Q: Hi Ulli- thanks for all you do to educate us. I have to admit- I was a bit spooked before Brexit, with other weaknesses, and exited my ETF positions. Now I find myself on the sidelines, however, I still don’t believe what I’m seeing, although there are articles saying the fundamentals have improved. What do you think- inch my way in over a few weeks, and then be more disciplined with the stops instead of cutting and running? Thanks and best regards. (7/22/2016)
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.”
Q: Ulli: In this market cycle dating from your most recent sell signal until 4/4/16, I have held all of my positions. Those who follow your suggestions, no doubt, got out of the market at your alert signal. As of today, both they and I are at the same place in the market, assuming they are all back in, now. The difference, in my mind is that I have mirrored their performance without creating a taxable event. Comment? (4/8/2016)
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.
Q: Ulli: Hopefully the market can inch 3-4% higher which will allow me to unload most of these ETFs (with a modest profit), which sadly performed disastrously during the latest Aug. 24th flash crash e.g. SPLV. I’m going to stick with mostly SPY and XLP for my portfolio allocation, which both held up quite well during the 8/24 flash crash, meaning these two didn’t implode 40% during first 15 minutes of trading like some of these ETFs. What scares me the most are the half baked answers both BlackRock and Schwab traders told me when trying to figure out reasons for this latest flash crash. I’m not sure anyone truly knows or is willing to share for fear of a market panic. My opinion leans to a hidden flaw in ETFs somewhere deep in their weighted algorithms that occurs during fulfillment of an order during massive selling, which results with a miss-match of buy/sell orders which will accelerate the ETF stock price plunge until a buyer is assigned to the order. I read an article about 10 years ago hinting this could happen someday. I wanted to get your opinion re: Warren Buffet’s request for his Will and estate to use a 90-10 allocation with 90% in a Vanguard S&P 500 index fund and remaining 10% in short term bonds. My question is in a rising interest rate environment; won’t short term bonds also get hurt, albeit less so compared to mid to long term rates? I’m considering finding a short term bond ETF for about 5% of my assets, basically to park cash and use instead of selling my ETFs for cash; one that offers both a modest yield and has a decent Beta. Many thanks for all your helpful insight. (11/6/2015)
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.
Q: Ulli: Thanks again for all you do. I was just curious about using IOO as an international fund, since it holds so many US based companies. If I m not mistaken, many of the top holdings are US based. I realize that these are multinational corporations, but I just wondered if there wasn’t a better proxy for international investing. Here’s to low volatility and a rising tide! (9/25/2015)
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.
Q: Ulli: Thanks again for all the info you provide. Since no one knows if this is short-term correction or the beginning of a bear market we all depend on your expertise to guide us. When a buy signal is triggered, will you use the same ETFs that you were using in your portfolio or will you use the M-Index to determine if some or all should be replaced at that time? Also, do you invest in equal amounts in each ETF? I would think that would be the proper way since you are not trying to diversify the portfolio. Thank you for your time all the info you give us. (9/11/2015)
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.
Q: Ulli: I was wondering what you thought of the market fluctuation this week when many of the ETF’s had a meltdown inconsistent with their underlying securities. FOX Business news had been covering it all week. It may not have affected investors who follow your sell signals because you triggered that on Friday, but it could have occurred in the days leading up to your sell signal. Many small investors who had stop loss on their ETF, lost a ton of $$ because their sell stops triggered. By the end of the day, those prices rebounded and by the end of the week, many investors had substantial losses because of this. Makes me want to think about individual stocks again! ETF’s seemed to be the answer to not using mutual funds because they could not be traded during the trading day. But now, I wonder! If you addressed this, I missed it—sorry! (9/4/2015)
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.
Q: Ulli: Hope all is well. Thanks for all you do! Given the rapid and deep decline, it would seem that your Short Fund Composite (SFC) to be used as a trend indicator for Bear Market Funds would not only be above its TTI, but has had a clear piercing of the line to the upside resulting in a bullish signal. Is it time to buy SH?
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)
Q: Ulli: Thanks for your online free service, it is appreciated. My question has to do with using a 39 week simple moving average. I noticed that when the chart is looked upon at the end of the week when it is updated that it is easy to see the price relation to the moving average. You report often where the TTI is in the middle of the week for instance my question is how do you know what the weekly moving average number is until the end of the week? I would appreciate your input. (7/31/2015)
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.
Q: Ulli: With the Greece situation, should we get out of market short term even though your TTIs are still positive? (7/10/2015)
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).
Q: Ulli: I am in the process of rebalancing/creating a portfolio & I am hesitant to allocate 40% or so (I am 64) to bond funds with the likelihood of an interest rate increase coming possibly sometime in 2015. I am thinking it may be prudent to put that 40% (or so) I would allocate to bonds in cash & wait & see what happens in the coming months. My questions are (1) would you recommend buying a general bond fund (BND) now, or, if not, (2) would you recommend a bond fund focusing on high-yield corporate bonds (VWEHX or ETF equivalent) or intermediate bonds (VFICX or ETF equivalent), or keep the money in cash? Alternatively, I have also been thinking about simply adopting the Vanguard 4-core portfolio (w/VTI [39%] VXUS [24%] BND [27%] and BNDX [10%], but hesitate to do so because of the bond funds. Guess I am confused regarding why not sit and wait in cash until the dust settles, while knowing trying to time the market is oftentimes a fool’s game. I always greatly appreciate your thoughts and wisdom surrounding these complex issues. Hope to hear from you. Best always to you & yours. (06/12/2015)
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.
Q: Ulli: Quick question regarding your opinion if/when Greece leaves the EU, could it make the Euro much stronger and in doing so negatively impact the IOO’s ETF performance? (06/05/2015)
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.
Q: Ulli: I’m just wondering how you place your trailing stop orders.I had a weird thing happen to me yesterday.I had a 7% trailing stop loss on IPGP on the bid.It has been trading around $95.00. The trigger price for the stop was $ 90.09, but I was stopped out @ $95.17. I called Fidelity they researched it & told me there were a couple of bids in before the opening at approx. my stop price of $90.09. This triggered the stop and Fidelity routed it to the best price… which was $95.17. They said it was unusual but it sometimes happens?Ǫ The problem is I still want to be in the stock. My question:Should I place my trailing stop losses on the last price instead of the bid? All of my ETFs have trailing stop losses on the bid which I thought was the correct way to do it. I have changed some of my stock stop losses to last price since this happened.I’d appreciate any advice. (05/22/2015)
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.
Q: Ulli: When you are out of the market, are you just in cash, or do you have some fund you use that is safe but gives you some return? (05/01/2015)
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.
Q: Ulli: Since XLV has been a top performing index fund for many years, why not consider CURE? (04/17/2015)
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.
Q: Ulli: Do you ever decide to take profits on one of your 10 ETFs in apparent bubble conditions or instead wait and let the TTI’s help decide what to do? For example, the biotech sector has been skyrocketing the past couple of years e.g. IBB ETF. The healthcare XLV ETF is considered a somewhat low beta ETF, but with that said, does have a decent % of biotech companies in its portfolio holdings. I’m not sure on the exact %, but a few websites average to somewhere around 15-20% allocated to biotech companies in the XLV, which might provide a lot of volatility for this ETF if something were to disrupt the biotech industry e.g. Obamacare repeal, new gov. regulations etc. (03/27/2015)
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.
Q: Ulli: I want to thank you for giving us your postings freely. I have been a follower since 2009 when you had the model portfolios. We got yanked around when it was a traders market and you gave that up and went to posting the ETF listings. I use your momentum index for buy and sell and the TTI for IN and Out criteria. Do you have any desire of starting fund portfolios up again? Thanks again! (03/20/2015)
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.
Q: Ulli: In looking at the data you have for the ETFS/Funds, what would be the best way to use the data to come up with potential ETF/Fund buys or conversely sells. I’m not asking for a recommendation, just the process used to pick the best ETF’s/Funds listed. I mostly use Vanguard ETF’s and funds. If you think I should try other fund families, can you tell me the process to find the best ones? I don’t like funds with high fees or restrictions in trading, although I don’t do that much, other than to balance my holdings. I’d very much the input you can provide. (02/27/2015)
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.
Q: Ulli: With the international TTI going (and staying) positive over the last couple of days, would it be a good time to invest or ease into diversified international ETFs, such as VEU? Has enough upside momentum been demonstrated? Or, is this a potential head fake like last November? (02/20/2015)
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.
Q: Ulli: I was just wondering why you don’t have a diversified REIT, such as VNQ, in your broadly diversified ETFs that you track/recommend? (02/13/2015)
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.
Q: Ulli: I have been through the material on your site, though not through every blog post, so my apologies if you have answered these questions previously?Ǫ I understand the basis on which you rank ETF and mutual funds, your sell stop process and re-entry process. The part I am struggling with is how you select which ETF/mutual fund to buy do you just buy – say the top three? Or do you have some secondary selection process? I appreciate that each investor/client may have different criteria, but it would be helpful if you could outline that stage of your process. Secondly, do you worry about diversification across sectors – i.e. say you have two China ETF/funds, would you buy only one? And how many investments would you have in say a $300k portfolio to give a spread across several sectors/areas? I know I read somewhere that with new funds to invest, you tend to get 50% into the market and then invest over the next few months I just wondered how many investments you typically hold in client portfolios? Third, do you have a sell waiting time- i.e. if an ETF/Fund does not advance and therefore drops down the league table, do you have a cut off time/ranking when you sell and invest in an ETF with a higher ranking. Finally, what are your thoughts about investing at this stage in the market cycle (Jan 2015) the bull market is long in the tooth, but many fund managers have been waiting for a significant correction to invest as shown by the spike in October i.e. there may well be money to support another move higher. Equally while many pundits are calling the market weak and unsupported, the soft economic policies on both sides of the Atlantic are likely to continue to support/inflate the markets further. Once again I appreciate your commonsense approach to investing – just nervous about investing at this stage in the market. (02/06/2015)
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.
Q: Ulli: I join the chorus of your many subscribers and give you a hearty thanks for the work you do and the wealth of information you provide to help us be more successful investors. An extra thank you is deserved for providing this information for free! When the markets turn negative, as they are certain to do, is there any point where you would consider taking a position in one or more of the many inverse ETFS to continue capturinga gain even while the markets continue to decline? Fleeing to money market funds, with their current pitiful yields, will be actually a losing position because of inflation and other factors. Are there ETFS that can provide a decent return without completely losing much of our capital position? Keep up the great work. (01/30/2015)
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.
Q: Ulli: If I buy a stock at $50.00 and then, the stock goes up to $70.00, then it starts sliding down if I am using a 7% SELL STOP, then I will be getting out at $65.10. This is all good, but my problem is that I don’t have the time, discipline to track and execute this transaction. However, I have an option through my brokerage account to place a trade called trailing stop on quote. I could place this type of order when the price of the stock reaches $70.00. There are two trail options, one is a percentage or points (price). Which one should I use?What do you thing about using this type of trade to track by sell stops. Thanks for your help. (01/23/2015)
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.
Q: Ulli: Do you post a sell signal for US ETFS/Funds should it occur during the week, between newsletters? (01/09/2015)
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.
Q: Ulli: In following the 7.5% rule, I cashed in my mutual fund shares at about 8% when the markets turned bearish in the middle of October. Being reluctant to get back in over the following week, I missed a complete upside return to where I was when I got out. The problem with mutual funds is that they don’t like you redeeming your shares and then returning to the market every other day or so. My apprehension kept me on the sidelines and I have paid the price. Your input regarding this problem in dealing with mutual funds. (12/12/2014)
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.
