purchased via my custodian (Schwab). From your list of funds, JABAX is already included. Keep in mind however, that I only feature the Top 100 in terms of performance, so at times it may be listed, or not, depending on where it ranks. From the remaining funds only 2 qualified for the above criteria, namely JATTX and JSCVX. The others did not due to having a transaction fee or ridiculous early redemption charges.

A: Don: There really is no separate TTI necessary for income investments. You treat these funds like sector or country funds by using their own respective long-term trend lines to get in or out of a position. You can see the % a fund is above or below its own trend line by referencing the %M/A columns in my StatSheet. If you are more conservative, you can further reduce any downside risk by using my recommended 7% sell stop discipline, or even 5%, if that fits your risk profile better. Keep in mind that the goal is to stay away from sharp declines in the market, which income funds are not exempt from as last year has shown.

A: Tom: You can pick any ETFs you’re comfortable with (from my StatSheet) and use my incremental buying procedure. Invest 1/3 now and if it gains 5%, invest the second 1/3 and so on until you’re fully invested. Use my recommended trailing 7% sell stop discipline, and you have a plan in place to deal with the market’s uncertainties.

A: Mark: You must have missed it, I talked about that in a blog post not too long ago. You can go one of two ways. One, if you still like the funds you owned, you can re-purchase them once the uptrend has resumed. To me, that is when the prices pierce the high point from which you measured your latest sell stop. Or, you can select different funds/ETFs with lower volatility, which you can identify by their beta. A fund with a beta of 1 follows pretty much the S&P 500, while a fund with a beta of 0.9 is 10% less volatile.

A: Louis: FAIRX has a M-Index ranking of 10, so that shows you where it fits in on the StatSheet. The reason I am not using it is that it is a fee fund when purchased via my custodian, and it has an additional short term redemption fee of 2% if sold within 60 days. That’s not acceptable to me.

A: Lewis: The TTIs are featured in the weekly StatSheet. In short, they are indexes I created in the 80s with the sole purpose of identifying market direction. You could say that the trend lines (red) of the TTIs represent the dividing line between bullish and bearish territory. The exact composition of the TTIs is proprietary.

A: Chris: Yes, I expect more real estate problems when a huge number of pay-option ARMs and ALT-A loans get recast over the next 2 years. That’s in addition to the commercial RE problems you mentioned. While I agree that the markets will head south again, I can’t be sure that real estate will be the trigger. It may more likely be the realization that the economic recovery is not as strong as hoped for especially once the stimulus runs out.

A: Paul: It should never be a mental tug of war. If your risk tolerance is such that you are feeling stressed exposing the final increment to the market, simply don’t. Be happy with what you have accomplished so far.

A: Durell: It’s nice to see you deeply puzzled?Ǫ. Yes, indeed you missed something. Here’s an example to clarify my point: Say, you buy an ETF for $9.80 and it rallies to a high of $10.00 thereafter before dropping and stopping you out at around $9.30. The market meanders and starts to move up again and eventually takes out your old high of $10. That would be the point where I consider the trend having resumed and a new position could be initiated in that ETF.

A: John: No problem I’ll be glad to help. As you already mentioned, before making any investment at all, we need the TTI cross to the upside into bullish territory. Let’s say at that point you purchase an ETF or mutual fund at $10. The market now meanders and slowly inches higher showing prices like this: 10.05, 9.90, 10.09, 10.35, 10.60, 10.40, 10.70, 11.00, 10.80, 10.75, etc. In this example, $11 becomes your high price from which to calculate your 7% trailing sell stop, which would be 10.23. If the market triggers that point, you should sell and get out. Say, the market does not get down to 10.23 but reverses prior and makes a new high at 11.80. Then this price will become the new high from which to calculate your sell stop. To sum it up, the basis for figuring out the sell stop is the high the fund/ETF makes since you bought it.

A: Don: I use a 7% sell stop for all broadly diversified domestic and international mutual funds and ETFs. For more volatile sector and country funds/ETFs, I use 10%.

A: Tina: That’s a simple answer, which you may not like. Put the money into a CD and don’t take any market risk. The time frame is too short to do any investing with.

A: Alicia: You are correct I used to have them listed but removed them a few months ago. They worked fine a few years ago when I wrote the e-book. Given the economic circumstances and the potential fallout effect on municipalities, I don’t recommend them at this time.

A: Sig: I agree, if interest rates can be manipulated, so can be equities. I just have not found an article anywhere to support that thesis. If you locate anything about this subject, please share the link with me.

A: Greg: Yes, if you are conservative, you can go with 1/3 at a time. If you are more aggressive, you can allocate 2/3 or 100% of your portfolio. If you really think about it, even going in with 100% at the time of a buy only carries a 7% risk, if you follow my sell stop discipline. If you go with less than 100%, you should add more, once your positions have gained 5% at least that is what I do. That tells me that the trend is still intact and warrants further exposure.

A: Don: Interesting thoughts. My view is that it never hurts to have a decent amount of cash instantly available. Whether that would be via access to your mattress is simply a matter of personal preference. The only reason banks can even function is because of FDIC insurance. And the FDIC can only be in business because of unlimited access to the Treasury kitty. Yes, there will be (and has been) heavy duty printing involved. Normally, that should affect the value of your dollar negatively, however, I am not sure if that will be so this time, since the rest of the world will try to print their way out of trouble as well. So the dollar will only be worth less relative to other currencies. I am not sure what the eventual realities will be. Right now, we are in a deflationary scenario for many years to come, in my view. When the facts change down the line, I will change my mind as well.

A: Sorry Thomas there is no such fund which you can simply buy and hold and forget. The markets are way too volatile for that.

A: Bob: If you are an aggressive investor, then by all means go for it. But you must use a sell stop, since this fund is extremely volatile and not for the faint of heart.

A: Nancy: I don’t know your situation, so it’s hard for me to comment, but you seem to be doing some aimless flip-flopping. My approach is to hold positions until they are no longer justified. That means if the trend in the market reverses and triggers my trailing sell stop, then I no longer can justify holding that position. That would be one reason for me to liquidate another one would be underperformance of an invested position. I suggest you use a similar approach.

A: Larry: That’s a very volatile area. When comparing NLR with the S&P 500, you can see that it dropped more sharply last year. If you’re aggressive and time it right, it can have its rewards.

A: Don: Yes, I too have read about their subpar performance as well. As a general rule, I don’t use these types of funds because of their aggressiveness, which does not bode well for most investors. I have used SDS in conjunction with my SimpleHedge approach and also found the performance not to be consistently 200% as I expected and had counted on. I don’t know why that is, but they are complicated instruments that few only understand. I have had better luck with short ETFs like SH, which seemed to perform as it was supposed to.

A: Paul: It does not really matter, which you use since the ranking number of the M-Index is meaningless by itself. It only has the function of comparing funds to detect differences in momentum. Again, don’t get stuck on the number use it to compare fund rankings and nothing else.

A: Bob: 14% is a great gain, and you should be proud of yourself. Sure, I believe that the March bottom will be tested again, but I have no idea when that will happen. Right now, the trend is up, and I have to go with that. I suggest, you do the same and use a trailing stop loss discipline to limit your downside risk or, with your unrealized gains, lock in profits when the trend reverses. That way, you’ll let the market tell when it’s time to get out. No sense in guessing?Ǫ.

A: Richard: I am not into closed end funds, other than a few that I use for my income hedge. The volume is too low and most are not suitable for investing any large amount of money. I remember trying to sell $400k of a tax-free fund holding a few years ago, which did not work too well. Pulling teeth would have been a better option.

A: Chuck: That’s the trouble with most international funds, which I why I prefer ETFs, at least in the current economic environment where trends can change in a hurry. No, I would not want to pay those fees. Sometimes I have gone with a fund that had a redemption fee of 1%/30 days, which I found acceptable hoping that a trend would last at least 30 days. But 60 day fees’no way!

A: Hello John: It’s nice to hear from you. When a buy signal occurs, I usually allocate about 1/3 portfolio value to that area. Once any of the holdings have gained 5%, I would allocate another portion equal to the original investment. Say, I allocated $33k and used 3 funds/ETFs for the international buy. If only one fund gains 5%, then I would naturally allocate only $11k. If the others follow suit, I repeat the procedure. If, in the meantime, a domestic buy kicks in, I would allocate 1/3 there as well and fill up the remainder with those allocations that gain the most. This is not a exact science, but that’s how I do it. I have also in the past stopped at 66% and filled in the balance with sector and country ETFs, or used my hedge approach to get to 100%. No one way is correct, it depends on your risk tolerance.

A: Mark: That is the trouble with most investment managers, even those with reputable names. They only know how to put together a bullish portfolio and, once the market collapses, they wonder what happened. As you know, I don’t think much of that?Ǫ As with all indexes, REITs are easy to track. You can either use the sector section of my weekly StatSheet and look for those which have broken above their long-term trend lines (%M/A column). That would constitute a buy signal. If they break below it, or come off more than 10% from the highest price since you bought, that would constitute a sell signal. For a quick view, you can consult the Yahoo charts, which shows that RWR, for example, is below its long-term trend line and therefore in sell mode. BTW, since you are retired, and if you have not done so, please read my free e-book on hedging. The download link is: http://www.successful-investment.com/SimpleHedge-v1.pdf That’s what all retirees should be doing.

A: Ray: Yes, you got the idea. I only add more $s to those funds, which have actually crossed the 5% threshold.

A: Blair: Yes, that’s how I have done it in that case, since I had extra money in the account. Rebalancing the hedge does not mean that there is a fixed portfolio allocation you just want to re-establish the 50/50 ratio. You can rebalance either to exactly the same amount you started with or simply add as I have done. My main motivation was to keep trading costs down, which in this case meant adding to Fund A + B was the cheapest solution. If this hedge represented 100% of portfolio value, then I could have sold some SH. It’s flexible and you can use anyway it fits into your mode of operation.

A: No Ray Your exit point is a trailing stop loss and is measured from the highest price your fund made since you bought it. That’s how you reduce risk. Say, you bought at 10.00 and prices zigzagged higher to 10.12, 10.08, 10.20, 10.40, 10.31, 10.50, 10.28, 10.14. This means your highest price was 10.50. 7% from that is 9.77, which is where your sell stop should get triggered, unless prices go past the 10.50 level.

A: Mo: I agree with your assessment, which goes along with my post from last Saturday on the VL type recovery. Since I don’t deal in stocks, I don’t concern myself with PE ratios at all. Whether they are high or low makes for an interesting discussion, but it does not give me any idea as to how and when to invest. To me, only the direction of a trend allows me to make a decision as to whether I should be in the market or out of it.

A: Thomas: I don’t think much of either. Many investors were involved in bond funds last year, some of which had mouth watering yields of 9%. While that sounds good, they lost principal at the rate of 30%. Makes no sense to me. Straight bonds (no funds) are OK. Personally, I think my hedge strategy is a better way to go since it reduces downside risk and allows for capital withdrawal when the hedge gets rebalanced. If you haven’t read my e-book, you can download it at: http://www.successful-investment.com/SimpleHedge-v1.pdf

A: Mel it’s always nice to hear from you. Yes, I’ve addressed the issue of low volume before. First, you need to drop down the list for the first broadly diversified international fund/ETF, to which this buy signal applies (orientation column). That eliminates the emerging markets and country specific ETFs. The first suitable one would be EFV, which I have chosen. I then checked the volume by going to http://finance.yahoo.com/q/ta?t=2y&l=on&z=m&q=l&p=m200&a=&c=&s=efv The table below the graph tells me that the average volume is almost 248,000 shares or $9.9 million. That shows plenty of liquidity for the amount I am investing. While at this chart, you can change the ticker and check volume quickly for any ETF you are considering. My preference for this buy cycle has been an ETF so that we don’t run into early redemption fee issues if this buy proves to be short lived. Hope this answers your question.

A: Mark that is the trouble with most investment managers, even those with reputable names. The only know how to put together a bullish portfolio and, once the market collapses, they wonder what happened. As you know, I don’t think much of that?Ǫ As with all indexes, REITs are easy to track. You can use the sector section of my weekly StatSheet and look for those which have broken above their long-term trend lines (positive numbers in the %M/A column). That would constitute a buy signal. If they break below it, or come off more than 10% from the highest price since you bought, that would constitute a sell signal.

A: Nolan, if you are a reader of my newsletter, you can simply follow my rules of the trend tracking indicators. Since most 401ks are limited in regards to their investment choices, you can’t do any hedging or use ETFs. Right now, we’re still in cash (other than hedged positions), and that’s where you should be. If this current rebound turns into something more, simply follow our signals with your 401k by making the appropriate choices at that time. I manage a few 401ks for clients, and I am limited as to what I can do so I focus only on executing the buys and sells generated by the domestic and international Trend Tracking Indexes (TTIs).

A: David: Yes, you want to focus on %M/A, which means that only those funds with a positive number have broken above their long-term trend lines. You still need to work with a sell stop, in case this break out turns out to be a head fake.

A: Bob: No problem. I developed the TTIs back in the 80s. Both were designed to give me the general direction of the market the domestic TTI for the domestic market and the international TTI for widely diversified international funds. They contain price indexes, but the composition is proprietary. Both generate their long term trend lines via a 39-week simple moving average. This then forms the basis for trend tracking in that we first establish the direction of the market and then, secondary, consult the StatSheet for appropriate investment choices. Most investors have it backwards by selecting their favorite funds/ETFs and then proceed to purchase them even though the general market maybe in bear territory. Last year, as well as 2000, were perfect examples of what can happen to portfolio values when you don’t pay attention to market direction. Hope this helps.

A: Chuck: You can never be sure whether mutual funds will outperform ETFs. At the time of the buy signal, take a look a the StatSheet and see if mutual funds or ETFs in the domestic category are ranked higher. That will give you a clue as to which funds/ETFs are best in tune with market conditions at that time.

A: Don: If you can, you should leave Fidelity and move your account somewhere where you may pay an early redemption fee (Schwab charges $50) but won’t get a nasty letter. Of course, if it’s your 401k, then you’re stuck. As always, use a trailing sell stop to make your decision. Track the price from the time you bought fund and if it declines more than 7% from its high (in case of a domestic fund), sell it. Your email did not say as whether this actually happened or if you are just panicking.

A: Joe: I foresee municipalities having great problems with the rapid meltdown of economic conditions. While some funds have recovered some of last year’s steep losses, I personally don’t think they are worth the risk. If you ever bought these funds, you’ll know that, because of low volume, entering and exiting a position is challenging and severe price slippage can occur, unless, of course, your dollar amounts are really small. I remember liquidating some $300k a few years ago and having my teeth pulled would have been a more pleasant option. I don’t listen to wild forecasts, but an eventual level of 600 to 650 on the S&P 500 is certainly within reach.

A: Paul: There is no hard and fast rule. The goal is to be onboard when the momentum moves in your favor. If you get stopped out, the interim trend has changed. In the past, I have re-entered such a position after the old high, made since my original purchase, was taken out again. That would indicate a resumption of the trend. You will not always be right, which is why the use of a sell stop is critical.

A: Per: There are 2 things you can do to stop the bleeding as I have posted about before: 1. Sell 50% of your holdings and put a 5% stop under the balance, or 2. If you have access to short S&P 500 funds/ETFs set up a hedge as outlined in my new e-book.

A: Robert: I use self directed IRAs to invest in the financial markets where I have some means of control as to when to be in and when to be out. Your choices make no sense to me, since you’re giving up control of your investment and hoping that it will work out. Real Estate will be in a downturn for some time to come and those who think that we will return to the bullish phase from a couple of years ago, will be sadly mistaken.

A: Bob: It depends on the amount you want to invest in an ETF. For example, if I want to move $500k into an ETF, I want to see an average volume of three times that much. If you only invest $10k, you can work with far less volume to get a good fill without slippage.

A: Mel: It’s nice to hear from you. I am glad to hear that my approach helped you avoid some losses. You are right, and as I have pointed out before, after this deflationary scenario has played itself out, we’ll be facing inflation no question about it. Personally, I think due to the tremendous destruction of assets, the Fed can inflate for quite a while before we have to worry about it. Actually, I believe that we will be a few years away from a change in scenarios as the recession possibly turns into a depression. The best way to deal with it is to follow the sector ETFs in the StatSheet. The momentum numbers will tell you when a turnaround actually happens. Gold is a buy right now however, I missed the entry point and would like to see a pullback before I commit some clients’ money.

A: Steve: Thanks for your email. If your advisor wants to set you up with a portfolio as described, you need to ask the most important question, (this is the best advice I can give you) and that is what is your exit strategy? If he doesn’t have one or gives you the song and dance about asset allocation and long-term vision, take your money and go some place else. Anyone without clearly defined market entry and exit points has not learned a thing from last year’s collapse. Don’t go that route. If you don’t get anywhere, you may want to consider our management services. If you like, I can email you some details.

A: No John I am not sure if there is high quality left when it comes to paying dividends. With everyone downsizing, dividends will be affected negatively eventually. In today’s environment, income investors will have to dip into their principal, which is a better choice than losing money in a poor performing stock. Put in another way, if you dip into your principal at an annual rate of no more than 4%, and you make no returns at all (unlikely), you’d be out of money in 25 years. I don’t know how old you are, but does that make sense? If you want to stretch it, withdraw only 3%, and you’ll last 33 years. My point is patience is critical right now there will be better opportunities ahead.

A: Don: You have a good point, but keep in mind that you don’t have to make that decision now. I have found that many times in the past no load funds have outperformed ETFs in the initial stages of a new bull market. So, I would look at the momentum figures at the time a buy is generated to see where the best opportunities lie.

A: Doug: While that is always an issue, the costs for early redemption have been sharply reduced. At my custodian, Schwab, the holding period is 90 days and the early redemption fee is $50 per mutual fund. This is far more reasonable than it used to be. Some companies, Vanguard and Fidelity, are extremely sensitive to frequent trading, since they are staunch advocates of buy and hold. Either don’t do business with them, or if you are locked in via a 401k, simply be aware of it and limit your trading by following only major trends in the international and domestic arena. Try to stay away from sector plays, as these are more volatile and short-term oriented. Of course, if you have the option to use ETFs, then great. However, especially with 401ks, you may not be able to.

A: Don – You have a good point, but keep in mind that you don’t have to make that decision now. I have found that many times in the past no load funds have outperformed ETFs in the initial stages of a new bull market. So, I would look at the momentum figures at the time a buy is generated to see where the best opportunities lie.

A: Scott – You must have missed it, but I talked about that many times. I track my stop loss points on a spreadsheet and, using only day-end prices, I determine if a stop loss has been triggered. If it has, then I place the order during the next trading day. I never use intra-day pricing for stop losses.

A: Tom: Yes, that makes more sense. However, you still need to have some sort of sell stop discipline for your bond funds. While they maybe fine right now, eventually, the pendulum will swing to higher rates and bonds will get pummeled. I’m not sure when that will be, but a trailing sell stop will tell you when it’s time to get out.

A: Don: I’ve talked about that before maybe you missed it. The sharp market drop was good thing as it kept us on the sidelines and away from useless whip-saw signals. This bear market has just begun and, over time, the declining trend line will eventually get us in at lower prices than we sold for on 6/23/08. If the opposite occurs, then we will jump in at the moment the price line crosses the trend line. Remember, the idea is to be onboard major trends and not minor ones. Having been on the sidelines affords us the luxury of not having to make up losses, and wait patiently until a real trend emerges.