Q: Ulli: I have available funds to add to my investments but feel this is not the time. I’m 84 and do not feel comfortable investing with most funds at their record highs. Any thoughts would be appreciated. (11/21/2014)
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.
Q: Ulli: Thanks so much for the information that you share. It has helped me tremendously and freed up a lot of time, to boot. I am wondering what your thoughts are re: buying put options to help protect profits – along with your stop loss rules, of course. It seems that this might help to preserve profits in the event of a down turn. I am thinking of puts that would be about 6 or 8 weeks out, and perhaps of protecting a part of my holdings. Thanks again. (11/14/2014)
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.
Q: Ulli: I have been reading your newsletter and find the information valuable and informative.Your approach to stop loss orders is interesting.Have you back tested this approach? My real question is what to do when you are between a buy and a TBD sell point when you have new money to put in the market?Do you have some guidelines on the equity – fixed income split? (11/07/2014)
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
Q: Ulli: Thought you may be interested in this video with Carter Worth who gives some stats on corrections of the S&P. You happen to use 7% as the point to give out corrections. Carter, a prominent technician on Wall St, gave stats since 1927 mkt down turns. The stats showed him break points of 5% down it will go down more. He got a mean of 12% and 8.2% as median. You may consider using the power of his stats with your system. So if it goes down further from 5% perhaps use 5% as your dump or 1/2 out at 5% and 8.2% as all out to capture more of your profits. His point was its only down 7.1% as of the discussion. At one level, it may seem to avoid the whipsaws if 8.2% is the range of the bounce back. Ulli, was there a statistical reason that you picked 7% to bail? http://video.cnbc.com/gallery/?video=3000319566&play=1 (10/31/2014)
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.
Q: Ulli: Your blog is VERY much appreciated, especially your book How to Beat the S&P using the S&P 500?Ǫ Question: Does your proprietary Domestic TTI affect the way the HOT LIST of 10 ETF’s are managed?If I am tracking correctly, not all of the ETF’s on a Sell have reached a 7.5% sell-stop?Ǫhave they? (10/17/2014)
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.
Q: Ulli: I was reading through the how to beat the S&P using the S&P and was thinking about capital gains. They wouldn’t be an issue in a 401K but could impact a standard investment account? On the surface, I’m guessing that missing the downswings would far outweigh any tax consequences on the gains at sale? Thanks for all the newsletters and commentary.I appreciate that you share your insights. (10/03/2014)
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.
Q: Ulli: Why do you use the 39 week moving average and not some other type of moving average, like the 200 day or 50 week moving average? (09/26/2014)
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.
Q: Ulli: I am a relatively new subscriber to your excellent newsletter. I understand your buy, hold and sell strategies on the overall market. However, I need help on your criteria in selecting the individual ETF/mutual fund buys showing strong upward momentum. Do you just pick say from the top 10 of the M-Index list? Do you rotate from funds that drop in and out of the top 10 list or do you hold your original purchase until it hits the sell stop? (09/19/2014)
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.
Q: Ulli: Regarding the 2 tables above, you mention that All of them are currently in buy mode, meaning their prices are above their respective long term trend lines by the percentage indicated (%M/A). However in the Action column, they are all listed as a Hold. Would you recommend putting new money to work in the current lofty market? Thanks for this fantastic website and all your valuable insight! (09/12/2014)
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
Q: Ulli: Could the ten Spotlight ETFs be used in a portfolio investment strategy or just for a piece of an overall portfolio? Second, would you logically try to weight the percent investment in each by tracking an appropriate benchmark? (08/29/2014)
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.
Q: Ulli: Thank you for a great web site.Just one question. Is the best time to buy or add additional positions into the Domestic and International funds is when your TTI green line gets close to the red moving averages?When is the best time to enter a position? Thanks in advance for your reply. (08/22/2014)
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
Q: Ulli: Two points. The first is that corporate earnings are growing primarily because many companies are borrowing money at low interest rates to buy back stock. So, the earnings growth is not necessarily actual growth in their businesses. The second is that foreign money is coming here because it is seen as stable compared to the rest of the world. Lots of Chinese, Arab, Russian, and European money. Ask realtors about foreign buyers. They are seeing a big upswing in foreign real estate purchases. People outside the U.S. are nervous about the state of affairs in the world. They see the U.S. with rose-colored glasses, IMO. (08/15/2014)
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.
Q: Ulli: Have you seen any benefit by an investor creating their own portfolio comprising of a mix of Value ETFs (Large, Mid, Small, Developed, Emerging) and then coupled with Momentum ETFs of similar types. The goal is that both types of Value & Momentum ETFs hopefully won’t necessarily correlate with each other depending what the market is doing and spread some of the risk around. My other question: are Momentum ETFs similar to Growth ETFs regarding how their index formulas/algorithms are determined or are both completely different kinds of ETF strategies? (08/01/2014)
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.
Q: The performance of the ETFs in the Spotlight is impressive. Do you have any suggestion on how some or all of them might be included in a portfolio? Or could they form a portfolio in themselves? (07/18/2014)
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.
Q: Ulli: If the bubble bursts, where do we need to be invested? Or do we need to be in cash? (07/11/2014)
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…
Q: Ulli: Do your performance figures for ETF’s in the Spotlight assume reinvestment of cash dividends? Either way, how do you adjust performance figures to accurately reflect the gain? (06/27/2014)
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.
Q: Ulli: This is in regards to your 10 ETFs in the spotlight. I noticed that XLY has been lagging all year and merely bouncing around its long-term trend line without making any headway. Are you planning to replace this laggard at some time? (06/20/2014)
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.
Q: Ulli: Could you please clarify the difference between your M-Index and the momentum numbers as posted in your Monday Cutline reports? I find this information very valuable. (06/06/2014)
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.
Q: Ulli: It seems that the online press has been inundating its readers with a constant barrage of market predictions along the lines of Dennis Gartman in the below piece: http://blogs.marketwatch.com/thetell/2014/05/27/dennis-gartman-calls-for-a-stock-market-correction-including-his-are-all-wrong/ He changed his mind now several times as to what the markets might do. Others are suggesting a 20% or so correction is due later on this year. What’s your take on this? (05/30/2014)
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.
Q: Ulli: Given the fact that the markets are hovering in record territory, with the S&P attempting to break through the 1,900 level, what’s your view of bonds in this environment? (05/23/2014)
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.
Q: Ulli: This is more a comment than a question. I really like your 10 ETFs in the Spotlight addition, which I follow daily. I used to be the type of investor who could not be invested in too many mutual funds and/or ETFs. I now use the spotlight ETFs as my guide, have reduced my total holdings sharply, update my trailing stops daily and have found that my investing endeavors currently not only take much less time but also have reduced my emotional decision making in the process. I am much more relaxed and feel confident that I can better handle the uncertainties of the market place. Thanks for that. (05/09/2014)
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.
Q: Ulli: When I subtract the dividend for an ETF from the high close for sell stop purposes, the sell stop is sometimes considerably less than it would be if I deducted the 7.5% from the high close. Am I right to use the high close less the dividends to compute the sell stop? (04/25/2014)
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.
Q: Ulli: I’m a fan of low-cost Vanguard ETFs. Which ones would be equivalent to the 10 you track? Do the 10 you track have better performance or liquidity to justify paying a higher fee? (04/18/2014)
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.
Q: Ulli: With the markets being this jittery, I believe that your TTIs could break their trend lines to the downside at some time generating a Sell. Could please clarify (again) what areas would be affected by such a move? Thank you. (04/11/2014)
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.
Q: Ulli: I follow you via Twitter and noticed that you publish Friday’s newsletter edition around 4 pm PST. About an hour later you publish an update, but I can’t seem to figure out what has been updated. Could you explain? (03/28/2014)
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.
Q: Ulli: Regarding %M/A is there a % that is higher than you are comfortable with, i.e. XLV is 11.89% above its trend line, so would one think it would come down some, to an average % range above the trend. In other words, is there more risk (even though it is a buy) the higher the (%m/a) is? Do some of these ETFs have a range they are usually above the trend line? (03/21/2014)
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.
Q: Ulli: I have been in all cash for a while but looking for some equity exposure. Any suggestions? (03/14/2014)
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.
Q: Ulli: What has happened to your 7 model portfolios? Have you abandoned this approach? Did I miss something? (03/07/2014)
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
Q: Ulli: Two days ago your newsletter said you liquidated these positions but today’s charts are still showing a hold? Am I missing something? (02/07/2014)
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.
Q: Ulli: Is your 39 week moving average really a 195 day moving average?(39 weeks x 5 trading days per week = 195) (01/17/2014)
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.
Q: Ulli: I am a little confused about the buy back in as described in the paragraph below from your e-book: b. If the price of SPY was above its 39-week SMA at the time we got stopped out, the new Buy point would occur once the old basis for figuring out the sell stop has been taken out. Once that happens, we buy the following day at the close. Please clarify.I take it that if SPY stopped out above the 39 week SMA at a price of say $130.95 and the SPY never fell below the 39 week SMA and resumed its uptrend that one would buy back at a price of $130.95 is that correct and if not please help me understand. (01/10/2014)
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.
Q: Ulli: I have been using a 7% sell stop which you have recommended, or used, in the past.Lately I have noticed you talk about a 7.5% sell stop.Have you changed your sell stop to 7.5%? (01/03/2014)
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.
Q: Ulli: I like your new format the daily market commentary. Will you continue showing these ETFs in the spotlight new year? (12/20/2013)
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.
Q: Ulli: Why is the 39 week SMA used in Trend Tracking? If I missed that discussion please excuse. Thank you. (11/22/2013)
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.
Q: Ulli: I’m wondering why the international TTI is still 6.57% above its trend line when VWO is well below its 200 day SMA and in a significant downward spiral. Please see the chart at this link: http://stockcharts.com/h-sc/ui?s=VWO&p=D&yr=0&mn=6&dy=0&id=p74340931489 Thanks for your clarification on this. (11/15/2013)
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.
Q: Ulli: With the daily commentary changes mentioned this week, will the fund tracker and cutline reports no longer be published or accessible? Thanks, and I truly enjoy reading your articles. (11/08/2013)
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.
Q: Ulli: In your latest e-book, and during various posts throughout the year, you mentioned that certain Index ETFs, like the ones of the low volatility variety, are better suited for the use with trend tracking. Is there any way to get a list of these? (10/25/2013)
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.
Q: Ulli: On 9-6-13, FOCPX dropped 8.8% about $6.66 per share. I called a Fidelity rep and he said because Apple fell 9-10% and FBIOX also declared and paid a Capital Gain and Dividend of around $1.189 per share, but it’s sort of floundering around not moving and actually down three days in a row for the last three days. I guess my question is, are people getting out because of that drop and should I get out also? I understand when a lot of people get out of a fund they have to sell off and that makes the fund drop. (09/20/2013)
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.
Q: Ulli: What is the sell stop rule on an ETF Bond fund?Is it the same as on a Mutual Bond Fund? (09/06/2013)
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.
Q: Ulli: I am a US Government employee with my retirement funds in the governments Thrift Savings Plan. As I’m sure you know our plan enables us to invest in an international fund which tracks the EAFE. With Europe beginning to get back on its feet, coupled with China, do you believe I would get more return with the international fund than investing in a fund which tracks the S&P 500.The international fund is lagging behind for the year so far but would it be a good bet going forward? Thanks for your attention…I faithfully read all of your market commentaries and look forward to next week. (08/23/2013)
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.