A: Bruce: Yes, I agree with your statement. There are simply too many fundamental variables that no one person can assess in order to determine the direction of the stock market. Trends don’t lie as they are a true representation of what is going on. To your questions: 1. While your math is correct, my example was not meant to be an explanation of the use of the sell stops. My comment in this section was merely intended to elaborate on the fact that some investors tend to take profits too early and then miss out the big moves. 2. When funds go ex-dividend, all of my charts and momentum tables are adjusted to reflect the change in NAV. If you track sell stops, you also need to make those adjustments. Hope that clarifies it.

A: No, Larry. While DSM is paying a juicy dividend of 8.3%, I would not invest in it. Over the past 5 months, this fund has lost over 50% of its value so why trade dollars by gaining on one side and losing big on the other? The muni market will be touched by this credit crisis, but I am not sure to what extent. I would stay on the sidelines and not make any commitments at this time.

A: Bob: According to my work, the current bear market started back in June 2008. With the worldwide destruction of assets and the worsening recession, this bear market has just started’from my point of view. Please read last Sunday’s post A Sucker’s Rally, which elaborates further on the topic. Sure, we’ve bottomed every month, and the bottom turned into quicksand. While no one can be sure, I think the risk is that there is more downside to come because of the economic circumstances we (and the rest of the world) are in.

A: Hello Terry: Glad to hear you find value in my work. I read Dent’s book many years ago, but I’m not much of a believer in the forecasts he’s made, like Dow 30,000 etc. I’ve stayed away from short funds/ETFs due to the high volatility, which would have stopped us out of our short positions many times during the subsequent dead cat bounces. Most of my clients are too conservative for that type of action. However, I believe that once this young bear market settles into a trend, there maybe more short opportunities ahead.

A: David: Thanks for your email. Many investors are in a similar situation like you. I posted about this problem last month and offered a solution. Take a look at: http://thewallstreetbully.blogspot.com/2008/10/sunday-musings-to-get-out-of-hole-stop.html Maybe that’ll work for you.

A: Don: It makes no sense to hold any of these during a bear market. It sounds very typical of a diversification attempt for buy-and-hold which, in the times we’re in, can be dangerous to your portfolio value. Money Market and CDs are the only holdings I currently recommend.

A: Mike: Sure, these are appropriate funds if you are an aggressive investor. Many people have been whipsawed with these as the markets moved with incredible volatility making the implementation of sell stops a real challenge. Most of my clients are too conservative and don’t have the stomach for this type of action. I believe that, once the bear markets settles into a trend, there will be more short opportunities for investors as opposed to for traders at this time.

A: Patrick: No, as I mentioned in the bear market section of my StatSheet, I did not participate. The volatility was way too high and you would have been stopped out on several occasions. My clients don’t have the nerve for that. However, as the bear market settles more into a trend, we may have better opportunities.

A: Sure Linus the theory is that, on balance, Europe is/will be in worse shape than the U.S. hence the dollar rally…

A: No Don it is not, since you still have market risk. Only being in a money market fund, preferably US Treasuries, qualifies for being safely on the sidelines.

A: Ana: If you had used my recommended sell stop, you should have sold at a gain of 100%. Right now, we’re in a bear market, and I would not hang on to this fund. Don’t turn a gain into a loss.

A: Ron: It does not really matter which firm he picks. I have used Schwab as my custodian for over 15 years. However, if your friend has over $100k, he should use a firm that offers a US Treasury only money fund as well, where he can park those assets that are not invested. Using high yielding money funds is asking for trouble since many of them are invested in Subprime related products.

A: Bob: You are right in your thinking about inflation, except that the current destruction of financial and corporate assets is a deflationary force, which may last a long time. It will act counter to the Feds actions, however, sooner or later one or the other will prevail. The trends will show us the way when it’s time to leave the safety of money market accounts and move back into equities. Until then, there’s no sense in guessing.

A: Ernest: Simply compare the momentum figures from this week’s issue to last week’s. If you follow certain ETFs, you may want to set up a spreadsheet and enter the new momentum numbers every week as they are being published. Yes, the closer to DD% you are the better in the sense that this ETF is making new highs. Ideally, you want to enter into a new position, once the trend line is broken to the upside, which you can follow in the column %M/A. It shows how far above or below the trend line an ETF is currently positioned.

A: Rooke: As you know from my updates, we have sell signals in place for all domestic and international funds. According to my work, we are in a bear market until a trend change occurs. I am in 100% cash and so should you. One alternative would be for you to sell 50% of all holdings immediately and put a sell stop of 5% under the balance. That way, you’d limit additional losses and could participate in a rally should one materialize.

A: Dick: I have a more general opinion in that I believe that during the continuing fallout from the credit bubble, there will be still unknown consequences for the municipal market in general. Looming bankruptcies would be one scenario. I would not touch any investments in that area for the time being.

A: Joe: I touched on this last week already. Income investing has become very difficult. Actually, I don’t recommend it all because it appears that a fund/ETF paying a good dividend has been losing more far than that on the principal side. You could either buy short-term FDIC insured CDs via your brokerage account, or continue investing for growth (once we get a buy signal) and somewhere down the line remove some of your gains to supplement your income. This is what I recommend in those cases where the income need is not imminent.

A: Larry: Since I don’t know your specific situation, I can only answer in general terms. But yes, I personally would not hold a portfolio that pays good dividends on one side yet on the other loses more than that in principal. I have some clients with a need for income where we invest for growth and then every so often remove some of the gains and/or principal to cover the clients’ income needs for the next year or so. Be sure to read my blog post on this subject on Thursday, August 21. (http://thewallstreetbully.blogspot.com/2008/08/is-18-yield-worth-it.html)

A: Weems: This has been a very common question. Whether you invest in mutual funds or ETFs, you need to track your sell stops separately on a spreadsheet, and enter the order the next day after your stops have been triggered. I only work with day-ending prices only, and that applies for ETFs as well. This will avoid you getting stopped out based on intra-day fluctuations.

A: Ed: Another useless bailout package. I have no idea how this will play out, but I suggest that you watch the trends of those REITs you are interested in. If they break their respective trend lines to the upside that would be a good time to buy. I advise against any bottom fishing. KOL and GAZ haven’t been around long enough to apply any trend line to see where they are at. The short-term chart I saw makes me want to wait before making any commitments. We just got stopped out of our Gold positions this week, so yes, maybe this is the end of the trend.

A: Tony: Most sector and country funds run on their own cycles and have nothing to do with the position of the Trend Tacking Indexes (TTIs). You need to look at their own individual trend lines in order to determine which direction they are headed. Interest rates have been inching higher so utilities will go down in value. Don’t get caught like many investors did last year, by collecting juicy dividends of 7% in some cases and then, at the same time, losing 12% of their principal.

A: Doug: My hedging efforts have mainly been concentrated on the domestic market. So I can’t be of much assistance. You did not give the ticker for TRP New Asia, but it seems like a decent fit with EFU. Keep in mind that, as new short ETFs come on the market, more opportunities will present themselves. Although with your precious metals position, you may not have a choice other than an outright sale. The key here is to lock in your profits and not to give them all back.

A: Ray: Sure, as long as you use a trailing sell stop and ease into the short position with a small amount. It all depends on your risk tolerance.

A: Hello Ron: A diversified portfolio is fine as long as the trend is there to support an exposure to the international area. To diversify just for the sake of diversifying makes no sense to me. If that means that I will be invested 100% in domestic equities because the momentum is only present in that arena, then that’s where I will invest. Since you should always work with trailing stop loss points, it does not matter how much exposure you have. Too much risk is only a problem, if you don’t have an exit strategy.

A: John: You need to track your trailing stop losses on a spreadsheet and then enter the order when they get triggered. For ETFs, I use day-end prices only. Never place a sell stop order for an ETF ahead of time, so that you won’t be affected by intra-day market swings.

A: John: No I don’t agree with that at all. Unless those two sectors are in major up trends, and you have trailing stop loss point in place, then it’s fine to be exposed to those markets. Just to be in those areas for fundamental reason to have something to buy and hold goes against my philosophy.

A: Frank: Trying to invest money short-term (less than 3-5 years) is something I do not recommend. Since you seem to have short-term needs (buying a car), so keep the money in the bank or buy CDs. No matter which investment approach you use, there are bound to be fluctuations and they tend happen to the downside most often just when you need the money most. Stay liquid and risk free so that you can take care of your planned purchase.

A: No question Susan, you always want to go to money market. Bond funds will expose you to market risk, which is what we are trying to avoid when on the sidelines.

A: Rance: Thanks for your email. Ideally, you want to buy any ETF, including the ones you mentioned, as they break out above their long-term tend lines to capture the trend as early as possible. At one point, we have held DJP but the high volatility stopped us out. For that reason, you need to be aware that you may not hold this ETF for every long. Personally, if I had to make that decision of trying to diversify into commodity ETFs right now, I’d select DJP on the basis of past prices advances and the most stability. I also would use a 10% trailing sell stop and allocate no more than 8 – 10% of portfolio value to this ETF.

A: Hello Dave:I am glad to hear that you appreciate my work. I looked up FSLXX at: http://content.members.fidelity.com/mfl/summary/0,,316390814,00.html If you look through the details on the left, you’ll notice that the NAV is a constant $1.00 just like most money market funds. The 7-day yield is 2.68%, which you may have mistaken as the NAV. In other words, since the beginning of the year, the yield has dropped from 4.8% to 2.68%, while the price (NAV) has remained consistent. I found this not very clearly described on the site you mentioned (prophet.net).

A: Scott: While this fund has crossed above its long-term trend line to the upside, I personally will not touch real estate at this time there are many better opportunities. If you do, I would allocate only 5-10% of portfolio value, if your portfolio is over $20k. The trailing stop loss I recommend is 10%. Since this is a volatile fund, my preference would be to use an equivalent ETF, since you don’t have to worry about short-term redemption fees.

A: Al: You are absolutely correct in your assessment. Everything logically points to lower prices. Many investors like you are trying to make sense out of the fundamentals, which is an exercise in futility. If you follow trends, you don’t have to concern yourself with this issue, which makes life a lot easier. In case you missed it, I have recently explained my position in a post called Market Dichotomy, which you can read at: http://thewallstreetbully.blogspot.com/2008/04/sunday-musings-market-dichotomy.html

A: Hi Ron: I am glad to hear that you were able to save some money and yes, indeed, the chart of SWYSX looks disgusting if you had held on to your long position. No, there have been no major modifications to the TTI system other than minor adjustments due to market conditions. The 39-week trend line has remained the same since the 80s, but entry an exit points have been improved to avoid whip-saw signals as much as possible. As I said on my blog before, check the Bond/Dividend ETFs in the StatSheet and focus only on those that are above their long-term tend lines (%M/A). Being in bond funds is a risky business, and I think you’re better off investing for capital growth and then removing profits to supplement your income, if that’s what your needs are.

A: Dan: Hmm, I don’t issue a specific buy signal for CEETBFs. The chart simply indicates if we are in an era of rising (prices below trend line) or falling interest rates. As I mentioned in that section and in my blog, I am currently not invested in that area at all, due to the credit crisis and its unpredictable effect on muni funds.

A: Hello Jay: Most country ETFs are still below their long term trend lines with some exceptions like ILF (in which we have a position) and a few others. In my experience, country funds are a leveraged play on the US market, so as we turn down domestically, country funds turn down as well. That’s why I always recommend looking for the domestic market to be in a buy mode first before considering countries. As you know, the TTI is already above its trend line, so this is the time to consider those countries with strong momentum figures.

A: Hello Jose: Thanks for trying to keep me busy?Ǫ I must tell you that I don’t follow fund mangers at all. I believe that all facts, good and bad and indifferent, are reflected in the momentum numbers, and that’s what I base my decisions on. In addition, by using our clearly defined exit strategy, we always have a plan to get out should the fund or the market head south. This eliminates having to worry whether Mr. Montgomery is doing a good job it’s all reflected in the price of the underlying funds.

A: Larry: Thanks for your kind words feel free to spread the word… Personally, I would not rule out mutual funds, because I simply go by upward momentum. I found that sometimes mutual funds will do better than ETFs however that’s your choice. I don’t use a set allocation. If I get a buy via ETFs crossing above their long-term trend lines by a certain percentage, I will allocate a portion of a portfolio. Depending on volatility, that percentage can be 10% or less. As the markets move up, more ETFs will trigger a buy, and I will allocate accordingly until I reach the 100% level, but I try to avoid duplication as much as possible. For example, we had a buy in ILF and BIV last week, and for some clients I allocated 5% each. At the same time, a buy for GML was generated, which I did not take because of the similarity to ILF and to due to lower volume. So that’s the procedure I use in my advisor practice. Basically, 5-10% per allocation works well, as long as you use a sell stop discipline. If one allocation goes my way quickly, I may buy a second position if there is enough cash available.

A: Martin: I am sure that I don’t need to remind you that the simple use of a trailing sell stop would have avoided you riding down a $50 stock to the current $11 level. Who knows if any of the monoline proposed bailout attempts have merit personally I doubt it because of their junk market (CDO) exposure. If it was my choice, I would liquidate MBIA and be done with it and then go on to other things. Psychologically, you are dying a slow death with this stock just get it over with, learn from the experience, and you’ll feel better.

A: Kenny: Keeping a cash position obviously does not mean under your mattress. It means on the sidelines in the safety of a money market account, preferably in US Treasuries. No, I do not consider bonds to be cash, since they have market risk. Some long term bonds would be OK as an invested position at this time but you need to track a sell stop point in case the trade goes against you. Again, cash means no market risk whatsoever. In time like these, where turmoil reigns, that’s not a bad place to be.

A: Tom: All customer retail accounts are segregated from brokerage assets. So a collapse of a firm has nothing to do with retail accounts. Unless, of course, you’ve invested in a company’s hedge fund, then all bets are off. To further protect customer assets, the large firms like Schwab, Fidelity and others have insurance coverage with Schwab covering a retail account up to $50 million (last time I checked).

A: Les: Well, in some ways yes in others, when trend tracking, at times I buy high and sell higher, so there you go?Ǫ Regarding PRMSX, I do not support the view of buying on dips. In a bull market maybe, in a bear market never! PRMSX looks like a great opportunity to short (the ETF equivalent would be EEM) and not to go long. Don’t try to catch that falling knife, go with the trends and don’t try to be a hero by guessing at a bottom. Our indicators are clearly in bear market territory, and any investment decisions should be based on that fact until the trend reverses.

A: Ray: Yes, you’re right the markets haven’t really supported permanent short positions. I suggest you wait until the TTI breaks below its long-term trend line by some 1.5% and stays below that level for a few days. Then you could start setting up the first increment of shorts not risking more than 10% of portfolio value, if you’re conservative. Once you’ve gained 5%, initiate another position and so on. Be sure to use the same 7% trailing stop loss as you would on the long side if you are investing in short ETFs and bear mutual funds.

A: Irv: Current dividend yield has nothing to do with the discount/premium of a CEF. The yield is paid based on what the fund declares every month. The discount/premium only comes into play if a fund ever needs to be liquidated. If you bought at a premium, you might get less than your investment, if you bought at a discount, you might get more. That’s at least how the theory goes.

A: Russ: No when using the method of trend tracing you buy Funds/ETFs that are on the way up by taking advantage of upward momentum. I am not a believer in buying investments that are in a downtrend since that can be a bottom-less pit, unless, of course you short the REITs, which is what we’ve done already. In the current environment, high interest in a money fund can be a dangerous game as I alluded to in my post The biggest Subprime investor (http://thewallstreetbully.blogspot.com/2008/01/who-is-biggest-subprime-investor.html). I recommend treasury only money market funds for the utmost in safety.

A: George: My guess is as good as yours. I am not in the prediction business, I follow trends. If bonds are rising (lower rates) and the momentum figures are up, that would be a time to buy subject to our sell stop rules. Right now, the financial crisis is deflationary as assets are being destroyed. Eventually, the pendulum will swing back towards inflation again and, and at that time, our momentum figures will tell us what to invest in. No guess work, no predictions, simply following numbers.

A: G.H.: Absolutely! This would prevent me from investing in any ETF if the volume is too small. Why? Eventually, you will want to exit, and the exit doors may get very crowded. Translation: You will experience some slippage in price which can very well turn a profit into a loss.

A: Ing: First things first. As a reader of my newsletter, you should not be invested at all right now.I recommend 100% cash. It’s never too late to sell. What if the markets slide another 30%? How would you feel then? I’ve recommended the following many times: Sell 50% of your positions and put a 5% sell stop under the rest. That way, if things go up, you’ll participate and if things go down further, you’ve saved half of your assets from further deterioration. Being 59 with no job, is not the time to take any chances with your money.

A: Kevin: Yes, I agree, and I have looked at these ETFs as well. In an environment of lower interest rates due to economic slowdown, these should perform fine. Despite these ETFs representing a conservative approach to investing, you still need to apply my recommended trailing sell stop discipline. You never know what will upset the applecart and reverse their trends. Yes, gold and some selected currencies are part of our holdings as well. We currently have exposure to IAU and FXF. Unlike you, I don’t try to find fundamental reasons for investing in those, the trend and momentum indicators are my guide to selection. In this case, both of us have reached the same conclusion.

A: Jose: While that sounds OK, I wouldn’t expose myself too much. If you go into utilities, be sure to use a sell stop in case you’re wrong. Treasury only money market funds are the place where I have the bulk of our assets. In this market environment, patience is important since it’s very easy to do something very stupid.

A: David: Distributions do not have an effect on your returns since the price of the fund is reduced by the amount distributed. Many chart services will take a few days to do the adjustment so it seems that the funds have dropped quite a bit. You simply need to be aware that a distribution may have occurred. A quick way to confirm that is by checking the price history. I adjust the charts for my Trend Tracking Indexes right away, so you won’t notice any sharp gaps to the downside. Around distribution time (December), you simply have to recognize that, when checking performance screeners, they may not have been adjusted yet.

A: Hi Larry: No, most of the trends are still up, and I will react to reversals only. Personally, I am amazed about Wall Street’s disconnect from the realities of the Subprime/credit crisis and the housing debacle. Sooner or later some realization that these problem are here to stay for a while has to set in, and we will likely see an adjustment in stock prices. This realization could also be in form of a domino effect caused by a major event such as a bank failure. Again, this is just my view, and I use trend directions to keep my emotions out of the decision making process.

A: Nat: My preference is to use ETFs, rather than mutual funds, when investing in more volatile markets that may have a shorter holding period. That way you don’t have to worry about short-term redemption fees. Good alternatives are EEM or VWO (I have no holdings in either at this point). No matter which you select, you need to work with a trailing sell stop point, to protect yourself should the markets go against you.

A: John: That’s a very good question. If we get Buy signals in both areas, domestic and international, I usually allocate about 1/3 to each and leave the final 1/3 for investments in sector and country funds/ETFs. This is not an allocation that is chiseled in stone, but merely a guide.

A: I am not in favor of bottom fishing. The credit crisis has had a negative impact on many interest rate bearing funds/ETFs. I have sold all of mine this summer, and many are now down 10 – 20% for the year. I would not recommend any income investing at this point. If you need income, use treasury only money market funds or CDs until the picture gets less cloudy.

A: Ronald, if you look at the description of what that fund invests in, I would bail out. Here’s what Yahoo says: The investment seeks high current income with minimal changes in share price. The fund invests in investment-grade bonds. These may include fixed, variable or floating-rate corporate, mortgage-backed and asset-backed debt securities from U.S. and foreign issuers. It may invest up to 25% of assets in lower quality bonds rated BB or Ba. The fund may invest in derivatives including, without limitation, futures, options, and swaps, and may buy and sell portfolio securities actively. Some of these are Subprime related problem issues which will only get worse. I would not hold this fund or others like it. You’re better off with cash on the sidelines even if that reduces your income. Right now, safety is of utmost importance.

A: Don: You are correct in our description of sell stops. As I said many times, I do not enter sell stop orders in advance, because I don’t want to get stopped out based on intra-day action when investing in ETFs. I look at day-end closing prices only and then, if a sell stop point has been violated, I place my orders to sell during the next trading day.

A: Ray: My approach to bear market investments is more described in detail in the StatSheet (bear market section 11). When I do go that route, I’ll approach it very carefully maybe with only an initial 25% exposure.

A: Joe: I look at M/A to see how far above its trend line a fund has moved. However, whether you focus on that and/or DD%, you can easily overanalyze. Remember, when using trend tracking, your analysis can be far less precise due to the fact that we are using a sell stop discipline and not falling into the Buy & Hope trap. My main selection criteria have always been the momentum figures (4wk, 8wk, 12wk, YTD), which now have been improved through the use of the M-Index (Momentum Index). The idea is to improve portfolio performance, so, have the momentum figures work in your favor. If it goes against you, and you get stopped out with a 7- 10% loss, so be it. Go on to the next one. The key is to keep losses small and manageable because you will not be able to avoid them altogether.

A: Ken: OK, say you buy a fund/ETF at $10. If the markets drop from there, your sell stop of 7% would be at 9.30. That’s the worst case scenario. If, however, the market rally and your daily pricing develops like this: 10.05, 9.80, 10.02, 10.30, 10.40, 10.28, 10.50, 10.60, 10.86, 10.79, 10.90, 10.80, 10.70, etc. In this case, your high price since you bought it would be 10.90. If prices go straight down from there, your trailing sell stop would be 10.14, which is the high minus 7%. Makes sense?

A: Don: Thanks for explaining your circumstances. I fell obliged to tell you not to become confused by the variety of different investments available nowadays. For 13 years, through bull and bear markets, you seem to have done a great job and reached the income goals you set for yourself while maintaining your principal. Why change now? Sure, I could invest for more growth and most likely make some different choices, but it’s hard to argue with your past successes. As much as I would love to work with your type of an account, I must tell you that you have done well and, given what you said, just keep on doing the same old boring thing over and over.

A: Ron: With the rally we’ve had, most funds/ETFs are close to a DD% of 0.00%, or within a couple of %. I focus more on the M-Index as that gives me a better picture about performance. Whenever you invest based on momentum, the trailing stop loss point is your savior and will limit your losses or lock in your gains. This takes the pressure off by you knowing the risk for each investment. With any investment approach, there will be losses. The trick is to keep them manageable and execute your sell strategy. Then go on to the next investment. However, you are correct those funds with the best performance are most likely to correct sharply on the other hand, they can also continue to run up. You just have to take your chances. If you’re more risk adverse, don’t use the top performers based on the M-Index. Drop down a few numbers from the top.

A: David: DD% is always negative unless that fund/ETF reaches a new high. Then it is represented as 0.00%. During a market pullback, you can see which funds/ETFs have held up better than others by their DD% reading. The closer the figure is to 0.00%, the better a fund has resisted the current sell-off. The M-Index is a better indicator for making a Buy decision since it takes into account the performance over various periods.

A: Joe: Despite what you might read in many publications, the U.S. is still the big dog and all others follow. Country funds are nothing but leveraged plays on the U.S. market. It’s the way it is. This is why I never purchase a country fund when the domestic market is in a sell mode.

A: Ron, we are at that moment obviously in a gray area and, with new money, I am waiting to get confirmation that the current uptrend remains in place. Less volatility and steady gains, which would take some funds back to their highs, would be a good indication. Of course, you can always take a chance and buy now your risk is only 7%, if you follow my sell stop discipline.

A: Carl: Thanks for sharing your interesting experiences. Comparing a fund’s ranking is a good idea, but it needs to be done on a little longer period like 1 month as opposed to 1 week. Otherwise, you’ll be almost getting into day trading, which I don’t recommend. You need to give your funds some room to move with the market place and, as long as they stay within the top 10 or so of the orientation you are investing in, I would hold on. Once they drop out, that would be a good time to replace them. Don’t get too complicated, keep it simple and focus on the major trend, not the day-to-day fluctuations.

A: Ken, it is not as important how it’s calculated as long as all funds/ETF are calculated in the same manner. The number by itself is meaningless unless compared to others in the same orientation. After the first of the year, they will all be reduced because we are starting all over with YTD numbers. It does not really matter it simply shows you where the upside momentum is.

A: Dina, I don’t really track the 200% indexes. I think they’re too risky for most investors. However, if I were to use it, I’d apply the same 7% sell stop rule. After all, you still need to give the market some room to move.

A: Steve: That’s when you get caught in a whipsaw situation, which happens occasionally. In my advisor practice, we have held on to those positions that did not get sold based on our discipline. At the same time, as the markets showed sign of a rebound, which I talked about on my blog over the past couple of weeks, I added other positions in sectors that were performing well. There is no hard and fast rule you just have to jump in at one point and take your chances. If you were stopped out to a 100% cash positions, I would ease back in using the 1/3 incremental buying process.

A: Yes, Ron if you had funds that did not hit the 7% level, you can add more. Personally, I am adding in different areas that may give better diversification. But if you’re happy with the performance of your funds, go ahead. Absolutely, the International TTI is somewhat in no-mans land. If there is follow through buying in that area, I will jump back in.

A: Ken: For country and sector funds alike, I use their individual trend lines via the %M/A as featured in the StatSheet. There are no other tracking indexes to my knowledge. At the same time, I look at the momentum figures to be sure they are on the upswing. With a fast moving country fund, such as ILF, you usually will be stopped out before the fund crosses its trend line to the downside. I use a trailing 10% sell stop for all country and sector funds. Be sure to work with day-end prices only to avoid getting stopped out during mid-day volatility.

A: Al, I don’t use double bottoms or tops, although they can be good indicators. I prefer the tend lines since they’ve proven to be more reliable with my kind of approach. I would not speculate on any of these regions. Watch the momentum numbers in the StatSheet once you see blue figures across the board, you may have something.

A: Ray, my approach to bear market investments is more described in the StatSheet (bear market section 11). When I do go that route, I’ll approach it very carefully maybe with only a 25% exposure.

A: RW, there is no reason to sell any positions early. The sell stop discipline will take care of liquidation of those funds that should be sold before the Trend Tracking Index (TTI) gives an all-out sell signal. Back in October 2000, we sold the day after the TTI crossed its long-term trend line to the downside. The combination of using sell stops along with the crossing of the trend lines will insure that you are out of the market before the bears finally take over. Of course, just because the trend line crosses to the downside is not a guarantee of an impending bear market, but the odds of it happening are greatly enhanced.

A: Kurt, in the case of an ETF, the underlying stocks that make up the index represented by the ETF determine the value. No, low volume ETFs can be a problem in that when many people try to sell, there can be too much slippage in price. If you use an ETF with high volume, the order gets filled instantly. For example, we got stopped out of VNQ back in March and I placed a Sell order for $1.2 million. It got filled within seconds with no slippage.

A: Don, you can either wait until your sell stops get triggered, however, if the market bothers you that much, just sell and gain some piece of mind. That is more important for someone your age then hoping to squeeze some more out of this market. While this is not my mode of operation, it certainly can be yours. After all, I am not 78 years old, you are. There will always be another opportunity to buy back in.

A: Al, you must have missed it but I mentioned before in my blog that I do not let intra-day pricing affect my sell stops. I work with end-of-the-day prices only to determine if a sell stop has been triggered. That eliminates your concern as to whether certain sell stops are acceptable by brokerage firms or not. After a sell stop has been triggered, I will then enter the order the next day. Hope that helps.

A: Mel, I’ve been mentioning before in my writings and in my blog that utilities have been weakening and that we are close to being stopped out. However, rather than guessing, I will wait until my 10% trailing sell stop actually gets triggered before exiting my position. I suggest you do the same.

A: Ron: You would always track your sell stop first however, chances are great that, given where the TTI is currently at, you will be stopped out first with your 7% sell discipline before the TTI crosses its trend line to the downside. Remember, individual funds/ETFs move faster (up or down) then the TTI. However, in the unlikely event that the TTI crosses to the downside before your 7% sell stop gets triggered, you need to follow the TTI. Why? The trend line of the TTI represents the dividing line between bull and bear market territory. When the crossing to the downside happens, it means that a change in the direction of the major trend has occurred. For domestic fund/ETF holdings, it represents an all-out Sell. It is always possible, that the market will turn quickly and head back north leaving us with a whip-saw. To me, that situation is easier to deal with then the other option namely going down with the next bear market. That’s exactly what happened on Oct. 13, 2000, when the TTI crossed to the downside and we went to 100% cash. As they say, the rest is history.

A: Ira: As the StatSheet clearly says my focus is on funds which are no load, have no transaction fee and are available via my custodian (Schwab). OBCHX is a fairly new fund, is available from Schwab, but is not listed due to its hefty 2%/90 day redemption fee. I try to keep investment costs down and not list funds with extra charges. I have listed and used funds with 1%/30 day redemption fee, which is reasonable, but 2% for a 90 day holding period is not’at least in my view. Yes, the new format makes it easier for me to add funds/ETFs quickly and efficiently. Most readers seem to prefer it and see no need to export to excel.

A: Don: Thanks for your e-mail and description of circumstances. Even though I don’t know the size of your portfolio, being down only 15k after 13 years with the withdrawals you’ve taken is excellent. You must be doing something right. One thing I would disagree with in general is leaving a 401k at an ex-employer. In my view, they should always be rolled into an IRA as soon as you leave your job. If you use any of the large firms as a custodian, TD Ameritrade, Schwab, etc, you will have many more investment choices available than any 401k plan could ever offer. These days, that would include a great variety of ETFs. I have not used bear market funds in the past, but will consider them at the right time. If I do, my preference would be ETFs. To roll your 401k into an IRA costs you nothing but gives you more benefits as mentioned above. You can set up your withdrawal including direct deposit into your bank account. Rydex is a great fund family, but as I always say, I am not married to any particular fund/ETF. I use my momentum figures to be my guide as to which fund/ETF I should be in. You should have allegiance to your wife, but not to a mutual fund. It’s only there to do one thing: to make you money.

A: Brad, yes, the summer can be slow, but you can’t be sure of that 100%, so it would be nothing but an educated guess. I remember April of 2003, when a new uptrend emerged that kept us in the market for over a year, and our portfolios grew by over 25%. Sure, you can never go broke by taking profits. However, my preference is to follow my Trend indicators since that eliminates the guessing game which is one of the great pitfalls of many investors. If you use a methodical approach, which has proven itself over time, why abandon it?

A: Ron: There is no right or wrong on this one. I am still investing new money using the 1/3 increment rule. Sure, I stay away from funds/ETFs which have had huge moves. Look at the %MA column, which is the percentage a fund has risen above its own 195 day moving average, and select those with maybe less than 12% or so. Remember, you’re only investing 1/3 and with the use of my recommended 7% sell stop discipline, you’re only risking about 2.5% of your portfolio if the market goes down right after you buy.

A: Steve Hmmm, there are no insights to share. I follow my trend tracking indexes and trail my stop loss points the way I describe in my newsletter every week. Eventually, the market will tell me when it’s time to get out via a trend reversal. There is no big secret here, although many people like to make it far more complicated.

A: Chris thanks for your e-mail. Yes, EGLRX is a great fund, despite its 1%/60 day early redemption fee. It sure beats the domestic REITS at this time. If you buy it, be sure to use my recommended 10% sell stop discipline. I will elaborate some more in one of the next blog posts.

A: Candace, I’m including your suggestion here so Lou can check it out. Reader Mark pointed out some confusion regarding last week’s answer. He said: If the money in question is in an IRA, this is terrible advice. The reader is asking about tax-free CEBFs, and these should NEVER be held inside a tax-deferred account such as an IRA. This strategy would only be valid with taxable bonds. I’m sure this was just an oversight, but I wanted to point it out. Sure, my answer was more geared towards separating an income from a growth portfolio not advising him to put tax-free funds into an IRA.

A: Hi Lou. Glad to hear that you liked my article and that you found it helpful. I have only discovered one good way to separate the two and that is having your growth portfolio and income portfolio in separate accounts. It seems more trouble than it’s worth, but it allows you to truly track each one of them to optimize your strategies. If all your money is in an IRA, open another one and transfer the income portion over there. Hope this helps.

A: Joe, I don’t know what the underlying reasons are. It could be just normal market fluctuations. As a general rule, be aware that the ETFs you mentioned will run with the direction of the US market, but in accelerated fashion. As I mentioned before, most countries in the world are simply leveraged plays on the US market. In good times, they will go up faster than the US, but in bad times they will come down faster. That’s why you need to watch your sell stops. Regarding my blog I’m the only one who can post to it, but you may comment by clicking on the Comment section below each article. The comments will be e-mailed to me first, so I can be sure there is no spam or bad language I ok it and it gets posted.

A: Wayne, well, right now we have about the following portfolio allocations: 30% international (not country funds)&ltbr&gt 50% domestic &ltbr&gt20% sectors &ltbr&gt Again, the exact composition is not as important as having your sell stop discipline in place should the markets head back south.

A: Tom thanks for your e-mail. If your money is still in your 401k, you are limited as to what you can invest in. If it is rolled over into an IRA at a discount broker, you have many more choices. For example, you could invest in Closed End Equity Funds, some of them with a yield of around 8%. However, because of market volatility, they still need to be monitored regularly and use of a sell stop discipline is essential. Or you could use Closed End Bond funds, which can yield anywhere between 5 – 6% currently. Again, it all depends if your money is still in a 401k or in an IRA.

A: Kathy, no, that’s not correct. You need to track the high from the day you bought your fund and use that as a base for calculating your 7% stop loss point. The 52-week high is immaterial, unless you’ve owned the fund for a year or more. Yes, when fund distributions are made, the price is reduced by the amount of the distribution, and you need to reduce the price of your trailing sell stop by the same amount.

A: Kathy, I am glad to hear that you found having an exit strategy comforting. This eliminates a lot of nervousness and indecision especially during times of financial upheaval such as we saw the end of February. Hold your funds as long as the 7% stop loss point is not violated. This 7% level is not chiseled in stone. Here’s how I use it: If a fund/ETF drops through that level and hits 8% right away, it’s a no-brainer, and I execute the sell at the next opportunity. However, if it bounces around 7.2% or 6.8%, 7.3% or thereabouts, I watch it for a few days to be sure that a turnaround is not imminent before entering the sell order. So yes, there is room wiggle room. If you’re using ETFs, be sure to work with the closing price only to determine your stop loss points.

A: Roger, sure, if there is an opportunity to sell into a small rebound or buy as the market dips slightly, that’s fine. However, keep the big picture in mind and that is that we need to avoid the big drops and stay aboard when the markets are on a solid uptrend. If you are focusing too much on squeezing a little extra out of the market, you might miss the major trend reversal and then you stand to lose a lot more than you could gain.

A: Nile, while you are correct, recent market activity has stopped us out of our REIT holdings (VNQ) at a profit. REITs have been very volatile, and I would not initiate a new position at this point. However, if you do, be sure to use a 10% trailing sell stop, since REITs have been known to move 3-4% in one day during times or turmoil. Also, do not commit more than 5% of portfolio value to any one sector.

A: Jack thanks for your e-mail. Using a sell stop discipline is not an exact science. As you know, I am using -7% for domestic and international funds/ETFs, because I need to give the markets some room to move. Setting your sell point too close can cause a whip-saw. However, the main point is to have any kind sell discipline in place that you are comfortable with. If -5% is your comfort zone, because of past experience, by all means stick to it. For country and sector funds, I am using -10%, but I know of advisors who use -8% across the board. There is no hard and fast rule. You are mentioning your experiences of being left on hold on the phone during the last bear market. I hope that you have changed your approach so that you can do all of your trading online. When the markets head south in a big way, the exit doors get crowed, and most brokerage firms, or mutual funds companies, simply don’t have the staff to man the phones during high volume days.

A: Will, in theory that could work, but there are a couple of issues: First, the 15% you are citing for a 10 year period are what: compounded or average returns? Most likely, they are average, which would bring the compounded number way below that. Second, even if they are compounded returns, you will have to endure some major pain when the next bear market strikes. Having to wait 5-6 years, just to get back to a break even point is something that many investors had to do since 2000, and are not willing to do again. Third, life has a funny way of issuing margin calls when you least expect it. What I mean is what if you are fully invested during the depth of the bear market, and have the need to liquidate some investments for personal emergencies? Fourth, funds and performances change. If I look back 10 years, there is not one fund on the horizon which I would consider using in today’s market. While the idea of simply investing in a fund and walking away for 10 years maybe appealing, it’s not very wise — at least not from my point of view. Hope this helps.

A: Jim personally, I use ETFs when the anticipated holding period for an investment may be shorter than the early redemption fee period of a mutual fund. For example, when investing in sectors or countries, which are more volatile, I always select ETFs for that reason. I may hold an investment in those areas for only 30 or 60 days, and I don’t have to worry about any kind of trading restrictions. However, while the diversity is good, I want to caution you about your comment that they don’t require much attention. That is absolutely not true. For example, if you look back at last year’s market meltdown during May and June, you’ll notice that all mutual funds and ETFs went down alike. There was no safe place, other than in cash on the sidelines. Bottom line is that you still need to track your invested positions and execute your sell stop points. Unfortunately, there is no way to escape this harsh reality.

A: John thanks for your e-mail. I usually try to hold my fund selections until either our Trend Tracking Index (TTI) signals a sell or the 7% sell stop kicks in, whichever occurs first. Of course, if you have invested in a mutual fund that is not performing as it should be, compared to others in its class, then a sell and replace can be in order. Be aware, however, that your short-term redemption fee period will start all over. An ETF would provide a good alternative. Just because a fund has paused is no reason to liquidate it. Markets move in cycles and you need patience to stay with a long-term trend.

A: Larry, thanks for your kind words. Yes, when a Buy or Sell signal has occurred, I will send out an alert e-mail after the close of the market. However, with e-mail not being 100% reliable, I will also post a note on my web site in the Fund Tracker Archives at: &lta href=http://www.successful-investment.com/newsletter-archive.php&gthttp://www.successful-investment.com/newsletter-archive.php&lt/a&gt You might want to bookmark this page, and check there Friday nights as well. You might see the weekly update archived before you get your e-mail about it.

A: Sue, thanks for your e-mail. Yes, this topic has been addressed before, but it’s important enough to review again. There are 2 ways to work with this issue, and they depend on your risk tolerance. 1. If you are an aggressive investor, you can ignore the 7% sell stop discipline and only liquidate your holdings once the TTI trend line has been broken to the downside. This advantage is that you might avoid a possible whip-saw but, on the other hand, you risk giving back more of your unrealized gains. 2. If you are more conservative, you sell your holdings when the 7% sell stop gets triggered. If the TTI remains in Buy mode (by staying above its long-term trend line), we are stuck in no man’s land for the time being. If prices fall further, and the TTI eventually breaks below its long-term trend line, then we will have made a good choice by having liquidated early. If prices turn and a rally resumes, we need to pick a new entry point. I usually wait for confirmation by letting prices rise so that my DrawDown figures go back from -7.00% to 0.00%, which means a new high has been made. If this happens, we will have been caught in a market whip-saw, which happens occasionally and is part of trend tracking. However, I’d rather get squeezed in this scenario than not having an exit strategy and going down with the next bear market, whenever it occurs. Hope this answers it.