Q: Ulli: Thanks as always for your work. Hey, did you watch 60 Minutes on CBS last night, articles about China and its building boom. It was like a sci-fi movie seeing all those brand new high-rise cities, new highways, new malls (with fake brand name signs), etc., all vacant. They talked strongly about a realty bubble. If you missed the show, definitely, see it. When the China bubble does break, do you suspect a time to invest in special areas, or a time to go to cash? (08/16/2013)
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.
Q: Ulli: I find it very surprising that while the bond portfolio has not done very well in the face of interest rate headwinds, the conservative and income portfolios have done so much better than the rest. Is this because of following buy/sell/hold signals or choice of ETFs or something else? I would have thought the equity heavy portfolios would have done better and the bond portfolios worse in general, but while the bond portfolio is the worst, performance of the rest has left me confused. Appreciate any explanation. (08/09/2013)
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.
Q: Ulli: I have a question that has come to my mind a few times and was wondering if you could answer a question I have about M-Index on your Master Lists for both Funds and ETF’s. What I was wondering is how the M-Index is calculated.I see you place the most emphasis on using this number to sort the Funds or ETF’s on a particular list.Better said that instead of sorting, I probably should save their ranking on each list.For me, knowing how the M-Index was calculated would help in my understanding of what you select as being most important in your ranking system.Thank you for your help. Wonderful information you provide us. (08/02/2013)
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.
Q: Ulli: I noticed you repurchased VNQ on July 10th at $69.91 after the sell stop was trigged from the high of $78.15. I thought you mentioned you would not re-enter a position you were stopped out of until it went back of above its high ($78.15).Please let me know if I’m misinterpreting your methodology. (07/26/2013)
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.
Q: Ulli: Your new E-Book is interesting, but I have one question based on your following statements: A Buy signal for SPY is generated once the current price of SPY has crossed its 39-week SMA and has closed above it for 3 consecutive days. Once that has happened, our purchase will be executed on the 4th day at the closing price. A Sell signal to close out the position will be generated once the current price closes below its 39-week SMA. Once that happens, we will sell the next day at the closing price. I understand the 4th day to buy after the 39 week SMA has been crossed to the upside, but what about selling as it appears that you are instructing one to sell on the second day that the 39 week SMA is crossed to the downside, but what do you recommend if on the second day the market goes up strongly would you do a wait and see, please clarify the selling rules under that scenario. (07/19/2013)
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.
Q: Ulli: Just wondering when you were going to add new positions to your model portfolios? (07/12/2013)
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/
Q: Ulli:Your recent comment that normally conservative securities have shown twice the volatility, like SPLV was down about 8% compared to SPY about 4. I wonder how that could happen? (06/28/2013)
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.
Q: Ulli: Good morning. I need your opinion I have a large share of my fixed income invested in HYG & JNK. Should I sell both positions at this time? Thank you. (06/07/2013)
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.
Q: Ulli: Thanks again for the assistance you gave me during our recent phone conversation. Among other things, you mentioned that you were working on a new e-book with the thought provoking title Beating the S&P?Ǫwith the S&P. Can you elaborate again as to when that project will be finished? (05/24/2013)
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.
Q: Ulli: If I follow one of your ETF model portfolios, I understand that I use MY stop losses, which are pegged to the highest price of the individual ETF since I have owned it.That means that I may exit a particular ETF in one of your portfolios at a different time than your year-to-year chart shows. What do I do once I have sold an individual ETF? I no longer have the same holdings as you. How would I know what to buy? (04/19/2013)
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.
Q: Ulli: I read in your material that you have exited some bond ETF positions because of sell signals in that area. Did that activity supersede the 7% stop that you had on those bond positions? In other words, did something other than the 7% decline in share price cause you to exit the positions? If so, what was it? (04/05/2013)
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.
Q: Ulli: I’m a long term follower of your work, which I really appreciate. I spend every Saturday reviewing your Stat Sheets. I noticed that you rank the various MFs/ETFs by M- Index on the Stat Sheets, while you rank them by % MA on the Cut Line Report?Ǫ Why is that? (03/22/2013)
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.
Q: Ulli: Can you provide a basic explanation of your momentum (M-Index) without giving away your proprietary method? (03/01/2013)
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
Q: Ulli: Glad to See You around?Ǫ! YOU wrote: exit our positions whenever our trailing sell stops give us the sign to do so. I have a question: Please give Me YOUR definition of Said EXIT ?Ǫ Is it Like 5% down or 7% ?Ǫ or ??? (02/22/2013)
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.
Q: Ulli: Thanks for all the support and work you do for ‘the little guy’! In a recent Weekly StatSheet, ETF Master List (Excel file) there were several ETFs showing zero values and -100.00% DD% (XGC,ISI,XRO,HHH,PIV,TTH,BDH,IAH,IIH and FXM). Was this correct or an ‘anomaly’? (02/15/2013)
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
Q: Ulli: I’m in the UK and really appreciate your insights to the market in general. I have a question – when do you add to positions? Do you wait for the market to pull back or would you, for example, add funds on a monthly basis. If so would you do so at the moment with markets so over extended? Hope you can help. (02/08/2013)
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.
Q: Ulli: I’m not sure I understand your models. Why are the funds chosen not the highest rated funds (by M-index or your other measurements)? Would it not be possible to find higher rated funds that essentially are in the same categories and hence have the same asset allocations but better funds? (01/25/2013)
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.
Q: Ulli: Quick question: Looking at your index tracker trend lines, is it safe to assume, since the Int’l TTI is +10%, that you view int’l ETFs as a better investment over the near term vs. domestics? (01/18/2013)
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.
Q: Ulli: How do you find Highs for a particular fund or ETF? I was looking at your 7 ETF Model (12/31/2012) and I was just trying to figure out how all the numbers on the spreadsheet. I am not sure how you figure the number in High column. The numbers I got from Yahoo Finance don’t match up with yours. For example, XLU and PPH all have had higher highs in previous year. (01/11/2013)
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.
Q: Ulli: I am new to investing in mutual funds/ETFs. Usually I buy stocks but I am never in luck. The stock just keeps falling down for next few weeks or so and, unfortunately, the day I bought was the all time high for that stock. I started reading your blog lately, but have not implemented much. I just bought one mutual fund and I had a question on that. If I buy the mutual fund and say the fund never goes up for next few days or weeks. So, my 7% sell-stop would be the purchase price in this case, am I correct on that one? If the fund goes up after few months, my new stop would be based on the new high? I am assuming I understood it correctly? (01/04/2013)
A: Joy: Yes, your understanding of my trailing sell stop discipline is correct.
Q: Ulli: The overall stock market is down nearly 7 to 8% from its highs last month. Surely that should have triggered sells? Wondering where you are with your call on this? (11/16/2012)
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.
Q: Ulli: After building a Portfolio, what do you do with the Sales proceeds from those funds sold after exceeding the 7% Sell Stop? (11/02/2012)
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.
Q: Ulli: Do you calculate the Trend Tracking Index (TTI) on a daily basis or is it just done once per week when you post the Stat Sheet? If it is calculated daily, is there somewhere on your website where it is posted? Thanks for your good work. I find it very useful as confirmation or not vs. my own work and analysis. (10/19/2012)
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.
Q: Ulli: I have a brokerage acct. with Fidelity holding ETF’s and some stocks. I also have some Mutual Funds as well. With the TTI in the ‘buy’, would it be advisable to have some bonds or bond funds at this point? I do have about 30% in the Money Market and Cash Reserves. I’m curious what you think of bonds in these interesting times? (10/12/2012)
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.
Q: Ulli: I rolled over my 401k to a self directed IRA. I was looking to follow a model portfolio.Does one select a portfolio on your website, then take the positions, then sell out of the position when a line is drawn thru the position…is that how it works…or is there an instruction area on your website? (10/05/2012)
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.
Q: Ulli: I am in the same position as last week’s reader Lise – being to cautious and now have a lot of cash ready to put to work. However, from everything I’ve seen, the market is very risky now, and it would be best to purchase on a pullback. One advisor I follow recommends the following: S&P 1420 – buy 25% of position. If market turns back up add balance of positionS&P 1405 – buy additional 25% of position. If market turns upadd remaining balance of position.S&P 1390 – buy additional 25% of position. If market turns upadd remaining balance of position.S&P 1370 – buy final 25% of position. If market turns up addremaining balance of position. If market continues to fall -look for your sell stops to get you out. Ulli – your thoughts? (09/28/2012)
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.
Q: Ulli: have been on the sidelines for the past year in my investments waiting for the other shoe to drop. It now seems with this QE3 unlimited that the markets are going to trend up higher at least short term 3- 6 months?Ǫ Do you think it would be a good time to jump in at least in a small way – or wait until the market corrects before getting back in? I know you can’t predict the future but let’s face it- things are pretty bad everywhere so I would appreciate your opinion. Thanks in advance- I really like all your commentary. (09/21/2012)
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.
Q: Ulli: I’m confused as to why you did not issue an international buy signal (much quicker than you did), if you are making your decisions based on the numbers (rather than seasonality- September is approaching which is usually a down month). I think when the trend line is broken by more than 1% a buy signal must be issued or else you are not following your own methodology! (09/07/2012)
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.
Q: Ulli: Just a question. What is your impression of the Low Volatility ETF’s introduced last year? They are having a marvelous run-up as I can see. SPLV & EEMV have made large jumps this yr alone. I looked and did not find the 6 new funds in your tables but that is possibly my fault for looking too fast. (08/30/2012)
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.
Q: Ulli: Have you ever regressed your historical TTI signals to the gain or loss of the S&P 500 over the following 6 months? In other words, have you been able to say, for example, that The S&P should gain 5% over the next 6 months, plus or minus 3%, based on the current position of the TTI? (08/24/2012)
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.
Q: Ulli: how do I cut through all the words about what happened in the past and find out what specific ETF’s to buy or sell right now?Where are the specific buy/sell recommendations made, since I have minimal time to read so many words that don’t tell readers what investment decisions to make every day? (08/10/2012)
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.
Q: Ulli: I have been a long term observer of your daily newsletter since 2007, and I enjoy your insight into the Market and investments. You saved me a lot of pain by convincing me to get out of the Market before the 2008 crash. I was wondering if you could provide your latest insight into the market. It seems to me that it will continue to move sideways until September, due to the uncertainty in the world economy and erratic housing recovery. What is your earnest opinion and outlook for the rest of the year? (08/02/2012)
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.
Q: Ulli: With the market activity of the past 2 days, your International TTI must have come within striking distance of a new Buy signal. While I don’t think much of this current rally, I am curious as to when exactly you will re-enter the market for this arena. (07/27/2012)
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.
Q: Ulli: I’ve been using your strategy for a few months now, and each time I reach a new milestone, I seem to find another question. Thankfully, you’ve been helpful in answering them. My question involves the incremental buying. I own an ETF (DVY) which has grown in value by 5%. Now, I do not reinvest the dividends, but when I factor in the dividends, the actual return on my initial investment is around 7%. My question is would you buy again based on share price percentage gain, or the the total return on investment with the dividends included? Any advice would be greatly appreciated. (07/20/2012)
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.