A: Bob, thanks for your e-mail. What I do from time to time is compare how my mutual fund selections have done. I usually evaluate these after my early redemption fee period has passed. In my case, that would be 90 days for advisor managed accounts at my custodian. One of my fund selections had gone up only 5% compared to others which showed a 10% gain. A few of my clients, who are holding this underperformer are a bit more aggressive in their risk tolerance, so I eliminated the laggard and replaced it with 2 sector and one country fund. Hope this explains it.

A: Mark, I am glad to hear you find my web site useful. The idea of trend tracking is to be invested in the market only when a major up trend can be clearly identified. With the benefit of hindsight, we know that he dates you mentioned would have been great entry points. However, at the time that was not clear. The markets had many fake rally attempts, and I can’t tell you how many brokers have led clients into investing while the markets were still falling. All those guesses lead to tremendous portfolio losses as many of my readers have told me over the years. While the theory of buying on dips may work well in an established bull market, it can be financially devastating in a bear market as history has shown. Look at the reverse end of the spectrum. With the market having rallied strongly over the past 6 months, would this not be a good time to buy bear market funds? Only if you prefer gambling over investing!

A: Denny, for my clients, I have a 30% allocation to broadly diversified international funds (not country funds). Be sure to use a trailing stop loss when establishing any positions. However, I eased into the 30% allocation by originally investing 15%. After a gain of 5%, I allocated another 15%. While this cut down on long-term gains, it also avoided possibly buying at the top with the entire allocation.

A: Robert, that’s an interesting idea that had not occurred to me. I am posting this to see if other readers would be interested in this feature too. If so, please send me an e-mail to: ulli@successful-investment.com.

A: Les, that’s a great fund and, as long as you use a sell stop discipline, I don’t see any problem in taking a position.

A: Everette, sure, you need to make adjustments to your exit points. For example, on 12/20/06 CIBFX had a distribution of $1.47, which reduced the NAV for the day to 60.76. It had closed the day before at 62.14. The previous high had been 62.20. That previous high was the base for figuring our 7% sell stop and needs to be reduced by the amount of the distribution. Deducting the distribution of 1.47 from 62.20 brings the new basis for figuring our sell stop point to 60.73. However, since that point is lower than the reduced NAV (60.76) from above, the 60.76 therefore becomes our current starting point for figuring the 7% exit point. Hope this clears it up for you.

A: Jeff, you have the right idea by opening a Roth-IRA. It’s one of the greatest tools for a young person to grow money and never have to pay taxes on the gains. However, when it comes to your choice of investment, the methodology you use is far more important than the investment itself. As you know from my writings, it doesn’t do you any good to diversify, as you mentioned, because all of those invested positions will go down with the next bear market, whenever it occurs. Decide on a strategy first, pick your investments and establish your exit points. You can do that easily by following my weekly updates. Yes, an index fund would be a good start, but you’re better of having your account at a discount broker and use an ETF for that purpose. That way you don’t have to deal with the restrictive trading policies of most mutual fund companies. Hope this helps.

A: Paul, thanks for your e-mail. I state the following in my StatSheet regarding sell stops: I will liquidate any of my holdings if they drop by more than 7% from their highs since I bought them, or if the TTI breaks below its long-term tend line ‘ whichever occurs first. That’s what you should do too establish your trailing exit points based on the highs your funds/ETFs made since you bought them. After we have triggered a sell stop, we are in a waiting mode and kind of in no-man’s-land. Most of the time, the markets drop further and will violate our trend line, which then would confirm bearish tendencies. If, on the other hand, the market head back up, we will re-enter after our holdings have broken to new highs. This would confirm that the pullback was exactly that and not a return to bear market territory. Hope this answers it.

A: Ron, thanks for your e-mail. Yes, you are absolutely correct. You can’t enter sell stop points for mutual funds. I track my exit points on a spreadsheet, even those for ETFs, and then enter them for execution on a need to basis. There is only a Trend Tracking Index (TTI) for domestic equity funds and one for diversified international funds (not country funds) as shown in sections 1a and 3 of the StatSheet. Both indexes have moved sharply above their own respective trend lines due to the market rallies of the past few months. If the trend were to reverse right now, we need to protect some of our unrealized gains. That’s why the sell stop rule is as follows: We will sell a position in domestic and international funds/ETFs, if any holding drops more than 7% from its high since we bought it, or if the TTI drops below its respective long term trend line whichever occurs first. With the TTIs currently being far above their trend lines, it is most likely that our 7% sell stops will be hit first. That’s why it is important to track these numbers for your holdings.

A: James, while I am tracking my trailing stop loss points on a spreadsheet, not all readers are inclined to do it that way. You are in luck I just found a website that offers that service. Go to&lta href=http://www.tradestops.com/&gthttp://www.tradestops.com&lt/a&gt and check it out. For a modest annual fee, you can set up your funds and ETFs, and they will e-mail you, even to your cell phone, if any stops have been triggered. I have not used that service, but if you do, let me know if it is worthwhile.

A: Lou, yes, there is a reason why VPACX is not listed. It’s a country fund (Japan), and my preference and recommendation for country funds is to use ETFs. They are easier to buy and you don’t have the restrictive trading policies of a mutual fund. Chances are that this type of investment is more short-term in nature and being able to sell without consequences, if your sell stop gets hit, is critical.

A: Peter, the funds/ETFs listed were appropriate funds in September, and I still use them for new managed account clients who come aboard now. Nothing has changed, since my selection criteria are the same, especially when it comes to finding funds with a low MaxDD% as described in Fas-Trac.

A: Jim, thanks for your e-mail. The TTI barely broke above its old high and made an all-time new high last week but pierced through this level again this week, but so did the Dow. I look at it in the same way as the DD% indicator reaching 0.00%, which means a fund/ETF has made new high. It confirms that momentum is in an upward trend, which is what you’re looking for — if you’re long in the market. However, market direction can change in a hurry. I don’t put that much significance in it that I would neglect being prepared to pull the trigger on our sell stop discipline if it became necessary. Bottom line is that a new high confirms the direction of the market, but it is not an indicator as to the duration of the current rally.

A: Jay, when you compare numbers, make sure that you select the exact same time periods. Some show performance for 30 days, which is not the same as 4 weeks. Others may treat dividends for ETFs different than I do. IWO did have a distribution on Sept. 26. My data for ETFs uses the 4wk time period and ignores the effect of distributions. In the case of IWO, the price on 10/5, the date of the StatSheet, was 74.51. 4 weeks prior, on Sept. 7, the price was 70.49, which is a gain of some +5.7%. Again, the absolute number is not as important as is the direction of the overall momentum.

A: Joe, there is no hard and fast rule. I usually choose the middle of the road knowing that those funds with high %MA numbers will be the first ones to come down during the next correction. In addition to %MA, I use my proprietary MaxDD% indicator, which is not listed here but is used in the fund selections for the Fas-Trac service. I generally don’t analyze the %MA too much, but if I had to rely on it, I personally would err on the side of the lower number. I believe that this will put you in a more conservative fund, which enhances your chances of the sell stop not being hit as quickly as opposed to having picked a fund with a high %MA number. Hope this helps.

A: Gary, no, I am just as limited as you are when it comes to using mutual funds. I work, however, though a discount broker as my custodian and, while we still have early redemption fees (within 90 days), the charges are modest. If you can, set up your account at a discounter as well. There are many benefits and more investment choices (like ETFs). There is no reason, unless it’s a 401k, to ever have an account set up directly at a mutual fund company.

A: Deno, as a reader of my newsletter you know that I advocate the use of a trailing sell stop. I am sure that my recommended 10% for sector funds should have stopped you out during the drubbing in the energy markets. Because I can’t predict the future either is the reason for the use of such an exit strategy, I have no idea what will happen with oil, nor would I try to guess. Here’s one way to approach this market, if you want to protect your portfolio from further losses. Sell 50% of your positions now and put a 5% sell stop under the balance. If things get worse, you will already have eased up on your holdings. If a rally starts again, you still have a 50% position to participate in any new uptrend. That’s what I would do.

A: Julio, I have to agree with you that an objective view is hard to find. That is especially true of annuity salesmen. My advice is that you buy a financial product and not have someone sell it to you. In the case of annuities go to Ameritas Direct (I have no affiliation with them), research their products to fit your needs and buy them directly without ridiculous surrender charges or sales people involved. In regards to mutual fund investing, you can always choose an advisor, but make sure he or she is fee-only. Abuse via commissions is rampant in the financial services industry and a fee only advisor is as close as you can get to an unbiased opinion. You might want to read my article on the subject, which is posted at: &lta href=http://www.successful-investment.com/articles18.htm&gt http://www.successful-investment.com/articles18.htm&lt/a&gt Hope this answers it.

A: Steve, that’s what the StatSheet is there for. Depending on what broker you use and what your particular circumstances are, you need to make your own selections. However, I have had a lot of requests like yours over the past year and have just introduced the Fas-Trac Fund/ETF Investing corner. Take a look at it at: &lta href=http://www.successful-investment.com/fas-trac.php&gt http://www.successful-investment.com/fas-trac.php&lt/a&gt Hope that helps.

A: Les, DODFX is an excellent fund with good performance and decent resistance to market sell offs. The reason that I have it not listed in my fund list is that it is only available as a transaction fee fund via my custodian, and I only track those with no fees attached. If you buy it, you still need to use a sell stop in case the market goes against you. However, if you have owned it for a while, simply apply the 7% trailing stop loss rule. That way you never have to guess as to whether you should hold it or sell it.

A: Anne – thanks for your input. You bring up a very good point. All of the fund categories you mentioned went down sharply during the 2000-2003 bear market however, they recovered far more quickly and have shown better results over the past 5 years than the S&P 500 index. The reason for using that index for comparison purposes is that it is the benchmark against which all performance stats are measured. Additionally, most proponents of a Buy & Hold strategy prefer low cost index investing and the use of the S&P 500. I can also tell you based on the many phone calls and e-mails I have received over the years that a lot of investors who saw their portfolios drop some 50%, finally sold in disgust at the worst possible time and never took advantage of the upswing that started in 2003. Even, as you say, there were many better performers than the S&P 500 it seems to me that most investors missed the rebound and also the opportunities that came with it.

A: Joe thanks for your e-mail. There is no perfect investment method that will give you the best of all worlds under all circumstances. While you describe the tax consequences and other concerns accurately, the key issue is to be disciplined even if it means an occasional whipsaw. The main goal always has to be to avoid a bear market. All equity funds will drop even though some will hold up better than others. The important part to remember is that you don’t want to spend years of making up losses you want to build on your portfolio. A good example is the use of the most widely held index, the S&P 500. Since we went to all cash on 10/13/2000, until this past Friday, the S&P 500 is still showing a loss of -5.23% while our portfolios, using trend tracking, grew by +43.14% (to 7/31/06). That’s an almost 50% difference! To me, it’s important for investors to realize that their financial life is much shorter than their physical life. Once that fact sinks in, you don’t want to waste time trying to make up large losses which occurred in bear markets, you want to pile up profits even with the occasional risk of markets going sideways or stopping you out. Try to keep the big picture in mind, and do not get too distracted by the daily noise in the market place.

A: Michael thanks for your e-mail. If you follow my Sell signal, you can always keep a small position in the existing fund, which should allow you to re-invest more later on. Check with the fund company regarding details as to much of a position you need to maintain. However, I must tell you from my experience that I can’t remember one incidence over the past 20 years where I sold a fund that I wanted to purchase again once a new Buy signal was generated. Things seem to change while we’re in money market and a different set of funds/ETFs seem to produce better momentum numbers as the economy works its way through the different stages. There is one exception. If you are in a 401k with limited fund selections you should definitely inquire about the re-investment policies so that you don’t end up without any choice at all.

A: Larry, it’s nice to hear from you again. Let me get right to your questions: 1. Picking the right funds with low volatility and decent performance will minimize trading frequency. Once a trend has been established, we don’t trade very often. Many investors have most of their assets in tax-deferred instruments, so a sale of a fund is not going to affect them tax-wise. Those, following along with taxable brokerage accounts, have to bite the bullet, as you say. However, many people would love to go back in time to the year 2001/2002 and pay any amount of the taxes, if they had only sold to avoid the big losses that the bear market caused. So yes, it’s a taxable event, but the alternative could be a lot worse?Ǫ 2. You bring up an important point. When investing for income, it is not always wise to go after the highest yield, even if your account is an IRA. Why? I found that tax-free Muni ETFs have been more stable in the face of rising interest rates, if they are properly selected. You may find a great taxable bond fund, but, while it pays you a higher yield, you may lose big on the value. For example, if you were to take a look at the chart showing a 2-year comparison of VIPSX, the well-known inflation protected bond fund, and NBW, one of the many Muni ETFs, you would see that the difference in returns is just about 10% in favor of the Muni ETF. That’s why I prefer them, whether you use an IRA or not. To be fair, I must tell you that I have occasionally thrown in some high yielding taxable income ETFs in a client’s IRA, but the majority of the holdings have been Muni ETFs.

A: Riccardo, thanks for e-mailing ‘all the way’ from Italy. International funds are broadly diversified, while country funds, as the name implies, are country specific. International funds move, for the most part, in similar patterns and therefore have their own trend index to generate the Buys and Sells, as you know from my weekly StatSheet. Country Funds, on the other hand, dance to a beat of different drummer. The volatility is much higher as was clearly demonstrated during the May/June sell off. For example, the widely held India fund dropped an astounding 38.83% in a span of 4-1/2 weeks, while Italy was the best of the bunch and only lost 11.33%. As you can see, holding these funds without having an exit strategy in place can have a very bad effect on a portfolio. That’s why you hear me constantly promoting the use of a sell stop. As I said before, the trend of country funds depend to a great deal on the direction of the domestic U.S. equity market. This is why I will buy them only once our Trend Tracking Index (TTI) is in a buy mode. My intention is not to focus only on Austria. Its chart is used as an example only, since space limitation doesn’t allow me to present charts for all country funds. Congratulations on your country on winning the world cup in soccer.

A: Joyce, first, the word I used, as you said, was establishing a sell point, not placing the order for it. The stop loss point is of a trailing nature and changes every day the market moves up. I simply track mine on a spreadsheet for the various funds/ETFs I am invested in and enter the order when necessary. Second, we only set up one sell stop point not two. You want to protect yourself on the downside and, if prices go up, your sell stop goes up as well and will eventually serve to lock in profits. If prices go to the downside after you make your purchase, the sell stop will limit your losses.

A: Dennis, thanks for your e-mail. As mentioned in my StatSheet, the HOLD refers to holding, subject to your sell stop. Country funds, as well as sector funds, do not have a Trend Index which could be used for generating Buy and Sell signals. We enter a position once all momentum figures show positive values and use a 10% trailing sell stop to protect ourselves on the downside. If the position goes our way, after we established it, then the trailing stop loss will eventually lock in our profits. However, as I mentioned in my updates, country funds are considered to be a leveraged play on the domestic U.S. market. That means when the domestic market rallies, country funds will do very well. Conversely, once the domestic market heads south, so will most country funds. This was clearly confirmed when our domestic Trend Tracking Index (TTI) signaled a Sell effective 5/17/06. Country funds went into a tail spin with some of them dropping over 30% in the following 4 weeks. Bottom line is that I will invest in country funds again, if the following two conditions are met: 1. The Trend Tracking Index (TTI) must be in a Buy mode. &ltbr&gt 2. The momentum figures of the country funds I am considering have to be all positive. Of course, I will use a sell stop to protect myself from too much downside action. Additionally, I will initially invest no more than 5% of portfolio value in any one country. Hope this answers it.

A: Carlos, first, you can’t foresee market behavior that would be guessing. If you want to follow trends, you can use my Trend Tracking Index (TTI), which is updated weekly. If a major change occurs during the week, I will send out an e-mail bulletin. Alternatively, for domestic funds, you can use the S&P 500 index and its 200-day moving average, which is widely published at financial sites. There’s no need to create your own indicator. For country and sector investments, I don’t use an index I simply use a trailing stop loss to get out of positions in a timely manner.

A: Everette, thanks for your comments. I appreciate it when readers share ideas and solutions to common problems. I will publish the most relevant ones in the Q & A section.

A: Chris, while we’re out of the market, I simply use the money market options available from my custodian (Schwab). To be clear, being in money market will not make you rich, it’s just a temporary parking place to be safe while the markets are in turmoil. While it’s nice to squeeze out another quarter percent somewhere, it’s not worth jumping through hoops to get it. This is the time to get your financial house in order, maybe switch to another custodian and focus on the change in momentum figures in our StatSheet so that you are prepared to act once the next Buy signal is generated. You should also review the sector and country funds for changes in momentum, since there is a good chance that we will invest in some of these areas before the domestic Buy actually kicks in.

A: Douglas, thank you for your e-mail and your kind words about my service. I am always glad to hear when my information makes a difference in somebody’s life. That makes it all worthwhile and keeps me motivated to improve the No Load Fund Tracker. If you think people are happy with my free information, imagine how happy my clients were in late 2000 when I sold all holdings and went into a waiting pattern just before the market tanked over the following 2 years!

A: Marshall, if I had a sure answer for this, I would be managing Warren Buffet’s money?Ǫ. From my experience, bear markets don’t start out with a bang, they start with a slow deterioration of equity prices. This would lead me to believe that this is only a correction. However, if higher interest rates cause a slowing economy, this could very well turn into a bear market. It’s too early to tell. Be sure to use a sell stop point with you bear fund, just in case you’re early – or simply wrong.

A: Robert, thanks for your e-mail. Somewhere along the line you must have missed something. I sent out an alert e-mail on 5/17/06 announcing the official Sell signal for domestic funds. Your holdings at that time should have been very limited since most 7% sell stops were hit before at which time most of your funds should have been sold. Same goes for the international market. At this time, the trend lines have still not crossed to the downside, despite the sharp market correction. However, here too, all 7% sell stops were hit around May 17th. Since I have no idea what type of funds my readers are holding, the tracking of sell stops is the individual’s responsibility. If, for example, I get stopped out of one of my international positions, that doesn’t mean that your fund performed exactly the same. So, yes, I do send out e-mail alerts for Buy and Sell signals for domestic and international funds, but it won’t do you any good if you don’t track your trigger points to execute you sell stops. My sell rule clearly states We will sell any fund which drops more than 7% off its high, or if the Trend Index crosses its trend line to the downside, whichever occurs first. Hope this answers it.

A: Dan, most paid newsletters offer some kind of model portfolio, but it doesn’t work for me for various reasons. First, we don’t use a Buy & Hold strategy for which you need to have the 3 different types of portfolios you mention. As you know, we use a trend tracking approach and all of my clients have the same goal: To try to earn an average of 10-12% per year when measured over a 5 to 6-year period. Second, I did mention last year at one point which mutual fund I was invested in. The result was that who knows how many of my 20,000 readers jumped on the band wagon and bought the same fund. It grew from $75 million to over $300 million in only 3 months and subsequently closed to new investors. That can easily happen when you have a large following. Most investors are basically lazy and just want someone to hand them the recipe for fund selections on a silver platter. I provide all of the tools via my free newsletter and offer managed account service for those who prefer not to do their own research. I do appreciate your input and will keep you re-mail in my ever growing suggestion box.