Q: Ulli: I’ve been pouring over your publications and website to more fully educate myself on how to be a better investor. I am learning a lot, but there is one key concept I am still fuzzy on. Would you please explain M-Index more fully? I gather that the M stands for momentum and that higher numbers indicate higher momentum. But, where do the numbers come from? How are they derived? And especially, what do we need to know about those numbers when it comes to making investment decisions? Is it wise to only invest in funds that have a larger momentum number? Is there a range that indicates a sweet spot for example higher than 5 but lower than 20? Thanks again for being willing to share your knowledge. It is very much appreciated! (07/13/2012)
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.
Q: Ulli: If I can get an overall feel from your report, the M-index is the momentum, but also higher momentum means higher risk. Would it be safe to say, in general, if I look at the DD% (0 being at high), I should look for the DD% first, then % ma, then M-index? I know there is no real formula, but was hoping to put together a formula I could plug #s into to provide my best option. (07/06/2012)
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.
Q: Ulli: Why do you stress the movements of UNG and natural gas in your blogs? Is it so widely followed? (06/29/2012)
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.
Q: Ulli: When looking at the Mutual Fund Cutline report, what does the number +804 next to the Momentum column represent? (06/22/2012)
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.
Q: Ulli: I’m wondering what your thoughts are currently on holding a sizable chunk of PRPFX? (06/15/2012)
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%.
Q: Ulli: I do not understand how to use the DD% number. I assume a negative number is bad, a positive number meaning no drawdown has occurred?Please clarify. (06/08/2012)
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.
Q: Ulli: I’ve been following your #1 portfolio based mainly on PRPFX. I’m wondering if the series of drops of PRPFX last week is triggering a sell for you, or are you going to see if it bounces this week? (06/01/2012)
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.
Q: Ulli: I have just recently started following your blogs and newsletters.I find that you make a lot of sense with your investment advice, and I appreciate your efforts to communicate your investment wisdom to the public. I have made some portfolio moves based on your suggestions, yet I am a little confused as to where you stand on VTI (of which I hold substantial amounts). In your blog US Equities Bounce Back From Worst Week Of The Year on 05/22/12 you wrote that you held on to VTI for the time being, but your 7 ETF Model Portfolios You Can Use on 05/23/12 shows that VTI was Action: Sold 05/18/12.Perhaps I am not up to speed on the communication methods yet.Is your current advice to the public to be holding VTI or to have sold VTI? (05/25/2012)
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.
Q: Ulli: One would have to think, with the huge numbers average investors chasing yield, and with the launching of new ETF’s that are upping the risk level, like the high yield ETF that you mentioned, and with yields about as low as they can go, that we are setting up for the bond crash of a lifetime. (05/18/2012)
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.
Q: Ulli: Recently, you sold VEU after it had dropped 7% from its high, but in the model portfolios you still hold DBC, when it’s lost more than 9%. Care to share your reasoning? (05/11/2012)
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.
Q: Ulli: How far out do you anticipate a sell signal will be given for Domestic Equity Funds? (05/04/2012)
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.
Q: Ulli: First thanks for your time and effort in providing your newsletter. On the 4-20-12 Cutline report, within the first three mutual funds, I see (UOPIX, and RYVYX) with a DD% of 7.84 and 7.83 would these have not stopped out at our 7% limit? DD% is draw-down from high? (04/27/2012)
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.
Q: Ulli: I would like to get some guidance from you. I sold all my mutual funds some time ago and want to invest in ETFs and do it the way as shown in your model portfolios. However, I see that the funds could be triggered to get sold any day based on the 7% sell stop set up when purchased. Once that happens, what would be the replacement funds? I don’t seem to find that information. (04/20/2012)
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.
Q: Ulli: I am a new reader. In basic terms, here is my first question. In your PDF on sell stops, you state below when the 7% sell stop level has been broken, the hold switches to sell. Do you have this spreadsheet for download, or what is the formula to make the words sell-hold change to each position? (04/13/2012)
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.
Q: Ulli: What’s your take on PRPFX nowadays is it still meeting your needs and goals? Time to add or consider subtract? (03/30/2012)
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.
Q: Ulli: Clearly, the US bonds have been taken out and butchered in recent sessions, yet the bond ETF’s that you have followed and suggested don’t seem to have been hurt much at all.Do you see this continuing, especially if the bonds should resume their aggressive selling? Thanks at your convenience. (03/23/2012)
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. 🙁
Q: Ulli: I was wondering why you don’t simply short the market during a down leg. Why use a hedge strategy? It seems your returns would increase. (03/16/2012)
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.
Q: Ulli: I just subscribed to your newsletter and have been reading your site and archives with interest. I am very interested in your Aggressive ETF Growth Portfolio.I have accounts at Scottrade and Fidelity, so I’m able to purchase the ETF’s in the portfolio. What I don’t understand is when and what to buy or sell. Would you please point me in the right direction? (03/08/2012)
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%.
Q: Ulli: I have been tracking your system for a few months now.I find it very intriguing, and recently started to invest in this manner, to lock in gains, and limit losses. My question involves how you handle dividends.I realize that you adjust your trailing stop based on the distribution, however, in your portfolios, do you take a cash distribution, or do you use dividend reinvestment?How would you handle a new trailing stop with dividend reinvestment, if in fact you use that method? Any advice would be greatly appreciated. (02/24/2012)
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.
Q: Ulli: I would be interested if you could take a moment and either let me know or view a Renko chart and see how well that mirrors your proprietary trend following. You can see a free Renko Chart at: stockcharts.com Click the free charts tab then try sharp chart and put in a symbol such as SPY. Then under type: select Renko chart.You then can set up anything else you like on the chart. Renko charts just try and display trend changes only and do not take into consideration TIME or VOLUME.I am looking at a Renko of SPY and it has the trend change (on daily charts) around Oct 5th, 2011. Since you follow a Trend Following methodology wondering if this type of charting may be more apropos as this is its design. Since this time you as well as most of us struggled with whether it was a valid trend change or just a precursor to a whipsaw with all the events going on in Europe financial arena. Now it seems as though it’s now ran very far since Dec 19th and many of us are again late catching that train as it seems to have left the stop that is of course unless a traditional Feb has a real nice pullback.One other question, when you take on a new customer and the market is in a middle of a trend, what methodology do you use to enter their funds. Do you wait for some pullback or since you proprietary method has an uptrend you just invest at that time? (02/17/2012)
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.
Q: Ulli: Concerns linger over the European banking system with regards to capital shortfalls. There is speculation that a number of banks that submitted proposals for achieving capital adequacy might still not reach a necessary target of 9% tier one capital. With 30 banks that collectively need roughly $150 billion in capital to meet this target?Ǫ I don’t know why there should be any concern. As we’ve learned in the age of intervention (since March 2009), targets move. Sometimes targets disappear?Ǫand new ones appear. Honestly, I think that idea has a lot to do with why markets are less volatile and steadily moving upward now. Can investors be blamed for becoming complacent? I’ve been overly skeptical of long positions for years now. And I’ve only recently become more daring when moving money into ETF’s. And my idea of daring is increasing positions in consumer staples! Do you think I’m a good measure of market direction to the upside, or a contrarian indicator that screams SELL!? (tongue-in-cheek) (02/10/2012)
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.
Q: Ulli: I am sitting with a nice profit with VEU and VNQ. 8-10% range. With the market widely fluctuating, at what point would one consider taking profits and buying back later? I hate to see this disappear by having a 7% trailing stop should the market go down. I realize there may not be a perfect answer to this. Thanks for the excellent site. (02/03/2012)
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.
Q: Ulli: In these turbulent markets your ETF News continues to be a great source of information and guidance. You clarify your Cutline reports with this comment: The second report includes only High Volume ETFs. To clarify, High Volume (HV) ETFs are defined as those with an average daily volume of $10 million or higher. These ETFs are generated from my selected list of some 93 that I use in my advisor practice. It cuts out the noise, which simply means it eliminates those ETFs that I would never buy because of their volume limitations. 33 ETFs (last week 21) have managed to hang on in bullish territory after the recent volatility. By this, do you mean that you only buy ETFs that are on the High Volume Cutline Report? And if so why? Do you use a similar guideline for Mutual Funds? (01/27/2012)
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.
Q: Ulli: I have been following momentum on stocks and ETFs, in part by checking on the % greater than MA200. Some have reached 10% to over 20%. Do you have a rule-of-thumb on this to indicate that the stock is OVERBOUGHT? Another parameter I have been looking at is HOW LONG the stock has been greater than MA200. Any rule-of-thumb here? Another parameter is whether the % greater than MA200 is increasing rapidly, in particular, IF THE SLOPE HAS SUDDENLY INCREASED. Any rule-of-thumb here? Last, I imagine that in each case above, one might need to take into account the OVERALL MARKET CONTEXT, i.e., trading range or strong bull or strong bear, and the sector context. Any rules-of- thumb here? I am asking such a long string of questions because it seems obvious that a quick yes-or-no will not suffice. Thanks again, as always. (01/20/2012)
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.
Q: Ulli: I’m not sure if my comment last week got through. I appreciate your blog greatly. I know that today you are saying that for those wishing to make some equity ETF additions, now might be an opportune time. I understand that international ETFs are still off the table, but the TTI for domestic equity crossed up over the trend line in October. But as I have followed your blog, you seemed to be saying we shouldn’t follow that signal but stay in cash and bonds. Was that interpretation right? Do you advise domestic equity exposure now? Do you have a rough percentage in mind for equities vs. cash and bonds? Or are you still avoiding the equity market? Thanks so much for your blog, and in advance for answering my query. (01/13/2012)
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.
Q: Ulli: In taking positions in bond funds/ETFs, if bonds are in an uptrend, do you tend to enter bonds, pretty much at any point, and use the 5% stop rule to keep you out of trouble? It appears that waiting for pullbacks might prove to be harder with bonds, at least in recent history, when they’ve been so strong.I’d be interested in your thoughts on this, when you get a minute, as my experience with bonds and bond funds is more limited. Thanks! (01/06/2012)
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.
Q: Ulli: There has been so much talk about currency/dollar collapse and a global depression occurring very soon. Most are predicting hyper-inflation and say gold ( and a few other investments ) may be the best store of wealth, and the dollar and bonds are going to crash with most everything else. They urge buying as much gold as you can as soon as you can. Then there are others who are predicting massive deflation. They say gold is going to crash with other commodities and the dollar is going to remain the safe haven. Large cyclical factors not the least of which is the aging baby-boom generation is driving a very long period of slow growth and deflation. Obviously, the choices one makes believing in one theory would be disastrous if the other turned out to be true. I wonder if you agree with either or neither and have any thoughts of your own? Does your ETF strategy have the ability to prepare us for and see us through a depression? I don’t want to wait to the last minute to do something to prepare for the worst only to find out I have waited too long. (12/23/2011)
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.
Q: Ulli: Appreciate all you do and value your information more than any of the dozens of sites I get info from. My bond mutual funds have dropped significantly since August. These include PTTDX, FKINX and TPINX. I am looking for alternative bond ETF/ETN funds. My dividend stock ETFs have done well for last 3 years. They are DVY, PFF, XLP and XLU. I am holding the bond funds but in looking for alternatives in ETF/ETN area I have found nothing that compares to the dividend stock ETFs. Am I wasting my time looking for other ETF/ETN bond type funds or just focus on the things I have that are working? (12/16/2011)
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.
Q: Ulli: Thanks again for all your insights and wisdom you share with us neophytes. Would you be kind enough to use your current cutlist to explain which ETFs are worth buying, and your logic for such a recommendation? I really need to read your thoughts on how you parse the list and the criteria you use to determine which funds to purchase. Thanks so much! (12/09/2011)
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.
Q: Ulli: So for the person who never understood bonds?Ǫif there is a flight to US Treasuries, which is probable at some point, will the bond ETF’s you are holding increase in their asset value or decrease (be worth more or less)? And why? Thanks. (12/02/2011)
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.
Q: Ulli: I really appreciate your newsletter and blog just a wealth of great information and a great perspective on preserving (!!) and growing investments. I have a practical question. My funds are currently almost entirely in cash or bonds, but I did nibble in with a small ($10k) position in PRPFX at the beginning of November.Obviously it is not behaving very well, and I fear I may hit a 7% sell point pretty soon. I don’t see that there is a redemption fee, but I have had the experience before of getting 86ed from a fund for short term trading in similar circumstances. I would like to be able to use PRPFX in the future if it reverts to form.I am wondering if you have any experience with whether I might get shown the door if I need to sell soon? Hoping this is all academic on my part, but boy, this market sure looks sour and unpredictable. Again, any insights would be most appreciated. Thanks again. (11/25/2011)
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.
Q: Ulli: Thanks for your always helpful and insightful daily commentary. You mention often about a cash and bond ETF mix. Do you recommend specific bond funds that specialize in certain segments such as junk bonds, TIPS, emerging markets etc. or are you referring to just a basic fund such as LQD or BND. I’m not sure when you mention bonds what area you are referring to. (11/18/2011)
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.
Q: Ulli: Recently, PRPFX stopped out. If memory serves, your back test of PRPFX presumed repurchases when prices crossed above Stop Prices plus 2%. Not too long ago, PRPFX closed 2% above its Stop Price.Do you recommend repurchasing PRPFX at this time, based upon the above criteria, or should we wait for different criteria?Or is PRPFX no longer necessarily a recommended fund for the next Buy cycle? (11/11/2011)
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).
Q: Ulli: Now that you have instituted Domestic Buy signal as of 10/25/11, are you buying back into Permanent Portfolio? Unfortunately, I sold all my positions October 3rd in PP, so if I buy back into the fund now, it will be on a much higher cost basis.Let me know your strategy on this one. (11/04/2011)
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.
Q: Ulli: I have not seen the Hi Volume ETF on the Cutline report since 9/1.Are you still making it available?If so, where is it to be found?I now receive all of your mailings. Have I overlooked it? Thanks for your help and wonderful free service. (10/21/2011)
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.
Q: Ulli: Most of our retirement money is in my wife’s federal Thrift Savings Plan.A few weeks ago, we moved everything there into the most conservative fund available, the G fund, which is a mutual fund of government securities there is no money market fund. For non-TSP investments, wouldn’t it make sense to similarly move into treasuries ETFs/MFs rather than money market funds, since the latter currently pay almost no interest?If I wanted to do this, are there other suitable government-securities funds that deal in something other than treasuries? (10/14/2011)
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.
Q: Ulli: Considering the slide momentum why aren’t you considering taking positions in inverse funds such as SH, DOG, EFZ or EUM? (10/07/2011)
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.
Q: Ulli: What is the trailing stop for the fund PRPFX? I agree with you that it is a great fund for any situation. (09/23/2011)
A: Americo: Well, it’s good for almost any situation. The sell stop is 7% off its high since you bought it.
Q: Ulli: Thank you for the great service you offer on these free portfolios?Ǫ How can one start, the # 7 PRPFX equivalent portfolio? Would appreciate very much your general guidance. (09/16/2011)
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
Q: Ulli: Was curious why you didn’t apply SH hedge to Portfolio 7 ETF version of Permanent Portfolio whereas you did for portfolio #1 based on PRPFX?Or did I misunderstand? (09/09/2011)
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.
Q: Ulli: In reviewing the 8/30/11 update on portfolios, I noticed the open position of SH is down almost 8%.I’m wondering if in your view, this qualifies it as a sell, under the 7% stop rule. Thanks, when you get a minute. (09/02/2011)
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.
Q: Ulli: Thanks as always for the great advice and stop loss strategy. I wanted to get your thoughts on a possible Portfolio #8 for the aggressive investor. This would essentially be a bear portfolio where the same principles are applied, but to a down market with a negative TTI. This portfolio would consist of various 1x inverse funds (SH, etc.). The same stop loss strategy would be applied, and positive funds could be used as a hedge, when deemed applicable. There is money to be made in the bear market, so I wanted to see what you thought of jumping in with this Portfolio 8 as opposed to sitting on the sidelines (outside of PRPFX/SH portfolio, which I am currently using) until a positive trend is re-established. (08/26/2011)
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.
Q: Ulli: I regularly visit TheETFBully.com for your market analysis and insight. Last Wednesday, I saw your posting about 7 model portfolios. If I want to invest some money today, which model portfolio I should follow? I have some holding in PRPFX. My goal is to preserve capital as far as possible and to position for 7-10% gain yearly. I appreciate your guidance. (08/19/2011)
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.
Q: Ulli: Do you think it would be o.k. to get into the market now with a purchase of PRPFX and the 50% hedge with SH the following day when the fund settles?I would think since the position is hedged, it wouldn’t make too much difference when the positions are established. Right of wrong? (08/12/2011)
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.
Q: Ulli: Thanks for posting your ETF approach to PRPFX. Have you ever considered the following? PRPFX is a modified version of Harry Browne’s Permanent Portfolio. People who follow Harry’s approach hang out at: http://www.gyroscopicinvesting.com/forum/index.php They advocate 4 ETF’s, 25% each: IAU, VTI, TLT, SHY or a Treasury $ MKT accountRather than a stop loss, they use a rebalancing approach based on a band (usually + or – 10%, to take from one that’s grown and add to rebalance with one that’s down.)If you have thought of Harry’s original approach, I would appreciate any comments you might have. (08/05/2011)
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.
Q: Ulli: I hope all goes well for you, and I continue to enjoy your newsletter and good perspective and advice. You may have already seen the latest assessment of the debt/credit mess in Europe, and by necessity…the US I hope it doesn’t spoil your lunch. I hope to be a bit wiser with fund allocation, should things go from bad to worse…or worser? (07/29/2011)
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.
Q: Ulli: Is there an easy way to reach your updated TTIs and your associated comments?Since the change in your blog, I can no longer easily find them. (07/23/2011)
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.
Q: Ulli: I was fooling around on the Schwab website, and I found an option to reinvest dividends (yes/no), on my account holding detail page. They are all marked no. I don’t even know if ETF’s pay dividends I never held one long enough. Anyway is no what you want? (07/15/2011)
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.
Q: Ulli: I am just starting to look at your portfolios and buy/sell parameters, but I would appreciate a definition of sell criteria like the buy explanation you gave recently. (07/08/2011)
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.
Q: Ulli: I’ve been a follower of your Successful-Investment updates for some time. I enjoy looking at your various portfolios you started sending out last April. I do wonder though about some of your sell decisions and thus have a few questions. 1. It appears a trigger of -7% does not always automatically generate a sell. It appears you look at the next day to see where the ETF moves after the opening and then decide whether to hold or sell. I observed several triggers that recovered the following day, yet you may have to actually follow the ETF that day to make a decision. Thus, is the decision mechanical or is it subjective to watching the following day’s pricing of the ETF, thus being almost in the mode of a day trader? 2. Some triggers of -7% however, were also below the trigger the following day, so why didn’t you sell this second day? Are you thus being subjective or have some other objective reason for not selling? Examples: ETF: VB, trigger on 6/6, sold on 6/7– okay using next day sell after a trigger.<br> ETF: VEU, trigger on 6/10, sold on 6/13 — okay using next day sell after a trigger.<br>ETF: VWO, trigger on 6/15, didn’t sell on 6/16, waiting until 6/17?? — Why another day?<br>Earlier sell for VWO: signal on 02/22, didn’t sell on 02/23 — why wait two days when other sells are the day after if they didn’t recover? Seems like VWO should have been sold on the 2/23. All things considered, you are doing a great service for the ETF Investor — keep this going. (07/01/2011)
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.
Q: Ulli: Starting to use your model portfolios! Do I assume that those positions you show as holds are still currently buys? Thanks and have a great day! (06/24/2011)
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.
Q: Ulli: I want to try one of your model portfolios for my 401(k). I’m thinking of selling my current holdings in my 401k and buy those funds in one of those portfolios. Is that a good idea? I don’t manage my 401k well so I want to try yours. I have a brokerage account in my 401k which would allow me to do that. (06/17/2011)
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.
Q: Ulli: What isn’t clear is what happens to the money from the funds that are sold in the ETF Model Portfolios? I noticed cash percentages appear to be the same as last week, in those portfolios where funds have been sold.If you get a chance, please clarify. Thanks! (06/10/2011)
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!
Q: Ulli: Thanks for your ETF updates. They are a good source of information. I am retired and am interested to have your opinion to know which of your ETF portfolios (out of 6) is suitable for each of Roth IRA’s, Traditional IRA and taxable accounts. I know there will be fluctuations between them, still want to know your suggestion for a balanced overall portfolio (about 60% stocks ETFs) for the long run. (06/03/2011)
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.
Q: Ulli: I manage my 457 and my wife’s 401with Worden Stockfinder with which I have replicated your momentums and am now working on your %DD. I have gone back through a lot of your writings and have read where you mention a confirming indicator but haven’t found what it is. Is it proprietary? I have studied market timing for the past 10 years or so and find your system to be as good as any and better than more than a few. Before I found your system, I was using M/A (Moving Average) crossovers but the DD (DrawDown) is much greater than your stop loss. (05/27/2011)
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.
Q: Ulli: Just came upon your ETF Bully site and greatly appreciate the information you provide.I note your % rules for stops, but wonder if setting trailing stops just below the last support level would be a preferred way to manage losses. My brother, now deceased, was an avid amateur stock trader and did rather well. He used the last support method and thought it superior to any other method of setting stops. (05/20/2011)
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.
Q: Ulli: I am feeling particularly dense. I have been studying your charts – especially the Weekly Stat one.The top fund on that chart is FXG as of 5/5/11 (Top Dom Funds).Your table shows YTD 15.5% and info on other financial websites show an YTD return of 10.24 percent. Just wondering what the difference could be.Could it be that YTD return from the other sources does not include any other return such as dividend – in this case perhaps .95% yield makes the difference? Do the percentage columns following the M-Index column illustrate the percentage change based on changes in the momentum number? As you can see, I am confused. (05/13/2011)
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.
Q: Ulli: I enjoy the ETF’s on the cutline. I have looked over the past 3 charts (4/14/11, 4/21/11, and 4/29/11) trying to find an ETF for some new money. I came across only one that seems to meet your criteria – PGF. The Index went from +6, +8, and +15, while the DD% went from -2%, -1.79%, and -.76%. Wouldn’t this be an outstanding buy–according to the Cutline philosophy? (05/06/2011)
A: Bob: Yes, it would be but be sure to always use my recommended sell stop discipline, just in case market direction reverses.
Q: I enjoy reading your ETF on the Cutline reports. Someone sent me info on a new ETF (HDV) and WHX-high dividend trust. Any thoughts? (04/29/2011)
A: John: HDV is too new to make any assessments, and WHX hovers below its long-term trend line making this a bearish scenario.