A: Joe, you could be right, but why do you want to guess? Watch the sell stop points of your international holdings and sell when they get hit. Mine were triggered last Monday, and I’m out of all positions including country funds.

A: Kathy, that’s a very good question. The Trend Tracking Index (TTI) is designed to show the direction of the general domestic equity market. Its moving average represents the dividing line between bull and bear market territory. Therefore, when the TTI drops below its moving average, it’s a sign that the major trend has reversed and the odds have increased that further market declines are a possibility. That is why a sell signal will affect all domestic equity funds, regardless of their performance. This gives you the opportunity to lock in gains on better performing funds and limit losses on marginal ones. Only time will tell if this drop below the trend line will turn into another bear market or whether it is simply part of a correction in an ongoing bull market. Since no one can tell me, I’m making my plans to err on the side of caution.

A: No particular reason, Sam. My preference for international investing is the use of ETFs. They’re cheap, easy to use and don’t have trading restrictions. I had a run it with the ICON family a couple of years ago, when our sell stop got hit, and I sold my clients positions to protect them from a sharp trend reversal. ICON called me and since I made it very clear that my allegiance is with my clients and not with them, they banned me from using their funds. This is the arrogant attitude found in many mutual fund families. I believe that if this does not change, ETFs will be the investment of choice for most investors in the future and fund families will be in for a tough battle.

A: Yes Everette I will send out an alert to everyone whenever we receive any Buy or Sell signal. The TTI breaking down below its own trend line overrides the 7% sell stop rule, since it can signal a major turn in the market. It is our ultimate protection to avoiding a bear market. Sure, you can use any sell percentage that you’re comfortable with. Just don’t keep it too close, or you will experience a whip-saw quite frequently.

A: Joe, thanks for your e-mail. I can understand your desire to grow your money quickly. However, fast and safe does not mix well with 2% growth per month. To accomplish that, you will have to take far greater risks than you should. You are in a very unique situation in that you have a fairly large amount of money coming to you at an early age. This could be potentially dangerous for your financial well being. You will be exposed to and offered all kinds of investment opportunities, good and bad, and you may not be in a position to make an intelligent evaluation. Why? Because there will always be somebody who unscrupulously tells you that 2% growth per month is no problem. I advise you to stay away from that. Long-term investing using a methodical approach and avoiding devastating bear markets are your soundest bet to make your money grow. Investing in no load mutual funds may get you 10-12% per year (not guaranteed) when you evaluate an approach over a 5-6 year period. There will be rally cycles where you might make 25 or even 30%, which usually are followed by periods where you just might break even or even lose some principal. The best recommendation I can make is that you educate yourself as much as you can before committing any money to anybody. Read up on investments, or follow along free newsletters, such as mine, until you increase your understanding of the markets to a point where you don’t fall prey to hard charging commissioned salesmen.

A: Brad, thanks for your e-mail. This is a question that I have been asked many times. I believe that money, for which a short-term need exists, should not be exposed to any market risk at all. I have found that most buyers of real estate are always short of cash. Investing that cash in instruments other than money market or CDs is taking too much of a risk. In other words, ask yourself how you would feel if the markets head south and you end up possibly losing 10% of your down payment. To me, the downside is far greater than the extra few dollars you might be able to squeeze out of the market. I know that this is not the answer you were looking for, but it’s my opinion.

A: Hmm, EWZ is a country fund, and I have always pointed out that no more than 5% of portfolio value (tops 10%) should be allocated to any one country or sector. This would be a one-time purchase, so I’m not clear as to why you made purchases over time. In any event, if for some reason you have purchased a higher percentage, you should definitely use a 10% sell stop. That 10% should be measured from the high EWZ has made since you bought it. This is a volatile fund and you need to be disciplined about your exit point.

A: Don, TWCIX is a large growth fund and they’ve not done well. Look at the StatSheet under domestic ETFs and see which orientations are on top and have produced good results for this Buy cycle. You would have had better luck with Large Blend and Large Value, but the story has been Mid and Small cap. You know my feelings when somebody makes wild guesses about this or that being a good deal. Go with the numbers, diversify and set your exit points. Then just watch and track. Don’t listen to predictions I have yet to meet someone who can look into the future.

A: Philip, a good example for buying the top performing funds during this current Buy cycle would have been those in the small growth orientation column. I have always advised to stay away from these due to the fact that they tend to come down a lot faster during market corrections. A whip saw is always a distinct possibility. Given that, you could say that I personally prefer funds that are, as you say, the middle of the pack. Along with that, however, I prefer those that have shown good resistance to market drops. I like to see low volatility, and I measure that via my proprietary indicator called MaxDD%. In addition, this indicator greatly improves the positioning of my sell stop points. I am planning to add MaxDD% to all tables in the StatSheet within the next couple of weeks. I can promise you that you will greatly improve your fund/ETF selections.

A: Fred, sure, there is a lot being published about the growth of China. It’s a long term proposition, so you could buy this fund now and still be wrong because your timing may be way off. The fund is fairly new, so a chart does not exist. It falls into the investment orientation of Pacific/Asia ex-Japan Stk. If you look in my StatSheet in the section of country funds, there are several ETFs you can buy which have that same orientation. It’s cheaper and easier, you have no fund restrictions to deal with, and you can be very specific in your choices. For example, the profile of OBCHX states the following: Oberweis China Opportunities Fund seeks to maximize long-term capital appreciation. The fund invests at least 80% of assets in the securities of Chinese companies that are organized under the laws of The People’s Republic of China, Hong Kong, Taiwan or Singapore. It generally holds equities of small to mid-size companies. Look at the countries which they invest in. They are all listed in my country funds section and can be bought as ETFs. I am invested in some of these countries, but I allocate no more than 5% of portfolio value to any one country and follow a strict sell stop discipline. Hope this helps.

A: Pete, thanks for your e-mail. Why would you keep investing in only one fund for the next 6 years? My contention has always been to set up your account(s) at a discount broker of your choice so that you have the widest variety of investment options available. You want to be able to invest in no load mutual funds or ETFs, as well as sector and country funds. I believe that you’ll need all of these tools to properly diversify and grow your portfolio safely and securely. In addition, setting up methodical entry and exit points, to avoid getting caught in the next bear market, is simply wise planning. My weekly StatSheet gives you all of the tools you need to execute a safe and conservative investment strategy and allows you to be more pro-active. If you would like me to comment on your Pioneer fund, feel free to e-mail me the ticker symbol.

A: John, thanks for your e-mail. Yes, you’re right, I wasn’t very clear on that one. I get so many e-mails from investors who keep old 401ks intact at Fidelity and don’t take advantage of the benefits a discount broker has to offer. Fidelity brokerage certainly qualifies for that. Thanks for pointing it out. As you may have noticed, I have never recommended Schwab for the retail investor because of their fee structure. That has changed dramatically over the past few months, and they’re now very competitive. I only use them on the institutional side for my managed account clients, and they’ve done a great job since I started using them in 1993. Yes, they have an early redemption policy just like everyone else. For retail investors it’s 180 days, for advisors it’s reduced down to 90 days. Sometimes we get caught having to pay it, but it’s usually a sign the markets are heading south. Paying a small fee to get out is certainly better than getting trapped by the bear. Thanks again for your input.

A: Well Keith, you have the right idea. A Roth-IRA is one of the greatest investment vehicles ever invented. However, why do you want to set it up at Fidelity? Use a discount broker so that you have the widest variety of investment choices, including ETFs. Then follow a methodology, such as mine, and make your investments. Just don’t ever fall for the Buy and Hold syndrome it will cost you dearly during the next near market. Bottom line is, after you have made an investment, be sure to establish an exit point to limit losses should the markets go against you — and they eventually will. The key is to keep a reduction in portfolio value to a minimum so you have a good chance to recover when the markets rally again. Good luck!

A: Donny, as you know from my writings I believe that nobody should ever invest in a load fund. I just don’t like the way they are being sold to the unsuspecting public. You didn’t say what group it was, but I personally would roll the IRA into a new one at a discount broker, if you plan on doing your own investing. Not only will you be able to invest in all no load funds, you will also be able to select from the ever expanding universe of ETFs. In my view, it is becoming more and more important to be diversified in a variety of sectors/countries without having to worry about short-term redemption fees and other fund restrictions. ETFs are the perfect tool for that. Once you have completed the rollover, be sure to use a methodical approach with clearly defined entry and exit points. Why? I believe that the biggest danger to your financial life will be the recurrence of another bear market. If you don’t like to do your own investing, you can always utilize our managed account service.

A: Norman, I am glad to hear that you find value in my answers to readers’ questions. Let me get right to your 3 issues: 1. Yes, the easiest way is to go to www.morningstar.com. Type a symbol, say MEN, in the upper left hand corner called Quotes and press enter. Look under Key Stats on the page that comes up and note the discount of -3.79%. 2. It’s a personal viewpoint, I like to buy things at a discount rather than at a premium. In the case of closed end funds, should there ever be a liquidation sale you would, at least in theory, receive the NAV. If you paid more than that, you would have a loss. 3. That’s what the IFC was designed for. When the markets turn south in the international area, you can be assured that all broadly diversified international funds will go down as well. A sell signal there does NOT include country or specialty funds, where your adage there is a bull market somewhere certainly applies. Hope this answers it.

A: Joe, I generally don’t recommend the approach of using the individual trend line for each fund since it tends to lead to overtrading. That’s why I designed the TTI to be used for all domestic funds and the IFC for international funds. However, if you want to go this way, the data is right there. The %M/A shows the percentage any given fund is above or below its own trend line and you can use that for guidance. The key is, once you decided to go this route, to be consistent in your approach. Just to be clear, I did not issue a sell for EWJ. It was a personal decision for my managed accounts, as it looked that this trade could turn from a positive into a negative one. Keep in mind, that for managed accounts I have to be more conservative compared to you as an individual. Hope this answers it.

A: Everette, the basis for figuring your sell stop is always the highest price from the date you bought the fund. In your example, it would be 18.97, unless prices rally past that point. If 18.97 remains the high point, and the markets decline from here, then the 7% sell stop for all positions in this fund would be 17.64. That means that your newly added position (bought at 18.97) would show a loss, while your original one (bought at 16.93) would show a gain. Makes sense?

A: Phil that is a very good question. No, changing your investments that frequently, to chase performance, is not feasible. For one, you’ll be paying short-term mutual fund redemption fees on a constant basis and, most likely, your custodian will ban you from trading that frequently. If you are a more aggressive short-term trader, you would need to use ETFs. I try to hold my positions long-term and will sell only if my sell stop point gets violated, or the Trend Tracking Index (TTI) signals a sell. Keep in mind that some funds may start out slow, but, as economic conditions changes, they may pick up steam later on. There are still natural opportunities to replace laggards. For example, as happened in the current cycle, I sold some funds when their 7% stop got hit back in April 05. As it turned out, the pullback was simply a correction. That allowed me to re-invest the proceeds in more appropriate funds as we subsequently did in May 05. Hope this helps.

A: You can go either way, Chuck. I usually treat them as independent purchases and wait for my second one to reach the 5% level, before committing the third and final increment.

A: Larry, thanks for your e-mail. Here’s how I do the incremental buying: Let’s say a new client comes aboard now with $100k as an example. How do I make sure that we don’t throw this money to the wolves of Wall Street after the way the markets bounced around? For a portfolio that size, I would pick 4 domestic funds and use my incremental buying procedure. Here’s how it works: I would invest 1/3 (about $33k) right away into 4 domestic funds. At this time, I would choose funds which have done well during our Buy cycle and with low DrawDown numbers. Now only 2 things can happen. If the markets start to drop after our commitment to these funds, we will use our 7% trailing stop loss to limit any potential losses. The worst scenario would be for us to lose 7%, but, since it is only on 1/3 of our portfolio, we have a total effect of maybe -2.5%. That’s the risk we have to take to be in the market in the fist place. Notice, we have minimized it significantly by being conservative in the amount we commit. If the funds continue to rise, however, as soon as the value has increased by 5%, we will move another 1/3 into the equity funds. We will then wait for another 5% growth before investing the third and final increment. This method has proven itself to be conservative in that it conserves principal, yet, it allows us to participate in the current uptrend without risking all of our capital. Hope this helps.

A: Brad, rather than guessing as to whether FLATX is really losing steam, use a 10% sell stop and let the market tell you when it’s time to get out. FLATX made a high of approx. 33.98 and is currently 6.5% below that point. Since this is a volatile country fund, I would use a 10% sell stop.

A: Yes Ray, there seem to be a lot of gloom and doom reports around. Most recessions don’t start with a crash. They start with a slow, consistent deterioration of values until everyone realizes that we’re in a bear market. At the same time, there will be sectors which will benefit and which will show strong upward trends. So, there is plenty of time to make adjustments to your portfolio. This assumes, of course, that you have a strategy in place to get out of the market at a certain point in time. Those pundits that are already predicting the end of the world usually have an ax to grind. If you look closely, you’ll find that they want you to buy their gold, precious metals or other allegedly ironclad investments. Since no one can predict the future, I prefer making my decisions when the markets or my indicators tell me that it is time to do so and that in fact a turn around has occurred. Anything else is pure guesswork. Hope this helps.

A: Chuck, well that’s good news, but I’d like to caution you that our approach is long-term and sooner or later you will have to deal with the fact that funds come off their highs. We all have to deal with short-term redemption fees (90 days for advisors, 180 days for retail customers), so frequent trading is not recommended. If you are more aggressive, use ETFs, and you won’t have that problem. Generally, I only sell a fund if it either hits my predetermined sell stop point (7% for domestic funds) or if my Trend Tracking Index (TTI) gives an all-out Sell signal. Some funds are slow starters within a Buy cycle and may develop more steam later on, or the other way around. So you need to be patient and give your selections a chance.

A: Frances, thanks for your e-mail. You bring up a very good point, which in part is answered in my article How to find an Investment Advisor. It is posted at my web site at: http://www.successful-investment.com/articles18.htm You have to realize that all brokerage houses operate the same. Every one, period! They are transaction driven and the representatives are clueless as to investment strategy. They are being told by their respective employers which products to push with the ultimate goal to generate as many commissions as possible. Their financial gain is number one, yours runs a distant second. Furthermore, you never have a chance to talk to the person implementing a strategy, if any. You’re probably client number 8,253 and if you call in, nobody knows who you are. I’m sure, you do not like this, but that’s how it is — with every large brokerage firm. Besides the suggestions in my article, here are a few more that might help you to improve your odds of finding the right advisor. On the top of the list would have to be the advisor’s willingness to share his approach to investing. What strategy does he use to get into in the market? How does he select the investments? If the market goes against him, what is the exit point? Does he have a conflict of interest by favoring certain funds? Does he provide you with the tools to follow along on your own, if you haven’t decided to use his services? Is there a free trial period? Is the firm small enough so that you can have frequent communications with the person in charge? I believe that these are very crucial points in today’s environment which allow an advisor to establish credibility and confidence in his approach. Because I’m a firm believer in these principles, they are the very core of my business. While you can never be sure until you jump in, using common sense will help you make the right decision. If you’d like to have a free phone conversation about your particular circumstances, let me know and I’ll be happy to call you. If you care to invest on your own, feel free to use my weekly StatSheet as a resource. It won’t cost you a penny. If you’re not so inclined, let me know and I’ll be happy to e-mail you further information on my investment management services.

A: Roland, if you apply my 7% sell stop rule, this fund should have been sold the beginning of October. Since it has rebounded nicely over the past few weeks, I would hold it, but establish an exit point now, in case things go south again. Don’t wait till it drops some 14% again.

A: Eric, as far as I know they’re all the same with a 180-day holding period. Advisors have a little advantage in that their holding period for clients is reduced to 90 days.

A: Orval, there is no such thing as the best fund. Funds are sorted as indicated, for example, the first table in section 1 is sorted by 4wk momentum. For my own selections, I put most the most weight on the third table (All Positives), since it shows only funds with strong momentum numbers in all columns. The sort order there is by 4 weeks as well. At this point in the cycle, I stay a way from small growth funds since they tend to be too volatile. Remember, funds with very strong momentum figures are also the ones which come down the fastest during corrections. So you certainly can go down the list and pick JAOLX, for example. The most important part is to follow a strict sell discipline, in case the market goes against you.

A: Juston, that’s very astute of you to be thinking about investing at your age. Yes, it is true that the longer you invest the more advantage you can take of compounding your money. You can open up an account at any discount broker like Scottrade, TD Waterhouse, E-Trade and others. Check the fees for opening a small account first. If you don’t have any money yet, that’s ok you want to educate yourself first. Visit my web site again and read the articles posted in the Mutual Fund Articles section as well as Reader Q&As. Review my weekly updates and look through the StatSheet. Section 7 has 2 files posted for new subscribers, which you need to read. Don’t feel overwhelmed, just stick with it and keep reading and educating yourself at your own pace. If you’re ready to invest, simply follow the funds listed in the StatSheet and pick one. Once you’re invested, track the progress on the spreadsheet and learn when to get out of the market. Just the fact that you are interested puts you way ahead of most 18-year olds. Good luck! Drop me a note once in a while and let me know how you’re doing.

A: Bud, I’ve been approached on various occasions about this subject. I will send out more information in the near future, so I can see how many readers might be interested in that type of service. At the same time, I will introduce a new indicator I use, which will allow you to improve your fund selections based on your risk tolerance. Stay tuned.

A: Tom, for one reason only! All 3 funds have an additional short-term redemption fee of 2% if sold within 30 days. While our approach is long-term, the possibility exists that markets can sell off suddenly (as in Oct. 04) and our sell stops get hit within that 30 day period. While you as an individual may be able to live with such a fee, it is unacceptable to me for my managed account clients. I’m trying to cut costs as much as possible and will not use any funds, or keep them in my data base, which have fees or additional charges attached.

A: Chris, congratulations on making money with the very volatile India fund. Unfortunately, there is no hard and fast rule for going back in. The recent DrawDown (DD%) for this fund was -10.62%. You might want to wait until it improves to below -5%, which would be an indication that it is moving back up. I have added the DD% figures for Country Funds as of last week to help you improve your decision making process.

A: Ron, thanks for bringing up such an excellent question. Generally speaking, there is no such indicator which will work best in all circumstances. Re-entering a market, which we left in the first place only to protect our capital, is not an exact science. I try to keep things simple, so let’s look at our latest re-entry point (5/19/05) again. Look at the StatSheet the week prior (5/12/05) and note that there were no mutual funds listed in the All Positives table, which represents the top funds based on their momentum figures. That means that the short-term trend had reversed from up to down. Now fast forward to the StatSheet of 5/19/05 and note the tremendous change. Most funds were showing positive momentum figures and a DD% of 0.00% (meaning they made new highs), or the DD% was better than -5.00%. That showed me that the down turn was only a correction, at least at that point, and that the trend had reversed again to the upside. That was good enough for me to make my selections and re-enter by using our conservative incremental buying procedure (1/3 at a time). In other words, anytime funds are listed in the All Positive table, this is a sign that the short-term trend is back and heading north. Hope this answers it.

A: Gail, in my view, he should do neither. He should open an IRA at a discount broker and roll his old 401k into that one so that he can maximize his investment options. You might want to read my article on the subject at: http://www.successful-investment.com/articles28.htm Hope this helps.