Q: Utilizing your charts has been quite beneficial to me. It helps to see the trends that have developed and guides me in making selections. The Draw Down column shows me how far the fund has come off its peak, but I am not quite sure how to use that in my evaluation. Am I correct in assuming that if a reading is 0% then the momentum is upward?What would be an acceptable range when examining the data? (04/15/2011)
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.
Q: Ulli: You stated in your weekend report after the Japanese disaster earlier in March that none of your ETFs triggered a sell signal. Several of ours did. Can you share those ETFs that you hold?Is there a listing somewhere on your successful-Investment page? (04/01/2011)
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.
Q: Ulli: I still have a question in my mind. Buying ETF’s…The DD%’s are 0:00% (blue), they are OK to buy? If negative (red), do not buy at this time? Am I on the right track here? Thanks in advance. (03/25/2011)
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.
Q: Ulli: Can you give examples of funds that are similar to ones you use domestically and internationally? For example, my 457 plan offers a standalone international fund, it has growth, core and value components managed by separate advisors, so I guess it is pretty much like an index fund. My 403 plan has Artisan International. Would these be similar to the funds/indexes you track for buy/sell signals? (03/18/2011)
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.
Q: Ulli: I was wondering what the best ways are, in order for you to stay on top of current trends in the economy. I would imagine once you identified a specific industry,the next step is to incorporate how to invest in it using specific stocks, ETFs, mutual funds etc…? (03/11/2011)
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.
Q: Ulli: I bought some Gold in late December and, of course, it immediately tanked big time, but I held in there and now it is making a comeback so I think I will hold on to it a while longer and see what happens.The general Word of late seems to be that Gold is going to $1600.00. I have been keeping a spreadsheet to track my high prices as you recommend, but got tired of having to maintain a separate portfolio at Morningstar and then having to copy and paste the prices every day, so I found a way to put Macros into the Spreadsheet and now I can update the prices once per day right in the spreadsheet – no more cutting and pasting. Perhaps you already know about this (and I know you have your system down pat), but I can give you more information if you want to give it a try.I believe you have told me that your overall investment strategy is very similar to the PRPFX fund. I checked today and it is up 1.96 YTD. That seems a little on the low side considering the bull market we have been in. Any thoughts onthat? So, how is your portfolio mix doing? (02/25/2011)
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.
Q: Ulli: I thought I saw this somewhere on the site but I can’t seem to find it: Example domestic ETFs, $100k to invest, 7% trailing stop on ETF ok so what do you do ? Do you buy 10 of the top ETF 10% or $10k in each? Or do you buy 5 ETF with 10% $10k in each so you only have 5 positions to manage? (02/18/2011)
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.
Q: Ulli: Can you give me a link that explains the M-Index, %DD and %M/A? More importantly, how do I get in before the run-up? Example: DIG was a bullish confirmation early November when it broke out of a brief consolidation and the 50ma crossed above the 200ma. Do you send out any early alerts or, if not, how do I get in early? (02/11/2011)
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.
Q: Ulli: thanks for a great free product. I have two questions: 1) When just getting started should I pick 3-4 high M ranked ETF and ease into them, say a third a week for each ETF? 2) When do you upgrade? For instance if the ETF you are holding drops from 9 to 5 do you upgrade to a higher ETF or do you continue to hold until you get stopped out and then buy a high M rated ETF? (02/04/2011)
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.
Q: Ulli: My 3 Bond funds: VBMFX, VIPSX and VFITX are being hammered lately. I believe that you suggest a 7% stop loss for stocks, but I’m unsure of your suggested stop loss for bonds. These funds and I are old friends and have been through a lot together, but I sense trouble ahead. Could you refresh me on your outlook for bonds (mainly treasuries) and your thoughts on when to sell them. I’ve used your stock stop loss reasoning lately for stocks and it was very worthwhile. Thank you. (01/28/2011)
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.
Q: Ulli: I am in the UK but am a great reader of you blog posts and do have a small US $ brokerage account so even follow your ideas ! In the UK we have now many more ETFs although not the same variety as in the US – iShares of course and now PowerShares and Vanguard although at present they are not in the retail market. I have SIPP accounts (equivalent to the 401k) with a couple of the online brokers they all have low cost regular investment plans and what I is an automatic monthly investment to a range of ETFs (UK, US, Europe and Emerging). In your column you have referred to the issue of intraday volatility so you look at the close price – of course more difficult to get that discipline for when it’s not my job !!so I have put in trailing stop loss at 7 %. Here is the question – do you think that drip feeding e.g. dollar averaging to some degree balances a buy and hold strategy? As if you keep going then over a period things balance.I think you will still say no capital preservation is the name of the game but I thought I would ask. (01/21/2011)
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.
Q: Ulli: Happy New Year! I have some questions. I am puzzled by the sudden disappearance of ETFs from your lists in only 1 or 2 weeks. For example, VBK, PWJ and IWP which were on the TOP 100 list are no longer there. That’s a pretty rapid change. Is there arelationship between %MA and the M-Index ranking? I can’t see any. (01/14/2011)
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.
Q: Ulli: What do you think of hybrid funds? Which ones would you recommend? For 2011 for conservative investors, what other funds or fund types do you favor? Would you purchase individual bonds rather than a bond fund, especially for munis? Thanks and happy New Year! (01/07/2011)
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.
Q: Ulli: How concerned are you with bonds funds especially the recent losses? I watched Meredith Whitney on 60 minutes last week and give credence to her views. Do you feel a collapse of the muni bond market will affect all bond funds? Will it spill over into equities as well? (12/31/2010)
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.
Q: Ulli: You suggest a lot of BUY signals. But when you look on the charts of each of them, you’ll see, that all of the ETF’s or Funds bouncing back from their52 weeks high and are not able to advance. But anyway you say: BUY Why??? Thank you for your time. (12/24/2010)
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.
Q: Ulli: When looking at individual stocks I own (that have 7% stop loss set) I don’t see the daily closing price drop on dividend days like I do for mutual funds on distribution days. My question is this: Do I reduce the high since purchase for an individual stock the amount of a dividend payment just like I do for distributions from mutual funds? (12/17/2010)
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.
Q: Ulli: All I see in the years ahead–yes, years–is red ink, i.e., fiat money as far as the eye can see, therefore, inflation as far as the eye can see. I have gold and silver options through to January 2012.But a new ETF (WITE) is now offered for white metals, i.e., platinum, silver, palladium and, I think, tin, and maybe even zinc.Have you an opinion, one way or the other, on the risk/reward of buyingWITE?The threshold risk, as I see it, is that it’s a very new fund and,therefore, the fund managers have yet to prove their metal–a play on words,if not a pun. (12/10/2010)
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.
Q: Ulli: I am concerned about the debt situation, plus devaluing of currencies, in both Europe and the US. As a result I am thinking of re-allocating my portfolio as follows: 10% cash, 25% precious metals, and 65% spread among commodities, materials, and agriculture. What say you? (12/03/2010)
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.
Q: Ulli: My aggressive nature, tells me to keep my long positions now, sell them when the 7% stop loss is triggered, and a little before and after the sales, purchase short ETF’s to enjoy the market ride down (and have set 7% stop loss for the short positions just like used for the long positions). This would allow me to take full advantage of the market ups and downs (and also keep me tuned to the markets daily). Would this be madness? (11/26/2010)
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.
Q: Ulli: I need your advice please here. As the fund manager of this fund and others are leaving Gartmore recently, do you think it is wise for me to sell this fund and invest it elsewhere? Or take the money and run? (11/19/2010)
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.
Q: Ulli: I follow your trend tracking concepts, as I do believe this is better and far safer than buy and hold. But I did get confused on a recent comments on PRPFX.In the Blog you say – – Here is the testing methodology I used: 1. Buy PRPFX on 12/31/1999<br> 2. Hold it until the 7% trailing sell stop takes you out of the market<br>3. Re-invest as soon as the price has risen again by 3% above the price you were stopped out of<br>4. If you get stopped out again, use the same reinvestment process If this mechanical approach is used, it seems like you will always lose compare to buy and holdIf you get stopped out, you always buy back at a higher price. Can you explain why this is better than buy and hold? (11/12/2010)
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.
Q: Ulli: As always, thank you for the outstanding blog and tracking information! When the buy signal was triggered, I moved in with 50% of my available cash. Now, the ETFs are up approximately 13%, which guarantees me a 6% gain even if things turn bad. My original plan was to move in the remaining 50% when the ETFs were up 5%, but I took heed in your cautious recommendations and kept the remaining 50% in cash. At this point, is it worth going all in with a 7% stop loss to take part in a potential rally from QE-2 even though the long term fundamentals don’t support the upward movement? (11/05/2010)
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.
to track certain ETF’s in the same manor but don’t know where and how to find them on the web. Will you please help me find where I can locate them. (10/29/2010)
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.
Q: Ulli: Do you have any articles in your blog addressing the concern that ETF’s are the next collapse due to the fact that there are so many more shares purchased than are issued? http://ftalphaville.ft.com/blog/2010/09/18/346406/can-an-etf-collapse/ (10/22/2010)
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.
Q: Ulli: I have been using your method for tracking highs and setting stop losses for the past 5 months. I have read your lengthy compilation of answers and found it most helpful. Thank you for opening my eyes to a better method than buy n hold. My question concerns adjusting the high for distributions: When an individual dividend paying stock pays their quarterly dividend, should I decrease the high by that amount? Also, when a bond mutual fund (or ETF) makes a monthly interest payment, do I reduce the high by the amount of the distribution? I have not been doing either of these as I have thought reducing the high value only applied to end of year distributions made by mutual funds. (10/15/2010)
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.
Q: Ulli: I lost job due to reduction in force. Left money in old job’s 401k. Considering moving into some IRA. If economy stays the same, I eventually may have to make a withdrawal. Would it be best left in previous jobs company 401k or go ahead and roll over to IRA in case I become desperate and have to withdraw part or all of 401k? (10/08/2010)
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.
Q: Ulli: I was looking at the international fund list just published. I noticed FISMX at the top of the international funds, but could not find MINDX in any of your lists. So, I compared the two funds’ size, performance (4 wk, 8 wk, 12 wk, ytd), draw down and costs. For the costs, I looked into what they are with Schwab, as I am in the process of moving my IRA to them. While I am not as savvy as you are, I wondered why MINDX was not on your radar as it seems to compare favorably to FISMX. I took a look at MINDX because you have a couple of ETF’s which focus on India, and I was searching for a mutual fund with a like focus. (10/01/2010)
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.
Q: Ulli: Please discuss the ups-and-downs of using leveraged ETFs. It would seem to make sense to get more bang for the buck when following a trend why not take a 10% gain instead of a 5% gain? But it’s also true that the potential double or triple losses create a negative bias. If have a 50% loss then a 100% gain (or vice versa), you don’t have a net 50% gain as it might seem.You’re just back to even. This reasoning leads me to think leveraged ETFs are risky if used in a buy-and-hold strategy.But if you’re trend following, thus improving your chances of being on the right side of the trade, and exercising good loss control through stops, what are the remaining problems with using leveraged ETFs in a trend-following approach? I’ve even thought of scaling in.Start with a regular ETF, then once the trend is really rolling, start to switch some of your investment into leveraged ETFs. (09/24/2010)
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.
Q: Ulli: My most important question regards RE-entry strategies.You currently have a buy signal.If I’m in cash now and want to enter the market, is there percentage level of the TTI above the trend line which is recommended for new investments? The bigger the gap, the better? (09/17/2010)
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
Q: Ulli: I find that I have never understood how to sell at the right time, using the 7% trailing sell stop. In your blog today, August 21, you give an example of a trailing sell stop of $9.30 for a fund bought at $10.00.If your $10.000 fund price rises to $20.00, is your trailing sell stop then $18.60, to keep this gain in your investment, or is it still $9.30 because you have not incurred a loss since buying? In other words, does your 7% percentage dollar amount always apply to the original purchase price of the fund or does it change to apply to higher fund prices? (09/10/2010)
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.
Q: Ulli: I began monitoring your ETF strategies over the last few years. I must say, it’s simple and straight forward. What I am wondering is when the market does reverse and it’s time to go from Bull to Bear funds, do you simply buy the Inverse ETFs that have the highest M-Index number?Or, are there any other parameters you go by to determine one over the other. I’m merely inquiring on what you do in your own personal trading. I know you can’t offer me investment advice. Again, I appreciate your FREE service to investors. (09/03/2010)
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.
Q: Ulli:I follow your reports very closely and wish to thank you for your insights. I have a question. The market was down for the week ending Thursday, August 19, yet the trend tracking index increased from +2.30 to +2.48. I would have expected it to decrease. Can you explain? (08/27/2010)
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.
Q: Ulli: I’m relatively new to the use of trend following and have been doing quite a bit of reading about it both on and off line. I appreciate your willingness to share your thinking through your blog and have been following you for about a month now. One of the things that has become very clear is that the devil is in the details.So much of what seems so clear when you read it becomes rather cloudy when you actually try to apply it. I guess that just confirms the old saying the devil is in the details. So I have a question about how one actually implements a buy or sell signal. Suppose your Trend Tracking Index gives you a clear buy or sell signal for a particular asset class and everything else you know supports that signal.Do you buy or sell the full amount you’ve allocated to that class in a single transaction or, depending on the amount involved, do you move in or out in stages with a series of buys or sells over one or more days?(In either case, I assume you would use limit orders for all transactions, but please correct me if I’m wrong on that.) (08/20/2010)
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.
Q: Ulli: I’m new to your web site so bear with me. I believe we are in for a bout of deflation. If that is true (what do you think?). I’ve read that long term bonds is a good place to be. Probably treasuries are the safest. Do you agree? Are there ETF’s or mutual funds you might recommend for such an event? Appreciate your opinion. (08/13/2010)
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.
Q: Ulli: I’m relatively new to the use of trend following and have been doing quite a bit of reading about it both on and off line. I appreciate your willingness to share your thinking through your blog and have been following you for about a month now. One of the things that has become very clear is that the devil is in the details.So much of what seems so clear when you read it becomes rather cloudy when you actually try to apply it.I guess that just confirms the old saying the devil is in the details.So I have a question about how one actually implements a buy or sell signal. Suppose your Trend Tracking Index gives you a clear buy or sell signal for a particular asset class and everything else you know supports that signal.Do you buy or sell the full amount you’ve allocated to that class in a single transaction or, depending on the amount involved, do you move in or out in stages with a series of buys or sells over one or more days?(In either case, I assume you would use limit orders for all transactions, but please correct me if I’m wrong on that.) By the way, your approach of using a soft 7% stop loss that you monitor based on closing prices rather than the hard automatic 8% stop loss that many recommend makes a lot of sense to me.Easy to do and it gives one an opportunity to avoid whip-saws. (08/06/2010)
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.
Q: Ulli: My most important question regards RE-entry strategies. You currently have a buy signal.If I’m in cash now and want to enter the market, is there percentage level of the TTI above the trend line which is recommended for new investments? The bigger the gap, the better? (07/30/2010)
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
Q: Ulli: After losing a lot of money in the market while investing with an advisor, I have decided that I will take the lead myself. Besides, if I lose my own money who do I have to blame? What do you think about a portfolio which is 1/2 bond funds and 1/2 preferred stocks? Admittedly, I am not aseasoned investor but I do have about 8 years until retirement, I must maintain a conservative portfolio and do not feel comfortable with options or hedging. (07/16/2010)
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.
Q: Ulli: I was wondering what was the safest investment in the 1929- 1932 depression. I am very concerned about the state of the economy, the foreign debit and the ever increasing debit of the USA. I want to sleep at night, being 65 and retired I can’t make back loses, therefore I want to protect my principal. Would you please give us your perspective on this issue and your recommendation of an investment for safety and capital preservation in these volatile times? (07/09/2010)
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.
Q: Ulli: Quick question about a small account (less than $10k). Do the free ETFs at Schwab provide enough choice and diversity for a person to use just those while following your signals? (07/02/2010)
A: Gary: Yes, for such a small amount, I would not hesitate using Schwab’s transaction free ETFs.
Q: Ulli: My most important question regards RE-entry strategies. You currently have a buy signal. If I’m in cash now and want to enter the market, is there percentage level of the TTI above the trend line which is recommended for new investments? The bigger the gap, the better? (06/25/2010)
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
Q: Ulli: [In regards to the 1,000 point crash last month] The crash lasted 15 minutes and was as fast on the way up as it was on the way down. However, at its lowest point the crash brought the Dow almost a 1000 pts (about10%), or even lower if you calculate the individual stocks that went into the DOW. The rationale of waiting until the next day to place your order worked well here since the markets rallied up to restore most of the losses. Conversely, the markets could’ve just as easily not come back and the next morning you could be staring at 10%+ losses on your portfolio, far below where your stops were.There is little confidence in me that the next time a plunge happens, the buyers will show up as rapidly to rally into the close. Your thoughts? (06/18/2010)
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.
Q: Ulli: I own quite a few dividend stocks for income in my retirement years. Do these follow the same rules you suggest for selling the regular stocks? (06/11/2010)
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.
Q: Ulli: While I gathered that you use the high closing price after you purchased the fund/ETF for stop loss calculation, I had a question for purchases made on a day like today, where the market ended in the red. Hypothetical Example:<br> yesterday’s close: $52<br>you purchased today at: $51<br>Today’s close: $50. What price do you use for stop loss calculation?(I think it should be $51 since that is my buy price, which is higher than today’s close)Had today’s close been $52, I would take $52. Thank you in advance for your confirmation. (06/04/2010)
A: Suresh: Yes, you are correct in selecting the $51 price as your high point.
Q: Ulli: Everyone is so worried about the graph line of the S&P going down over its own 200 DMA.I understand that this is a very important indicator. What about using the 200 DMA as its own indicator?If it heads down, so will the market: sell equities and buy money market funds, bonds, and/or inverse ETFs.If the 200 DMA heads up, sell those and buy equities.What say you?Too simple? Have a nice trip to and in Germany. (05/28/2010)
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.<br> 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.
Q: Ulli: I’m interested in knowing if you are familiar with any strategies, formulas, etc. to determine at what price a person should use to put in a buy order for the next day.Perhaps something based upon that ETF’s prior day or days price ranges, such as daily highs & lows, open & closes, etc.I realize this can differ depending on whether a person favors buying on a pullback or buying on a breakout. Personally, I’m a little uncomfortable buying breakouts out what may be new highs, ratherif I feel an ETF may move up soon I’d like to buy it at what may be at the lower price range of the next day.I know, I know, that is asking for a lot, but just curious if there are strategies that can give you an edge. Or maybe you would know of a site that would have information on this issue? (05/21/2010)
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.
Q: Ulli: Would you mind sharing your thinking behind the needless to say part of the following: Needless to say I held off liquidating some our positions whose sell stops were triggered Friday. In other words, when do you pull the trigger and when do you not (or, when does subjectivity enter into objective trend following)? (05/14/2010)
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
Q: Ulli: DODFX dropped below the 7% sell point and I sold…my question is when do I buy back? How much or what % should it increase prior to re-buying?Thanks. (05/07/2010)
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
Q: Ulli: In regards to your blog post on expense ratios, I always use Fairholme’s FAIRX as an example.It seems high at 1.0%+ considering assets under management. But would anybody in their right mind argue with 13%+ for a 10 year average?!? Would I rather use a fund with an expense of ratio of 0.25% and accept much less annual returns? Heavens no. This argument, in my mind, holds much more weight with index funds.Since index trackers are just that, any added expense above and beyond the index, comes out of your pocket.I’ll gladly pay a higher expense ratio for a manager who can earn the extra return over an index – though this too is debatable.And that argument, is best left for buy and holders.When the trend is your friend, such things become secondary (as you mentioned). (04/30/2010)
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.
Q: Ulli: I have been reading your weekly Newsletter for about a year now. I have enjoyed it greatly. Since June of last year, I have been using it, rather successfully, to purchase mutual funds through my 401(k). Earlier this year (mid February), my employer has chosen a new 401(k) manager who has promptly replaced all the mutual funds offered with new ones. My problem is that, with the exception of two mid-cap funds, none of the new funds are part of FundTracker list. As a result, I am having the following question: how to I pick funds in order to follow your strategy when they are not on your list? Thank you for your help. (04/16/2010)
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.
Q: Ulli: I’m a widow who would like some ideas for income investing in this crazy time. (04/09/2010)
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.
Q: Ulli: I enjoy your newsletters and your web site. My question is: You began the upward trend in early June but it seems that the trend upward began at the end of March. How do you calculate your trend line and does it always lag the actual upward movement of the market? (04/02/2010)
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.
Q: Ulli: I’m concerned that were looking at another large correction in stock funds.I was given a recommendation on an intermediate bond fund VFIIX.However, with interest rates at an all time low…the only direction for interest rates is up, which as we all know is not necessarily a good thing for bonds. What’s I guy to do? (03/26/2010)
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.
Q: Ulli: I have been investing using the trend following methods shown on your web site + sell stops for protection. During this current Buy period for domestic funds, one of my investments turned the other way and I was stopped out. This put about 5% of my holdings into cash. What is the proper way to deal with this situation: 1. leave the cash there until the next buy signal or 2. immediately put the cash into another well-performing mutual fund or EFT? I ask this since the current buy period looks rather anemic at this point. (03/19/2010)
A: Phil: I have talked about redeploying stopped out money in: http://thewallstreetbully.blogspot.com/2009/11/deploying-stopped-out-money.html
Q: Ulli: I studied your TTI tracking newsletters and greatly appreciate your hard work and sharing. So if I were to invest on my own following your newsletter, is it ok to do the following? For example, RZV has the highest momentum value in domestic ETF list in your 03042010 newsletter. I then purchase $100k RZV on the following Monday. If the next week, another ETF has the highest momentum, I sell RZV and buy the highest momentum one on Monday. Is this how one should use the momentum figure? (03/12/2010)
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.
Q: Ulli: Can I use the year to date percent gain/loss to get out of a fund if it drops 7% or more using Morningstar’s information? (03/05/2010)
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.
Q: In your weekly StatSheet, you use the term Buy and Selective Buy. Just what is the difference as the basis for selection? (02/26/2010)
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.
Q: Ulli: Had a question on this statement I found while reading an ETF prospectus for KRE one of your top ETF’s in last week’s momentum master list. Specifically, what is the turnover rate they mention and is it something deducted from any capital gains you have from the fund? (02/19/2010)
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.
Q: Ulli: What stop loss do you use for domestic investment grade bond funds? Since those bond funds are not as volatile as stock funds, a standard 7% trailing stop loss seems severe. I have read that a 60-day MAV is more appropriate for bond funds. What do you think? (02/12/2010)
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.