A: No Dave, what you’re suggesting is that I would guess and predict as to what might happen because of Katrina’s impact. That’s not what I do. We are continuing to hold our positions and let the markets dictate, based on price action and the effect on our stop loss points, as to when it’s time to liquidate any of our holdings.

A: Don, I don’t really have a specific suggestion for that. I simply use the Country Funds and International funds combined with the momentum indicators to make my decisions. I then apply a sell stop discipline, and I’m covered no matter what the markets do. Don’t get too complicated!

A: Hate to say it, Richard, but you’re still thinking like someone with a Buy & Hope strategy. You’re talking nickels and dimes in the adjustments you’re planning of making. Look at the big picture, select funds with strong momentum figures, as outlined in my StatSheet, set your exit points and then monitor your progress. With the time frame you have till retirement, concentrate on domestic and international funds. I assume that you have no sector funds available in your TSP. If the markets head south, meaning the economy is weakening, then you may re-visit the idea of taking a possible bond position. If you’re not yet fully invested, use my incremental buying procedure (1/3 at a time). That way you minimize the risk in the event of a market turn down.

A: Donald, no one knows what the end result will be as Merck already has promised to appeal the judgment. Again, as I stress with any investment, there are many factors which can affect it, and you will not be able to asses them all properly. This is why I advocate the use of a sell discipline, so I don’t have to worry about whether to stay in or get out of a certain fund. You should do the same and work with a trailing stop loss, which I express as DD% in my weekly StatSheet, and let the market tell you when it’s time to exit. Why agonize over something the outcome of which you have no control over? I currently use a 7% sell stop for domestic mutual funds and 10% for sector and country funds. You can use any number that you’re comfortable with depending on your risk tolerance.

A: Agnes, thanks for your e-mail. I must tell you that I don’t agree with investing in load funds. There is no reason to ever pay a load. If your advisor only sells load funds, find one who can get you into no load funds and ETFs and works on a fee only basis. That cuts down on a lot of conflict of interest. In addition, I have never heard of an advisor selling load funds that uses a disciplined approach to investing by getting you out during severe market downturns. My suggestion, as always, is to switch to a no load approach. If you’re so inclined, you can use my free weekly updates as a resource for your own investing, or, you could utilize our management services where I would implement our methodology for you. Yes, you can use index funds, but you still need to track them and get out if the markets head south. Unfortunately, we are living in a world where you can’t afford to just let your investments ride. The idea is to invest in those areas with strong upward momentum. That is not the case with bonds in general right now, since we are in an environment of rising rates. It is not as important what investment you choose as it is to find method which you can be comfortable with over the long term.

A: Charles, both funds, AIGYX and TAREX, have been performing well over the last couple of years, so corrections are to be expected. You maywant to do what I advocate in my weekly newsletter and set a trailingstop loss point. That means that the market will eventually tell youwhen it’s time to get out. Since these are sector funds, I use a 10% stop loss which I show in myweekly StatSheet as DD%. For example, TAREX made a new high thebeginning of August of 30.40. 10%, or whatever number you’re comfortablewith, brings the potential sell price to about 27.36, which is alsobelow its long-term trend line. Use that as your sell point. If you’re more aggressive, you can alsosell 50% at 27.36 and give the balance another 5% to the downside andhave the opportunity to participate in further gains, should this fundturn around. Generally, once a fund breaks below its long-term trendline, I sell it. The idea here is, Charles, to be disciplined and have a plan in placeand not just emotionally react to the market’s daily idiosyncrasies.

A: No, absolutely not, Roger. Over the years, I have come across several IRA annuities during the course of my business. So, I had my wife (anaccountant) contact the IRS for an opinion. The response was exactly as I had assumed. Generally, only sales people,who stand to gain a large upfront commission, are getting unsuspectinginvestors into this type of set up. An annuity is a tax-deferred instrument and so is an IRA. Combining thetwo has no benefit to you as the investor.

A: Jerry, you’ll never know when weakness is about to set in. However, I have recently added to my XLU positions, which is the same as your VPU. You can buy more if you are disciplined and enforce a trailing sell stop such as I do. For sector funds, such as this one, I use 10%.

A:Irene, the momentum figures (4 wk, 8wk, and 12wk tables) are not available anywhere other than in my weekly StatSheet. You might want to check the 401k section, since there are several Fidelity funds featured. Maybe some of them are part of your 403b. If they’re not, you can still use the table by identifying the general performance based on the orientation column. For example, if you look in last weeks 3rd table (all positive) you’ll note that the first 3 funds are of the Large Growth, Small Value and Mid-Cap Blend orientation. If you have funds in your 403b with that orientation, chances are that they are currently performing well as a group and you might make the same selections.

A:John, hard to say, but I use a similar feature via the DrawDown percentage on the high end. To me, if funds make new highs, it’s an indication of underlying strength, at least for the time being. With the DD% now covering about 9 months, you could make the case that 52-week highs are of some significance for mutual funds as well. I personally don’t follow it per se, but that doesn’t mean it’s not valid. On the other hand, if a fund makes a new low, you sure don’t want to own it, because it will have broken below its long-term trend line which indicates weakness. I don’t know of any reports. You might want to do a Google search on the topic.

A: Nancy, here’s how I do it. I track the daily prices from my last Buy point, which was 10/5/04. Once a fund has made a new high, since I bought it, this becomes my trigger point from which I calculate my 7% sell stop. Say, your fund BIGRX made a new high the beginning of March at around 31.00. Then 7% off that high would be 28.83, which becomes my sell point. While this isn’t a sure fire way of possibly avoiding a whip-saw, it allows you to lock in some profits when the markets retreat. If they turn around later on, you can always re-invest. The idea here is not to turn a winning position into a losing one. You need to do this for all of your funds. An easy way is to look at the charts available in Yahoo. Here’s one link: http://finance.yahoo.com/q/ta?t=2y&l=on&z=m&q=l&p=m200&a=&c=&s=bigrxHope this helps.

A:John, it works the same way. Say, you buy a mutual fund at $10 and, over time, it continues to go up to $11. You now sit on a 10% profit. Now only 2 things can happen: 1. The market slowly deteriorates and eventually hits your 7% stop loss point at around 10.23 and you get stopped out with some profit intact. 2. The market continues to go up and, say, eventually your fund is priced at $12. That would mean that you have now unrealized gains of 20%. Sooner or later, the market will correct and will stop you out at your new sell point of 11.16. Or, if our Trend Tracking Index (TTI) breaks below its long-term trend line before that, then this will be your sell point. Again, your sell point is either the 7% sell stop or the break of the TTI below its long-term trend line, whichever occurs first. Hope that explains it.

A: Mike, looking at the charts, BOGSX should have been sold a long time ago. Right now, it has broken slightly above its trend line, but is still down over 10% for the year. While it may recover, I personally wouldn’t hold technology funds at this time. So, you’re at a crossroads. Here’s a conservative way to give you the best of both worlds. Sell 50% now and put a 10% stop loss under the balance. If it moves up, you’ll participate and may recover some of your money. If it goes down further, you should be selling at around 1.98, and you only risk another 10% on 50% of your money. That’s what I would do.

A: No Mark, I don’t have a program for that. I track it in my data base for all funds, and, for my specific investments, in Excel. Brokers will not accept stops for mutual funds, so you’ll have to follow it yourself and then place the order when your stop gets hit. Unfortunately, I am not aware of any shortcut.

A: John, I don’t predict since I don’t have that crystal ball either. I only follow my trends and observe the changes in momentum numbers as they occur. That is as close as I can get in determining as to which sectors will have the best future potential for gains. With the recently added sector ETFs, it is even easier to spot in which direction the various markets are headed. Keep reading the updates and follow the momentum figures.

A: Joe, setting stop losses like that is not an exact science. You can probably find many instances where a different number might have worked better. The point is to have some type of a sell discipline other than waiting for my Trend Tracking Index (TTI) to cross its long-term trend line to the downside. While that has worked well in the 90s, the added volatility in the markets over the past 5 years has made it necessary to use an additional stop for my managed accounts. This enables us to lock in some profits, and not give them all back, when the markets head south. As you know, I use the 7% for ‘all’ domestic and international funds and 10% for sector and country funds. Are these perfect numbers? No. Will we get whip-sawed occasionally? Yes. It’s just a fact of life that, while the market goes through its sideways pattern, we will be affected occasionally. If you are more aggressive in your investing endeavors, you may not use the 7% sell stop at all, but only sell when the TTI drops below its long-term trend line. This would be your ultimate safety net to guard against being caught in a major bear market. This method, with the benefit of hindsight, would have certainly worked better so far during this current Buy cycle. Again, the key is to use some kind of a discipline, so that you won’t get as financially devastated as a lot of investors did during the bear market of 2001-2003.

A: Well Debra, you’re not that far off. 7% off the highs would be around 16.28, and the fund closed Friday at 16.13. With last week’s rally, we may be at a cross roads and the markets could take off from here — or not. If I were in that position, I’d now calculate a 10% loss, which would bring the sell stop point to 15.48, which would give you some breathing room. The point is, this is not an exact science, but you feel less anxious and more in control of your destiny when you have a definite plan in place.

A: Deno, I follow a disciplined approach to long-term investing. However, it is beyond your control whether any of your fund choices will hold up any length of time given the volatility of the markets. That’s why I recommend that you track your funds regularly and sell any of them which comes off more than 7% from their highs since you bought them. Successful investing also means that occasionally you may make a bad choice. Admitting to it by cutting any losses short via a stop loss is the only way your investments will survive in the long run. Look at your funds and make sure that they have not hit the stop loss level. I recommend 10% for sector funds and 7% for domestic funds. Of course, you can use any number you are comfortable with, as long as you have a plan to follow.

A: Yes Marshall, I do use 7% for mutual funds but, due to higher volatility, I use 10% for country and sector funds. I have mentioned that in the appropriate sections of the StatSheet from time to time. In fact, if you look a the very bottom part of the Sector Fund section of the StatSheet, I state: Once I see improved momentum figures, I may commit a small portion of our managed portfolios again. I will use a similar approach as I do with Country Fund investing (section 4a). I will commit no more than 10% of portfolio value to any position. Once a position is established, I will be disciplined and use a 10% trailing stop loss to protect capital in case that market heads south.

A: Yes Steve, GATEX is in my data base as well. A very conservative fund, with limited upside potential during a strong up trend, but it won’t beat you up when the market corrects. It’s DD% is only -2.11%. I wouldn’t use this fund at the beginning of a Buy cycle, however, if, for example, the market forms a base here and moves higher again, this would be a very conservative, but appropriate choice.

A: You are absolutely right with your assessment, Mark. That’s why these types of closed end muni-funds are only suited for investors who are interested in generating income for the long term. To me, that means you should have a time horizon of at least 5 years. Many wealthy people operate this way. I read that, Ross Perot for example, has hundreds of millions in similar instruments. His only interest is the generation of income and, if you can wait long enough, you will be rewarded with capital gains as well. It’s definitely not for the investor who needs to build up his portfolio.

A:Larry, you bring up a very good point since we had a similar situation during the sell off in January and March. Unfortunately, there is no hard and fast rule. The reason for the sell stop, as you know, is to lock in accumulated profits, or limit losses for those investors new to our plan. As happened previously, I’d like to see more than a one day rally to be sure current levels in the markets can be sustained. How do I do this? I will watch market activity for a week or so and track our fund selections to see which ones are recovering and are showing improved momentum and DrawDown figures. Those are the funds/ETFs I will use if the markets continue to rebound. Again, since this is not an exact science, I will use the incremental buying procedure to ease back into the market at that time. I will make an announcement in my weekly update when I’m ready to commit again.

A:Deward, there is a difference. The YTD figures show the growth of a fund from the last trading day of the old year to the date specified in the new year. For example, on the StatSheet dated 3/31/05, the numbers reflect the growth from 12/31/2004 to 3/31/2005. The past 12 weeks does not cover the same time period! The StatSheet contained the figures for 3/31/05. 1 week prior to that would be 3/24/05. If you keep on counting back 12 weeks, you come of with 1/6/05. So the past 12 weeks cover the period from 1/6/05 to 3/31/05.

A: Well Lillian, your broker is talking out both sides of his mouth. It is that type of ignorance and non-disclosure that has cost many people severe financial hardship. What your broker is referring to is the fact that all mutual funds, whether load or no load, have an annual expense ratio. For most funds, that is in the area of 1.2% to 1.5% per year. In addition, load funds carry a front or back end load of some 5.75%. No load funds, as the name implies, do not have that charge. Period. As a general point, there is no reason to ever buy a load fund. You can have an account at a discount broker and buy no load funds, as long as you follow a disciplined approach to buying and selling. Brokers will generally only get you into a fund, they will almost never recommend you selling it, no matter how much you may have lost. As further reference you may want to read my article on the subject titled How to Evaluate Load vs. No Load Mutual Funds, which is posted at my site at: http://www.successful-investment.com/articles21.htm Hope this answers it.

A: Larry, that will be an interesting question, if we continue along the current path. While there is no universal answer, the obvious, like precious metals and natural resources, are bound to be on the top of the list. However, I would wait until we are actually sliding into more inflationary times and watch the momentum figures of the funds listed in my StatSheet. As of today, I have expanded the listings to include sector funds/ETFs so that we can spot trends and momentum changes quickly and position ourselves accordingly. There is no need to rush at this point, since our domestic and international funds are still in a Buy mode. While some inflation can be good for stocks, a severe bout will most certainly end the up trend and other opportunities may present themselves at that time.

A: Thanks for your e-mail, Clay. I am surprised about the recommendations your financial advisor made. Technology has been in a retreat, as you can see in the case of the ultimate technology indicator, the Nasdaq 100, ticker symbol QQQQ. If you look at section 2 of the recent StatSheet, you will note that of all listed ETFs, the QQQQs are second to last due to the weak momentum numbers in addition to the fact that its long-term trend line has just been broken to the downside (%M/A), signaling further weakness. The current DrawDown (DD%) is a negative -9.31%, the worst of the entire list. If I had held that position, it would have been sold at the -7% level. It’s beyond my understanding how one could recommend a Buy for this area.Healthcare is only slightly better and, at best, currently presents a very mixed picture. My methodology attempts to buy in areas, which are in an up trend. Currently that includes selected domestic and international funds as well as natural resources and country funds.I believe that you would be better of by investing in sectors with strong upward momentum, rather than in those which may be on the way down, which is like trying catch a falling knife. I am not sure if this is the answer you were looking for, but it’s my unbiased opinion.

A: Al, there are many reasons why publishing such a portfolio is not feasible, and I will touch on few couple important ones. First, there is no such thing as the VERY BEST funds. We are trying to find the most appropriate ones and, through the use of our momentum figures, eliminate the ones that should be avoided in the market we are currently in. Second, I have no way of knowing where the individual subscribers have their accounts. All brokerage houses are different and a fund available to me as no-load with no-transaction fee, may not be available at the firm where you keep your account. This newsletter has a huge following, and it is impossible to come up with a satisfactory solution for everybody. Third, last year I did publish some of my managed account selections with the result that a lot of readers picked the same funds, which caused them to grow too fast, and some of them subsequently had to be closed to new investors. I try to provide the data in a concise form absolutely free of charge, but as the individual investor you have to take some responsibility in making you own choices. The funds are already pre-filtered for you, all you have to do pick those which are available to you at your custodian. Of course, those investors, who like my approach and don’t want to make any decisions themselves, always have the option of utilizing my management services.

A: Derrick, while I use some large caps, I am not necessarily only tuned into those. During our current Buy cycle, which started on 10/5/04, I have used a mixture of funds, with a Mid-Cap Value fund (MUHLX) having gained almost 20%. You need to go with those funds which show the strongest momentum and not get stuck on their orientation. There is one exception, though. I have mentioned since the beginning of this cycle, that I will not use ‘small growth’ funds due to their inherent volatility this late in the economic recovery. We have also done well with Mid-Cap Growth (BARAX) and Large Value (NPRTX).

A: Good question, Pete. I suppose until it’s front page news, people won’t wake up the problem. You’re probably ahead of everyone else, but if you do take a position, be sure to protect yourself with a stop loss point. You may be right, but your timing could be off.

A: No Paul, the stops are set on a trailing basis so that they serve to either limit your losses or, if the markets rally long enough, lock in your profits. For example, say you buy a fund at 10.00, your immediate stop should be 7% below that or at 9.30. Let’s assume that daily price develop as follows: 9.90, 10.10, 10.31, 10.25, 10.38, 10.50, 10.41, 10.31. The high since you purchased the fund is now 10.50. Your trailing stop loss is now adjusted to 9.77, and so on.

A: Harry, since you missed the beginning of the Buy cycle on 10/5/04, you should treat your current cash reserve as new money. I am doing the same, and I have been sitting on new clients’ money since the beginning of the year. I did commit a portion of this money, however, last Friday. I would put 1/3 into domestic equity funds (no small growth) and choose those which have held up pretty well during the January 05 decline. Funds I like and own are: BARAX, MUHLX, NPRTX, NMTAX, BPTRX. You could then also commit 1/3 to international funds, which are listed in the StatSheet. Since some of them may not be available to you as no load, use the corresponding ETFs. I would not allocate 1/3 to country funds, since they can be very volatile. Unless, of course, you are very aggressive. I would use maybe 10% of your portfolio value. Again, on country funds I use a 10% trailing stop, while on all others I use 7%. I would keep the balance of your portfolio in cash and allocate it to those funds which go up by 5% in value first until you’re 100% invested.

A: No Don, you should probably treat the proceeds now as new money, just as I do. As I mentioned last week, I would like to see a little more stability in this market before re-investing again. This is a little bit of a grey area, so definitely use the incremental buying procedure (1/3 at a time) if you re-enter the market. If we get a couple of days of steadiness, I will commit 1/3 again, but I will use those funds/ETFs which have shown a better ability to withstand drops in the market (effective today, we have committed 1/3 of new money as well as proceeds from the previous sale to re-enter the market using our incremental buying procedure).

A: This is a very timely question James. In this week’s issue of the newsletter, I have announced the possibility of offering a managed account service, which provides investors with tax free income in the 5% – 6.5% range using low cost ETFs. Stay tuned for further information.

A: I stated at the beginning of the Buy cycle on 10/5/04 that it would be wise to stay away from ‘small growth’ funds due to their added volatility this late in the economic recovery, and I still recommend that. Other than that you should make your selections from the StatSheet and focus on those areas which develop the strongest momentum. Right now, of course, all fund orientations are weak, so you will have to give it a little time. To me, it’s not as important as to the type of funds that you have, but how disciplined you will be when it comes to limiting losses or protecting profits.

A: Ann, some of these funds have been doing OK, at least from the effective date of our latest Buy signal. Given those circumstance, I would look at the worst performers and sell 50% right now and put a 5% stop loss under the balance. That way, you can participate if the markets continue to rally, but will have sold a big portion in case the markets head further south. For all others, do as I advocate in my newsletter and use a 7% trailing stop loss.

A: Tom, thanks for your e-mail. You didn’t say the symbol of the fund you’re in. Nobody knows where energy prices are headed. Simply set up a trailing sell stop loss of 7-10% off the high and let the market tell you when it’s time to get out.

A: Yes Joe, you are correct in making the adjustment due to the dividend distribution to allow for an accurate sell stop. There are 2 ways you can handle it. One, you can deduct the distribution as you did and adjust the price of your stop downward. Or, you can ignore the distribution by adding it back to the reduced price and act like the distribution never took place. That way, you’ll keep the original stop loss price in tact. Either way will work.

A: Harley, my trend tracking methodology works best with less volatile funds such as domestic equity or general international funds. You can use sector/index funds, provided you follow a strict stop loss discipline such as I advocate. I will add specialty funds this year, but will focus more on ETFs due to their less restrictive trading rules.

A: Bill, I haven’t read the entire book, but, like you, have seen excerpts. When you follow trends like I do, you don’t have to concern yourself with wild predictions, whether it’s from Dent or Prechter, to see whether the Dow will hit 40,000 or 400. Our Trend Tracking Index (TTI) will be our guide and will get us in the market, if an up trend is sustained, or out of it, if a reversal occurs. Whether such an up trend will lead us to 40,000 in the Dow or not is immaterial. If you follow a disciplined approach with clearly defined entry and exit points, as well as a stop loss strategy, such questions become unimportant. Nobody has the answer, and it’s a waste of time trying to figure out who could be right. Hope this answers it.

A: Be glad to, Robert. Wall Street has a fixation on comparing all performances of investment and mutual fund managers to that of the S&P 500. Personally, I can’t see why, because it assumes that, alternatively, you should invest 100% of your portfolio in that index. I have yet to meet anyone with a sizable portfolio who would even consider that option. It gets worse. During the bear market of 2000, the S&P 500 dropped by more than 40%. A fund manager, who, during that same period, only lost 30% was hailed a hero and moved up in the rankings. It’s beyond my understanding how this makes sense. My definition of Trend Tracking is fairly simple: The key to its success is to be disciplined and consistent by avoiding major market declines, which may take many years to make up. Doing just that will, over time, put you ahead of the S&P performance.

A: Sure, Laren. The DMA refers simple to a ‘Daily Moving Average’ of an indicator such as my Trend Tracking Index (TTI). It shows us in which direction the trend is currently headed, be it up, down or sideways. This is the cornerstone of our approach, since we only invest in areas that are showing a strong upward pattern. Along the same lines, the %MA (% Moving Average) shows us how far above its trend line (DMA) an indicator is situated, which is expressed as a percentage. For example, right now our TTI hovers +5.42% above its trend line (Buy mode), and we will hold all of our positions. If it retreats by more then 5.42% and drops below its trend line, that would indicate a change of direction and cause us to issue a sell signal. Of course, before the Sell signal actually occurs, we may have liquidated most of our fund holdings already, if they themselves have dropped more then 7% from their highs made during the Buy cycle.

A: Linda, let me make a correction first, I don’t use a 50 DMA (Daily Moving Average), I use a 39 week average (195 days). The %MA (% above Moving Average) gives me a quick look at how far above its own trend line a fund has moved as compared to others. While this in itself is not an indicator, it makes me aware of potential volatility. If a fund has moved way ahead in that area, it may come down just as fast and potentially hit my pre-set stop loss way too early, while the overall market is still in an uptrend. Conversely, you could say that a fund, which has barely broken through its trend line on the upside, maybe lagging behind. It’s almost like jumping in the barber chair and saying cut it: not too long and not too short. I’m not sure if this answers it for you, but look at it as just one of the tools we use.

A: Yes Scott, that is exactly what happened within 2 weeks of our Buy on 10/5/04. One of my fund selections, ICBMX, retreated sharply during the market pullback, hit our 7% sell stop, and was subsequently sold. After it had become clear that this was only a correction, and not a return to bear market territory, we started replacing this fund with MUHLX.

A: Alfredo, you bring up some valid concerns which probably many people share. However, it seems to me that, at least from a historical perspective, things have a way of turning around and ending up for the better. For example, I am reminded of the incredibly high interest rates which we had in 1981 with mortgage rates peaking at 21%. Things looked pretty bleak back then and you more or less couldn’t give real estate away, however, long term we now have ended up with the lowest rates in 50 years. Nevertheless, I believe that the potential for high rates again due to the federal deficits certainly exists at sometime in the future and economic growth could be jeopardized again. This is why I use an investment approach which enables me to base my decisions on price activities, because any economic or world event affecting Wall Street will be immediately reflected in the price of the affected securities. In the age of information overload it is no longer possible, in my view, to make a fundamental assessment as to how any investment should react to a given event. It is always a matter of perception vs. reality. The reality is that we have horrific federal deficits, however, at this point it is not perceived to be a problem. Once this perception changes, prices of affected investments will start to adjust and head south. That’s were out trend tracking method will be of great value. Our pre-determined exit points will be hit automatically and allow us to either limit our losses or lock in our profits before moving to the safety of our money market funds.

A: Thanks for your e-mail Joe. No, I have no problem with investing in bond funds, but only at the right time. We are in an environment of economic expansion and higher interest rates, which will cause bond prices to go down. Bonds were a great investment over the past few years, but not now. If we should sink back into a recession, I will look at those options again. All of my retired clients are investing for growth and then withdrawing money from their profits to supplement their income. None of them want to be on a fixed income, since expenditures always seem to go up — not down. Fixed income to me equals a lower quality of live.

A: Cindy, when you compare those numbers, be sure to compare the correct dates as well. For example, if you look at the following link for the listing of NMTAX at Morningstar http://finance.yahoo.com/q/pm?s=NMTAX you’ll notice that next to the word Performance it says as of Sept. 30, 2004. That’s the difference. My data is as of the date of the StatSheet, while Morningstar usually updates only once a month. Hope this answers it.

A:I have several managed account clients who are retired, and I follow the same approach as I do for those who still need to build assets. Yes, you will read about the allocations you mentioned, 50/50, 60/40 etc., which all brokers promote. It doesn’t make any sense to me. Of course, if one follows the Buy & Hope strategy you absolutely have to go that route or suffer tremendous financial consequences. Many of my 15,000 readers have told me that their portfolios are still down from the last bear market of 2000, even though they had this type of diversification. I will always invest for my clients with the goal to grow our assets. For example, during our last Buy cycle from 4/29/03 to 5/18/04 we grew our portfolios by almost 25%. Some of my retired clients, who were in need of cash, are now planning to use some their gains to supplement whatever other incomes they have. I believe this can only work if you have clearly defined entry and exit points to control risk. For example, right now we have been in a Buy mode for domestic equity funds since 10/5/04. We are only exposed with 1/3 of our assets and our stop loss is set, so that we won’t risk more than about 2.5 to 3%, in case the market continues to deteriorate. These are my beliefs and they apply to taxable and non-taxable accounts as well.

A: Joy, here’s what I recommend to my clients. When you set up your 401k plan make sure all of your contributions, present and future, go into the money market portion of your account. Safety first! Then, once you decide on an investment methodology you want to follow, such as mine, you can allocate into the various funds as per the strategy. That is the simplest way. Furthermore, you can submit some of your fund choices to me, if they have ticker symbols, and I will add them to the weekly StatSheet (401k section 6). Now you can track them and make appropriate choices when a Buy signal occurs.

A: Yes Joe, that’s a real problem with mutual fund companies. While I don’t advocate short term investing, anyone should be able to sell a fund after 3 months without being accused of day trading. There are a couple things you could do. You didn’t say where your account was, but it sounded like you were dealing directly with T. Rowe Price. Open up an account at a discount broker. While you may have more leeway there, because they will charge you a modest short-term redemption fee, they won’t hassle you. Or, better yet, use ETFs (see list in my StatSheet) and you’ll have no problem at all.

A: Congratulations Leon on having such a great unrealized gain on a well performing fund. How long will this 2% redemption fee be active? I wasn’t able to determine that from my resources. In any event, the fund has done well and it currently sits above it’s long-term trend line. As you know, my Trend Tracking Index has just given another Buy signal for domestic equity funds. I would hold that fund, but sell if it drops about 7% from current levels. That way you will lock in some profits if the current rally runs out of stream, but, if it continues, you are well positioned to increase your gains. The most important advice I can give is to never, ever turn a winning position into a losing one.

A: I sure do Susan your question is actually quite common with more and more people deciding to work for themselves. Given the fact that you are in a new business you would be better of investing any extra monies you generate in marketing to help your business grow faster. Additionally, you want to build a cash reserve to see you through the lean times you may experience. Once you’re up and running past a certain point and your business becomes more profitable, then you can explore the area of investing.

A: Yes Stan, you’re right, that would be nice, but it can’t be done reliably. I was informed by my custodian that most mutual fund companies no longer implement a change in redemption fees once a month, but they may simply send an e-mail at anytime announcing such a change. For example, if I check with my custodian regarding additional redemption fees today, and I don’t place my order till Thursday, things may have changed and I need to verify the facts again. It’s that volatile of a situation. Regarding fund openings and closings, I can only add that this is a free newsletter and there’s only so much I can do. The reader needs to take some responsibility as well and verify some of this information with his/her custodian.

A: Good question, Paula. I am featuring all of the no load, no transaction fee mutual funds, which are available to me through my custodian and that may include some of the big offenders. It is up to the reader to decide whether to use them or not I only present the appropriate investment information. However, there are some companies I will not use for my managed accounts simply because of the defiant attitude they have shown towards the general investing public.

A: Brij, absolutely not! There is no such investment you can ‘buy and forget’ with maybe the exception of your home. This is what my site is all about to get people away from the mindless buy & hold proposition, which has ruined a lot of portfolios over the past few years. I know that this is not what you wanted to hear, but it’s my opinion.

A: Judy, I designed the Trend Tracking Index (TTI) back in the 80s and its composition is proprietary. It has been my major guide to determine market direction. The TTI has been invaluable in getting us into the market and, more importantly, helped us sidestep most of the devastating bear market of 2000. The only way you can track it is via my publications.

A: Steve, retails investors have a 180 day redemption period, while managed accounts via advisors have only 90 days. With our long-term approach to investing we get charged very rarely, butthe possibility exists. Those fees range from a min. of $39 to a max. of$199. For my personal account, I’m being charged those fees as well.

A: John, do not worry about the current fund choices on my list. They will change dramatically by the time we receive the actual next Buy. The reason for listing them now is that I want my readers to see how market behavior affects those funds. Some are holding steady while others are losing steam and moving off the top 25 list. However, be advised that these are the ones which are available to me as ‘no fee’ and ‘no load’ through my custodian. When the time comes, and you still need to have more choices, I will most likely enlarge the list just prior to the Buy signal becoming effective.

A: Marco, once we are in money market we don’t want to have any market risk. It doesn’t pay to chase pennies and miss out on dollars. It is not sensible to me to possibly have to sell a bond fund after a few weeks at a loss simply because we get a Buy signal in equities. We’re better off being safely on the sidelines knowing that our time will come. How long will we stay out? Depends on market behavior. Usually the markets are in an up trend 80% of the time, although this certainly hasn’t been the case in the past 5 years. Bottom line, we will stay out as long as it takes to safely take a position again. These days this could very well be on the short side. I’ll advise my readers in my weekly updates.

A: Alicia, that is actually a very good question. From my experience, I have seen that the Sell signals are actually more important to your financial health than the Buy signals. Why? Let’s say your portfolio is in money market and you decide not to follow through on a given Buy recommendation. Well, you really haven’t lost anything, you’re just maintaining your status quo. On the other hand, if you decide to hold your positions after we give a Sell signal, you may actually lose money, if the markets continue their downward trend. We are selling in the first place because our indicators are heading south after a big run-up. Odds are that this new down trend will continue, even though it may be interrupted by some rally attempts. This very thing happened after our Sell on 5/18/04. The markets attempted to rally for a while before slipping lower during July and making new lows for the year today. Unfortunately, not everybody takes the Sell signal as serious as they should, even though it is designed to protect your portfolio from eroding during a bear market.

A: Darren, when mutual funds were originally set up (the Act of 1940) it was established by law that they were only to be sold here and prospectuses were only allowed to be sent within the U.S. In addition, some countries have restrictions as to what financial information can be mailed to them. Anyway, that’s why I use ETFs for international clients.

A: Robert, I’m only listing funds which are available through my custodian (Charles Schwab) as no load, no transaction fee or load waived funds. The ones you mentioned are available to me as ‘load waived’ funds. There is a wide variety of brokerage houses where subscribers keep their portfolios. That makes it impossible for me to track as to who offers what type of funds. The most common discounters like Scottrade, Ameritrade or TD Waterhouse should have similar set ups like Schwab. However, be aware that as an advisor I have sometimes access to funds which are not available to retail investors. An example would be the NAMCX fund, which I used last year and which gave us a 47% gain in 3 months. However, it was an advisor only fund with high minimums. You are right it would be helpful to add these various items you mention to the fund listing. However, keep in mind that this is a FREE newsletter and there is only so much I can do at that price. ) That’s why I offer managed account service, so my clients don’t have to bother with those details.

A: Sure, Bala. You can look at previous issues by changing the date in the link. For example, the current issue is: &lta href=http://www.successful-investment.com/StatSheet/SS071504.htm&gthttp://www.successful-investment.com/StatSheet/SS071504.htm&lt/a&gt If you look closely, you can see that SS071504 reflects last Thursday’s date. You can change that to prior Thursday’s date, or any within the past 6 months, and you will be able to read the StatSheet

A: Thanks for sharing your frustrating investment experience, Mike. I appreciate that honesty. Since you’ve been a reader of my newsletter/StatSheet for a while, there are a few things you can do on your own, if you wish. Your IRA is in cash right now, which is great, since it matches our current position of being out of the market. At Scottrade you’ll have access to most all of the no load funds I feature on a weekly basis. Once my Trend Tracking Index (TTI) signals a Buy, make your fund selection and buy into the market in accordance with our methodology. Above all, you have to be patient. To make your account grow you need to have a consistent long-term approach. Don’t force it, like you seem to have done in the past. In regards to you 401k, you should check if your investments choices include mutual funds, which are publicly traded and have a ticker symbol. If so, I can add them to my 401k section of the StatSheet and upon receiving a Buy or Sell you can follow along as well. Your current position there should be cash as well.

A: Absolutely, George. I have had the same experience with some of my managed accounts clients, who do similar things every quarter. Our methodology, as should any investment approach, focuses on the long term. While we are generally invested 80% of the time, it’s the other 20% most people are struggling with. The markets go nowhere or sideways, rallies are followed by declines and most investors get frustrated after a few months. These are the circumstances we have been in since March of this year. If you take a longer perspective, you will know that these difficult times will pass and a trend will again become apparent and offer us profitable opportunities. In the meantime, don’t log on to your account every day and, especially, forget following Wall Street’s ‘quarter-to-quarter’ comparison mentality and focus on your long-term goals.

A: Thanks for writing, Nick. While I listed the funds which I have personally used, before our last Buy cycle (4/29/03), I will not do that again. This newsletter has grown to a point where a lot of subscribers might jump on a few funds which may cause the fund company to close to new investors. I believe that happened with MOPIX last year. There are a lot of great fund selections in the StatSheet and you can use any of the top 25.

A: Dominick, the short-term redemption fees you mentioned can’t be avoided. While our methodology attempts to keep us in the market for longer periods, occasionally it happens that we sell within a 90-day period and get stuck with the early redemption fee. It’s a fact of life, but I’d rather pay it and sell when our indicators tell us to do so, as opposed to trying to save pennies and lose big if the markets turn down sharply. The funny thing is, that I personally invest my own money the same way as I do for my clients, and I as well get charged a short-term fee, if I sell within 90 days. By the way, for retail investors the short term redemption period is 180 days.

A: Thanks for your e-mail Caroline. I personally don’t think much of CFPs, especially those who work strictly on commission and recommend products not suitable to clients. While there is a place for variable annuities in some people’s portfolio it doesn’t seem to be applicable to you. If you buy an annuity and need emergency money, you’ll be stuck with paying a hefty surrender charge of around 7% the first year. To me, most of these products are being sold because of their high commission pay out to the sales person, since you’re being locked in for usually 7 years, before you can withdraw without penalty. Even if you buy the product, the challenge still remains for you as to how to invest wisely. Given your circumstances, your best bet is to keep your money liquid using investments via a discount brokerage account, probably like you’re doing right now. This enables you, at anytime, to liquidate some of your holdings should the need for cash arise. If you prefer doing your own mutual fund investing you can follow along using my weekly StatSheet, which gives you all the tools you need to make proper decisions. Or, if you prefer, you may consider my managed account service where I can do it for you.

A: Thanks for writing Robert. My 7% Sell rule is always based on the highest price your investment reaches from the time you bought it. So it acts as a trailing stop loss and will lock in your profits, or limit your losses. In your example, you should sell if the price drops from $40 to about $37. This applies to mutual funds. Your example almost sounds like you are talking about an individual stock investment. Due to their higher volatility you should use a higher percentage for stocks, such as 10 -15%, or whatever you’re comfortable with. You don’t want to keep it so tight that you get stopped out quickly and then watch your stock soar to new highs.

A: Mike, there is probably no right or wrong answer for this one. If you’ve had losses in the international arena they can possibly also be attributed to the fact that you may not have used a disciplined approach. Not knowing your situation I can’t be sure of that, of course. I have to agree with you in that most of our profits using our trend following approach have always come from the domestic market. If I were to get 2 Buy signals at the same time, domestic and international, I’d use the bulk of my portfolio for domestic funds. The bottom line really is to make your portfolio grow and not to fall in love with any one region, or the myth one ‘must’ be diversified internationally. I myself prefer the good old U.S. market, but during those times when we have been in cash I have used international bond funds and others to bridge the gap, so to speak. Again, if I get a Buy internationally I’ll take a hard look at it, but historically, a domestic Buy has always preceded the International Buy. Last year, we got into domestic funds on 4/29/03 and into the international ones on 6/3/03.

A: Thanks for your e-mail Rob. I can sympathize with you about having sustained financial damage by brokers. It’s a story I have heard a lot over the past few years. I have removed the International Bond Funds section, since we’ve been out of this market for quite a while and it is not even close to becoming a recommendation at this time. As market behavior dictates, I will delete certain sections and replace them with more timely information. Of course, the bear market fund stats are looking great right now. However, we need to approach it systematically, so that we control the risk as much as possible. First, our main indicator, the Trend Tracking Index (TTI), has to break ‘below’ its long-term trend line signaling a Sell for all domestic equity mutual funds. Second, the Short Fund Composite (SFC) has to break ‘above’ its own long-term trend line confirming a trend reversal and a Buy into bear market funds. Then we will look at the stats for the individual bear funds and select those with strong momentum figures. Again, when selecting be sure to choose only those which are suitable with your investing style. For example, if you are very conservative, don’t pick a fund which is 200% leveraged.

A: Thanks for writing Ted. Yes, there are mutual funds and Exchange Traded Funds that deal with the specific areas that you mentioned. Some of them are sector funds and extremely volatile, which is why I don’t use them. Others are workable. For example, RYJUX is a fund that benefits when interest rates rise. It’s just crossed its long-term trend line on the upside. A very aggressive one is RRPIX which also rises as interest rates go up, but at 125%. Another one that goes up in value as the dollar goes down and gold rises is PSAFX. I currently don’t use any of them, but may do so in the future. I try to stay away from country specific funds and prefer funds which cover an entire region because of better diversification, such as emerging markets. Unfortunately, many of those in the emerging arena and Asia Pacific all went into a Buy mode around the time when we received our domestic Buy on 4/29/2003. This is why I’m not invested in them.

A: No, you never want to invest all of your money in any one fund at once. Use our incremental buying procedure and buy into the fund with 1/3 of your assets. Wait till the invested portion has gone up by 5%, then invest another 1/3. Do that again until you are 100% invested. This approach avoids you possibly buying in at market tops with your entire portfolio. Managing risk is always the key issue. If the markets go down after you have invested 1/3 of your money and you use our recommended 7% sell stop, your losses would be very moderate. Remember, the surest way to the investing poor house is by not using any stops. While I believe that based on current economic growth we may be entering a period of rising interest rates there is no assurance that rates will rise rapidly and/or stay higher. That’s why we always have to protect our downside.

A: How long will stocks rise? They may have already started their trend reversal. Seriously, I have no clue Robert, and I don’t even want to guess. That’s the beauty about my approach to investing. I don’t have to concern myself with that, but let my indicators be my guide. They will tell me when it’s time to get out, meaning that the chances have increased that a trend reversal has occurred. In the meantime I just follow the trend.

A: Linda, I don’t blame you if you’re upset about the mutual fund scandal I’m just as furious with those companies as you are. I am just putting the finishing touches on my next article How to beat the mutual fund companies at their own game, which will be posted at my site upon completion.I use no load funds to my clients’ advantage by choosing only those which have the greatest probability of making us money. We only stay in them during strong up trends and get out of them during downtrends. If some of them have been involved with illegal after-hours trading, I can’t change that. While I try not to use the worst offenders, like Janus, I still have a money making position in it. That’s the only reason I’m keeping them around for the time being, I have no allegiance to them. As an alternative you can use those funds which are clean or use ETF’s.

A: Warren, you maybe still misunderstanding my approach a little bit. When we get a Buy signal based on our Trend Tracker (TTI) we choose funds with strong momentum figures in the area of 4wk, 8wk, 12wk and YTD. It is immaterial as to whether the funds listed in our top 25 are Large Cap, Small Cap or Mid-Cap. If the markets correct and we get stopped out based on our short-term sell stop of 7%, it is an indication of weakness in that sector in which we get stopped out. For example, after our Buy on 4/29/03 one of our strong performers was NAMCX, a small growth fund. We got stopped out 3 months later with a 47% gain. Since our TTI was still in a Buy mode, this gave us the opportunity to rotate up into stronger sectors at the time, such as small value. When I list the top 25 funds based on 4wk and 12wk momentum in my newsletter, those are the funds which should be used given the current economic environment. Again, it’s immaterial what orientation they have. Why? Because we have an exit strategy and are not invested with a Buy & Hope mentality.

A: Thanks for writing Ted. Yes, there are mutual funds and Exchange Traded Funds that deal with the specific areas that you mentioned. Some of them are sector funds and extremely volatile, which is why I don’t use them. Others are workable. For example, RYJUX is a fund that benefits when interest rates rise. It’s very close to reaching its long-term trend line on the upside. A very aggressive one is RRPIX which also rises as interest rates go up, but at 150%. Another one that goes up in value as the dollar goes down and gold rises is PSAFX. I currently don’t use any of them, but may do so in the future. I try to stay away from country specific funds and prefer funds which cover an entire region because of better diversification, such as Emerging Markets. Unfortunately, many of those in the Emerging arena and Asia Pacific all went into a Buy mode around the time when we received our domestic Buy on 4/29/2003. This is why I’m not invested in them.

A: Ron, since you are fairly new to my newsletter you may have missed some of the information discussed earlier in this Buy cycle. We sold NAMCX on 8/6/03 for a 47% gain, when the market corrected the first time. This is stated in section 1 (Domestic Equity Mutual Funds) right below the Indicator chart. Regarding the fund recommendation SMCDX, I have to point out that I only feature the top ranked 25 funds out of over 700, sorted by 12wk performance. This obviously changes from week to week and SMCDX may have slipped out of that ranking, which is no reflection on the fund itself. How can reader Lester track this? He is the only one who knows how much he paid for the fund and he will have to use the 7% rule based on his purchase price. While this may be slightly different than the 7% I use, the point is to always establish an exit price when you enter into any investment position. I am considering featuring the top ranked 25 funds by 12wk performance, as I am doing right now and also show 4wk performance to cover more ground. See the changes in this week’s StatSheet. Remember Ron, this is a FREE newsletter and I’m trying to provide as many tools as I can. The investor following my methodology must track his own stop losses. Those who want the total package, and not be bothered with any details, should consider using my managed account service.

A: You may not know it Keith, but the answer is very simple. You can sell short any ETF you like! There is a benefit ETF’s provide the average investor, which is ease of entry. These products do not have up-tick rules, so you can decide to short the shares even if the market is on a down trend. What this means is that, rather than waiting for a stock to trade above its last executed price (called up-tick), you can short sell the shares at the next available bid and immediately enter into the short position. This is important if you wish to enter quickly in order to capitalize upon the market’s downward momentum. With regular stocks you would not be able to enter into the position if the downward pressure was great.

A: Yes Monica, generally in the past when the markets reverse course we have moved to the safety of money market. However, I have developed a bear market trend indicator which will tell us when to purchase a no-load bear market fund. This, of course, only applies once a clear down trend has been established. I will publish this indicator at the appropriate time in the weekly StatSheet.

A: Lester, here’s how I would look at it given the current situation. With this week’s sell off I want to see first which fund has held up fairly well and I do that by visiting the DrawDown column (DD%) in the above StatSheet. The fund with the lowest DrawDown is SMCDX with -2.25%. As you can see, this fund also happens to be positive in all momentum categories and has a current Buy cycle performance of an outstanding +41.06%. A view at a technical chart confirms that this fund has been climbing steadily and consistent during our entire cycle. If you plan on buying this fund be sure to use our incremental buying procedure and always be prepared to exit should this fund drop by 7%. (Disclaimer: This conclusion is based on our method of analysis and does not constitute a recommendation to buy, sell or hold any security. At the time of publication we did not own the fund mentioned in the above response).

A: Sorry to hear about your bad experience Ben, but, unfortunately, I have heard similar stories many times. Your size portfolio would have grown by 35.30% (as of 3/3/04), after fees, if we had managed it during the current Buy cycle.

A: That is very true, Jay. Even though our trend tracking index is still above its long-term trend line, you never know when a market reversal may occur. Since we have had such a tremendous run over the past 10 months, it is absolutely crucial to use a disciplined strategy not only for entering the market, but also for exiting it, either to limit losses or to maximize accumulated gains.

A: You are absolutely correct, James. When interest rates go up, bond prices go down. Such happened during the spike in rates last year when bond holders saw their principal drop by some 20% — in one month. So much for the perceived safety of bonds. I have used bond funds in the past, when rates were high and bond prices low. However, we’re nearing the top of the market (in bonds) and I would not invest in them at this time. Of course, there is always an exception and that is, if you’ve been holding a bond for a while, you’re happy with the interest it is paying AND you don’t need the money so that you can hold it till its due date. As long as you don’ t sell, you won’t lose principal.

A: Laren, I’ve been asked this many times, whenever people have a short-term need such as a wedding or saving for a down payment for a home. Generally speaking, I’m very much opposed to investing money which is needed in the short-term using a long-term strategy. Why? Investing in the markets, no matter how well the risk is managed, involves some fluctuation within a portfolio. If the need for money arises and the portfolio has just retreated some 5% it could be a detriment to the event you had planned. My recommendation is to simply keep the money in the bank and don’t jeopardize it.

A: That’s a great question, especially in the current market environment. It’s a personal decision, Peter. You can use any figure that you’re comfortable with. For example, you could use a 10% sell limit on funds which have given you greater appreciation, such as MOPIX. It’s been one of the strongest performing funds, yet it is also a little more volatile than, say, NGUAX. However, the idea is to follow a disciplined approach whichever number you decide on. Those investors, who have only recently bought into the market and have no unrealized gains to show, should definitely stick to the 7% rule, in order to limit potential losses.

A: I generally publish the updates on a weekly basis. If I’m traveling I may have to skip a week occasionally. However, you most certainly can work with the information from 2 weeks ago, since our outlook is long-term anyway.

A: A very good question Randy. No, we never have access to your money. All of our managed account clients are set up at Charles Schwab & Co., who functions as the custodian for clients’ assets. I merely have a limited power of attorney to buy and sell mutual funds for you.

A: Thanks for pointing it out Jim. When I tried to print I realized that the text in the right margin were being cut off. I’m having my designer look at it and, hopefully, we’ll have it fixed within a week or so.

A: It appears that Eclipse funds merged with Mainstay Funds. The symbol changed from EEQFX to MOPIX (Mainstay Small Cap Opportunity). This has no bearing on the fund itself. However, please note that as of 1/5/04 this fund was closed and no longer accepts new investors. Those of us, who have positions in it may purchase more. Hope most of you got in this one.

A: A timely question Phil, since I was just going to address this issue. You most certainly can use an older StatSheet, since the rankings don’t shift all that much. It’s a matter of fact, it’s more crucial at the beginning of a Buy cycle to have current information. For this reason I will start the year 2004 issuing this StatSheet on a bi-weekly basis. If market activity dictates differently, I will switch back to publishing it weekly.

A: That is a very good question, Ted. When adding new money, I will look at the total performance during our current Buy cycle, but I will look more closely at the 4wk performance. Why? As this bull market gets more mature, different sectors are displaying strength at this point and some funds we originally held are getting weaker. NAMCX would be a good example of lacking in 4wk performance and EEQFX would be an example of a fund showing strong current performance.

A: Nancy that has been the unfortunate byproduct of illegal trading activities of some mutual fund families. I’m trying to either use more ETFs in the future and/or locate those no-load funds with what I consider reasonable redemption fees. What is reasonable? The reason behind those fees is to discourage quick in and out trading. A charge of 1% for funds redeemed within 30 days I would consider reasonable and that should not affect our methodology. A 2% charge for funds redeemed within 180 days is excessive and I would not consider such a fund. You don’t think they exist? Check out MEMEX, for example.

A: Of course, Ben. Schwab, like all other brokerage firms, has a short-term redemption fee for any mutual fund which is bought and sold within a 90-day period. The fee is 0.6% of the principal amount, subject to a $39 minimum and a $199 maximum. In other words, if we were to sell a fund within 90 days the fee would be limited to $199 whether the redeemed amount is $40,000 or $800,000.?nbsp Here’s a point of interest: As an advisor, buying the same funds as my clients, I’m obligated to pay the same fees. No exception.

A: Yes, John. I can manage the assets for Foundations as well, as long as the fall into these categories: Trust, Organization or tax-exempt Organization.

A: Sure, Les. At this point, however, I’m only tracking the variable annuities available through Charles Schwab/Great Western. I haven’t published them in my weekly StatSheet yet but will do so if there is a greater demand. If you have your annuities some place else you may try to get daily pricing data directly from the company.

A: Mike, whichever one occurs first. If the markets were to decline from here most likely the 7% rule will apply first. However, if we stay in the market a while longer the trend tracker index (green line) and the trend line itself (red) will move closer together. In other words, the longer we stay invested the less it will take for us to sell. If that occurs we will sell our positions before the 7% level has been reached. Look at the domestic chart on the StatSheet for clarification.

A: Scott, you sure can. I have several international accounts and while there is a little more paperwork involved to set up the account, I can invest your monies as per my methodology. One difference though. International accounts are not allowed to invest in mutual funds. In order to follow my approach we simply use ETFs, which will give us the same results.

A: Lee, if you’ve been following my approach you know that I advocate a disciplined method for getting into and out of the markets. That would automatically exclude the buy & hold approach, which I’ve written extensively about. Therefore I can’t recommend a mix of funds for all times. To me it’s a sure thing for financial disaster. I would suggest that, if you can, follow my approach using my weekly StatSheet and the selected funds, or you can have your portfolio managed by us. But please, don’t repeat the mistake millions of investors made over the past few years by holding on to mutual funds or ETFs, which should have been sold a long time ago.

A: While most of our investments will be in U.S. domestic equity funds, I also follow International Funds, Emerging Growth and Bond Funds, International Bond Funds, Asia – excluding Japan funds as well as Diversified Pacific Funds. I will take positions in those arenas as circumstances warrant. This year all of those markets have pretty much followed the U.S. and I have preferred domestic equities over those in emerging markets.

A: In regards to your investment choices there is no difference. You should use a rollover if you believe that eventually you’d like to roll it back into a 401k with another employer. There’s only one benefit to it, and that is that you can borrow against it, if your new 401k has a loan provision.

A: Willow, it all depends on who wrote about it. There are no commissions involved, so most brokers and financial planners don’t promote them and it wouldn’t surprise me if they talk negative about them. Here’s a real life comparison. During our most recent Buy cycle from 4/29/03 to 10/3/03 our top 4 mutual funds averaged a +22.54% return as compared to our 4 ETFs with +22.62%. That is a dead heat! Again, using an ETF or a mutual fund is not as important as determining the proper time to buy and sell them. See the above link to my article on ETFs.

A: This is a pet peeve of mine. Yes, as a shareholder in Janus Funds I received the same letter and was flabbergasted by their denial of facts. While I still have a Janus position I will no longer recommend them in the future because of their hostile attitude towards the small investor. I will write an article about this subject and will let you know once it is posted at my site.

A: That is a great question, Linda. I personally invest in the same funds which I use for my managed account clients. Out of my original 9 favorites I currently own JORNX, UMVEX, NGUAX, NAMCX and RSPFX. I also sold MUHLX when I recommended to do so and I follow my own Buys and Sells to the latter.

A: Mike, yes I am aware of it and this certainly varies among brokerage firms. Sometimes, as advisors we have access to no load funds which are not available to the retail customer. There are several choices you have ranging from moving your account, to having your account managed or using a different fund. Most likely the easiest solution would be for you to use a different fund. Another strong performer has been HENLX, but I strongly recommend you use the incremental buying procedure and sell, if the fund drops by 7% from its highs. Remember, managing the risk is the key to successful investing.

A: No offense taken Cleo, this is a good question. I have an independent advisor relationship with Charles Schwab & Co., who acts as the custodian for all of my clients’ accounts. I merely have a limited power of attorney to move your money into my chosen mutual funds as per our plan and back to your account. I have no access to your money at any time.

A: Yes, Barbara, it works just a well with variable annuities (VAs). However, at this point I’m only tracking VAs at Great Western since several of my managed account clients own these. Most VAs have a variety of good investment choices, which can be used with our domestic and international plans.

A: No Karl. Since we have been in a Buy mode since 4/29/03, all of our recommended funds have moved up substantially. If you would invest 100% of your monies right now and the markets decline from here, you would sustain unacceptable losses. That’s why we use the incremental buying procedure. You invest 1/3 of your available funds ($20k) right now and wait till your selected funds gain 5%. Then you move in another 1/3 and wait again until it gains 5% before investing the final 1/3 increment. This is a more conservative approach that has worked well for us during past Buy cycles.

A: Certainly Nancy. I’m probably one of the few advisors who accept client accounts as small as $10k. My entire business has been build around the ‘average’ investor. I enjoy the educating part as well as seeing small amounts of money grow into bigger ones. We certainly can set up an account for you at Charles Schwab & Co, who functions as the custodian for all of my clients.

A: Very simple Bill. E-mail me a list of your 401k choices and I will add the top three domestic funds to my database. They will then be displayed with their momentum figures in the weekly StatSheet and you can quickly see which one should be chosen for any given Buy cycle.

A: That’s a great question Joanne. While I have not yet featured ETFs in my weekly StatSheet I am in the process of adding them to the list of available fund choices. I have actually used them in the latest Buy cycle for my international clients, and they have done great. There are many benefits to using ETFs and I will be writing an article about them shortly.

A: Certainly. DrawDown is the pull back from the recent highs of our recommended mutual funds since the latest Buy Cycle, which started on April 29, 2003. If you are currently adding new money, you want to choose a fund with a low DrawDown number, which indicates that this fund is still displaying strong upward momentum despite the recent pullback in the market. For example, out of 450 potential no load funds only 3 of them had a 0% DrawDown as of yesterday, meaning they were at their highs for the period.

A: That’s very simple, Jackie. If you have publicly traded mutual funds in your 401k, you can simply e-mail the ticker symbols to me and I will add them to the weekly StatSheet. This will enable you to immediately see which ones are worth using during this particular Buy cycle. More importantly, it will keep you out of those that are showing poor performance in this economic environment.

A: Robert, I’m glad you got in at the time of the Buy recommendation and are showing some nice profits. Generally speaking, I don’t recommend switching, unless of course your chosen fund is a loser. In my investment practice I use new money to invest in the better performing funds, now that I have the benefit of hindsight. Keep it mind, however, that the market and various sectors can rotate and that MUHLX may pick up steam later on in the cycle.

A: No, I sure don’t. Friday is the regularly scheduled update. If we have a change in investment positions, or an important announcement to our plans, I will send out a special e-mail bulletin on the day it occurs. That will give you the chance to act in a timely manner.

A: Sure Mary. Our trend tracking indicators allow us to identify trends in mutual fund prices. Essentially, it tells us when to buy and sell no load mutual funds. There are two objectives: 1. To maximize potential gain by investing in mutual funds when prices are rising, and 2. To preserve principal and earn interest by shifting our clients’ accounts to safe money market funds when mutual fund prices are falling.

A: Raleigh, I wasn’t aware that they no longer exist. Yes, I did find another source called www.wiseradvisor.com. I am listed there myself along with many other investment advisors.

A: Terri, sorry to hear about your loss, but it’s the same sad story I have heard quite frequently over the past few years. Transferring your account is fairly simple. I will set up an account for you at Charles Schwab & Co and they will process the transfer request. Once your monies arrive I will then invest your portfolio as per our methodology.

A: No, George, definitely not. You would use our incremental buying procedure. You invest 1/3 of your portfolio in our recommended funds right now and wait until you have a gain of 5%. You then invest another 1/3 and wait for another 5% gain before committing the 3rd and final increment. This conservative approach lets you participate in the current market environment without risking all of your capital at once.

No, George, definitely not. You would use our incremental buying procedure. You invest 1/3 of your portfolio in our recommended funds right now and wait until you have a gain of 5%. You then invest another 1/3 and wait for another 5% gain before committing the 3rd and final increment. This conservative approach lets you participate in the current market environment without risking all of your capital at once.

Sure, Jan. One of our benefits of being a subscriber is that we will track your 401k fund choices, if they are publicly traded funds. By following our weekly newsletter as well as special update bulletins, you will not only know which fund to choose but also when to make a move.

John, you are not the only one in this position. That is why we offer complete management services for your brokerage account, IRA, 401k, Sep-IRA or annuity. All of our managed account clients are set up at Charles Schwab & Co for easy implementation of our trading plan. For more info send an e-mail to: ulli@successful-investment.com.

That is the cornerstone of our approach. Right now our main indicator would need to drop 6.32% in order for us to sell our positions. This would translate to an approximate loss of 6% if the markets were to go straight down from here. Since we currently are only 1/3 invested, we would loose about 2%. That is very reasonable, and is the risk we need to take to be in the market in the first place. I don’t want to split hairs and figure out what off-setting gains we would have in our bond or money market position.

That is the cornerstone of our approach. Right now our main indicator would need to drop 6.32% in order for us to sell our positions. This would translate to an approximate loss of 6% if the markets were to go straight down from here. Since we currently are only 1/3 invested, we would loose about 2%. That is very reasonable, and is the risk we need to take to be in the market in the first place. I don’t want to split hairs and figure out what off-setting gains we would have in our bond or money market position.