Q: Ulli: In today’s blog about the sideways market, you mention JNK and that you have positions in it.I too own that ETF, as well as some other high yield bond ETFs. Back in December you talked about adjusting the sell stop price for dividends and capital gains.Do you adjust your high price for JNK every month by the amount of the dividend?I have owned this ETF since last August and my high price is currently 40.10 which was set on Jan. 11th.Should I reduce that price by .34561 when the dividend is paid on 2/9?That would adjust the high price to 39.75 which I would then use to determine my sell stop.Is that correct?What if that price then stays as the high price through March when the next dividend is paid?Should I reduce it again by the March dividend and then keep reducing each month until a new closing price high is made? (02/05/2010)
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.
Q: Ulli: Would you be so kind as to remind me of your practice of what you do when your indicator shows the markets are still in an uptrend but a position you have gets stopped.What is it you do next in regards to getting back in to that position if the position reverses back upwards?I find myself in that situation after the three down days last week. I’m using a 7% sell stop. I have been putting in sell stops that will trigger intra-day. I know you don’t do that, but I feel it protects me against a big spike down in the market. Thank you for your insightful newsletter and for the reply I hope to receive. (01/29/2010)
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.
Q: Ulli: I am a 79-yer old who sometimes struggles finding your StatSheet data when your mailing gets stuck in a spam filter. What is the best way to access current and past StatSheets? (01/22/2010)
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.
Q: Ulli: As it sit here, I can’t but help believe I should go 50% cash….my intuition tells me we are operating on a momentum vs. reality basis. I’m no economist but historically I’ve been lucky…e.g. went into cash November 07. Not asking you to make any moves on my portfolio…just putting my thoughts out there. (01/15/2010)
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.
Q: Ulli: Following your advice I have placed 7% trailing sell stops on all the equities including ETFs in my portfolio but I run into broker resistance or incapacitywhen I attempted to set stops on conventional mutual funds. For some reason (they say), you can’t trigger a price not known until 4PM that day at closing. Why not at that price? In short: How to use sell stops on a mutual fund? (01/08/2010)
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.
Q: Ulli: If one has a little extra money, which is better 2% CD or mutual fund? Are there any higher CD’S out there? (12/31/2009)
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.
Q: Ulli: I have been looking at the weekly reports for last 2 years+ soon after starting my MF investing for retirement. The no of funds listed is formidable and useful and facilitate in monitoring my holdings in both retirement/non retirement accounts. I have one query. Is there a way of checking the details for some funds I have, but not listed in the weekly report: say jattx, jscvx, jabax, jagtx, prasx, pvadx, prhyx, etc. (12/24/2009)
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.
Q: Ulli: I read your newsletter weekly and am completely sold on your trend following approach with stop loss discipline to domestic and foreign equity investing. Buy and Hold is clearly a recipe for excessive portfolio volatility and possible ruin. Which leads me to my question. Have you ever considered developing something similar to your TTI for fixed income investments (i.e. ETFs and mutual funds)? There are many individual investors like me with a significant portion of our retirement portfolios invested in various fixed income funds knowing that interest rates will have to rise at some point in the future and hoping we will guess correctly when it’s time to get out. Since the more conservative of these investments are only producing annual yields of 3% to 5%, waiting for a 5% or 7% stop to be hit before exiting could sacrifice all the gains and then some. I’d be interested in your thoughts on this. (12/18/2009)
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.
Q: Ulli: I have about $9,000 sitting in a stock account for my daughter who is midway through freshman year. I pulled it out of a money market since it was earning nothing. I am thinking to invest 1/3 into an ETF for use in about 2 years. I want to avoid short-term cap gains and also protect the money from losing more than 5% while gaining as much as possible (of course). Do you have a recommendation, and what should I do with the other 2/3? (12/11/2009)
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.
Q: Ulli: Suppose in one or more of the recent brief corrections, some sell stops got hit (as mine did). Then within a day or several days, the market reversed and the funds I stopped out of reversed as well – i.e. it had been a whipsaw. How do I decide whether to repurchase the sold funds (albeit at a higher price than the stop loss price) or reinvest the funds in a different fund? Is it simply a matter of relative performance of the sold fund vs. another fund? If so, over what period of time am I comparing performances? (12/04/2009)
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.
Q: What is your opinion of the Fairholme Fund? Where would it fit in your rankings of funds? (11/27/2009)
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.
Q: Is there someplace where you have defined exactly what you are calling the Trend Tracking Index (TTI)? (11/20/2009)
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.
Q: Ulli: I had a real estate guy who predicted the housing blow up last year tell me that he expects the Dow to go down to 7500 next year due to the commercial real estate record number of ARMs coming due. I know the FED has temporarily suspended mark to market accounting (which was part of the problem last year) but wanted to know your thoughts, if any, on this. (11/13/2009)
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.
Q: Ulli: First let me say that I have been enjoying your website/blog for years. I finally became 100% committed to the trend following strategy this year. Since we received a Buy signal in early June, the funds that I purchased have increased between 15-18%. Following your incremental buying strategy, this would imply that I should now be 100% invested in equities. However, I sense that you are a little skeptical of the lasting power of the current rally. I am also concerned that there has been no significant market pullback since March 2009. As a result, I have been reluctant to increase my equity position beyond 67%, even though the trend following strategy indicates that I should now be 100% in equities. I currently have a mental tug of war going on – Do I invest my final 1/3 now that my funds are over 15% or do I wait and see if my sell stops will be executed? (11/06/2009)
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.
Q: Ulli: I am deeply puzzled and must have missed something along the way: When you say wait for a stopped-out fund to take out its previous high before re-buying it, are you talking about the last holding, all previous holdings, or the fund’s lifetime high? Also, you seem to use momentum as the main tool for picking funds, and thus momentum seems more important than the fund’s previous high–and it is likely that most of the top-momentum funds have not reached their highs posted before the 2007-2008 crash. For example, Vanguard Capital Value has been at the top of the momentum list for several months, has already been closed to new investors because of inflow of funds, and (at $9.01) is still a long ways from the $14.63 that it reached on 7/19/07 before it started south and stopped me out. (10/30/2009)
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.
Q: Ulli: I’ve been getting your emails for a couple of years now and enjoy your web site very much. I am mostly on the sidelines, but have some mutual funds and stocks. I am not a sophisticated investor like many of your readers, and I can’t seem to get my arms around the concept of setting trailing stop losses for what funds I have. At first I thought that I had to wait until the TTI crossed the long term trend line on your two charts. Then, I thought that I simply set a 7% figure below this years’ high. Now. I’m not sure. Could you try, once again, to explain to this unsophisticated investor just how to set trailing stop losses. I sure do appreciate your patience. (10/23/2009)
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%.
Q: Hi Ulli: A quick question: I have recently inherited approximately $150,000, which I will be using in the next 3-6 months toward a new house. In the meantime, what are your thoughts as to the best place to put it in order to maximize any potential investment opportunities? Thanks! And I really enjoy your newsletter. (10/09/2009)
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.
Q: Hi Ulli: Thanks for the excellent weekly newsletter. I’ve been a loyal follower for years. Quick question, is there a place where you list tax-free muni rankings via the weekly link? I thought this was listed somewhere but cannot find the category anymore. Am I not seeing it or were tax-frees removed from the tracked list? (10/02/2009)
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.
Q: Ulli: This market looks like it is manipulated. If you look at the daily charts, every time the market tried to turn down, it reverses. If the Fed can buy treasuries, why wouldn’t it justify the buying of equities? Your thoughts? (09/25/2009)
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.
Q: I have been receiving your newsletter for some time now. I would like to ask you for some advice. When a buy signal is triggered, you recommend investing one-third at that time. At what point should I invest the remaining two-thirds? (09/18/2009)
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.
Q: Ulli: I’m not really serious but wondering!I’ve read recent comments from two fairly reasonable economists that we may be better off taking our ‘cash’ from banks and investment houses and storing it ‘under the mattress’ or another safe place!Based on what I’m making on my cash and the deplorable conditions of the banking business, this sounds like a reasonable idea.How can the FDIC offer me ‘insurance’ when the Federal Government is bankrupt?I guess by printing enough money to back their ‘insurance’ but then what does this do the value of my dollars? I guess the more people who depend on FDIC insurance the less our money is going to be worth!Right! So why depend on the banks at 0.4% interest. I realize something is better than nothing, but losing everyday to inflation isn’t a warm feeling either. (09/11/2009)
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.
Q: Ulli: What ETF or FUND that pays out a monthly dividend and has a low risk factor would you recommend? Thank you for your weekly updates. (09/04/2009)
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.
Q: Dear Ulli: Your weekly updates are appreciated. Thank you. What do you think of DXKLX a Direxion 10 year Government Note bond fund juiced up to 2.5x Bull? Morningstar gives in 5 stars. (08/28/2009)
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.
Q: Ulli: I transferred my SEP which was in a mutual fund to a Ginnie Mae Bond Fund.Now I am thinking I should get out of the bond and back into a stock fund. I am not sure where to go and what to do. (08/21/2009)
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.
Q: Hi Ulli: What is your take on the newer ETF’s for nuclear? See Cramer’s article: http://www.thestreet.com/story/10565239/1/etfs-gone-nuclear.html?puc=_etf_html_pla1&cm_ven=EMAIL_etf_html (08/14/2009)
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.
Q: Hello Ulli: I would be very interested in your thoughts on the pros and cons of leveraged bear market ETFs. Various articles have pointed out their sub performance. I’ve been tracking both leveraged bull and bear market ETFs since they came into existence, and it has seemed to me that the leveraged bull market ETFs have come fairly close to meeting their theoretical targets of double (or for the 3X ones, triple) the underlying. The leveraged bear market ETFs, on the other hand, have for the most part not reached their targets, and a few have gone drastically the opposite direction. Do you believe there is some inherent reason for bear market ETFs not to be able to do better, or do you think that in perhaps a differently configured bear market, they might do as well as the leveraged bull market ETFs have in the recent rally? Thanks, I’ll look forward to your thoughts on this! (08/07/2009)
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.
Q: Hi Ulli: I understand the concept of your ranking system but have one question – why do you use YTD when this period changes every week from as little as one week to as much as fifty weeks? Why not use, for example, six months. Wouldn’t this give better consistency? (07/31/2009)
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.
Q: Ulli, I have made about 14% this year after losing about 23% in the bloodbath before heading to the sidelines. Should I be looking at heading to the sidelines again. I did not get into the run-up of the market fearing it would be a bear rally. I still am waiting for one bit of bad news in earnings season to send the S&P 500 heading back to the low….your opinions on the possibility of testing the lows or the bottom once again…. (07/24/2009)
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.
Q: Dear Ulli: I would appreciate it if you would talk about closed end funds a few times a month. I enjoy your newsletter. (07/17/2009)
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. 🙂
Q: Ulli: I noticed most of the int’l funds indicate a 2% redemption fee. Is this good, bad or indifferent? (07/10/2009)
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!
Q: Hi there Ulli: I read in your newsletter that you are holding all positions depending on the trailing stop loss points. I understand that ifthe stop loss points drop more than 7% from their highs, you liquidate. I also understand that you have only invested a percentage of your portfolio (30%, I think). My questions are: At what point (% increase) do you increase your investment? When you reach that point what percentage of your portfolio do you invest? (another 30%?) I enjoy your reasoning very much. I have a very dear friend who got slaughtered in the latest debacle however, I cannot even talk to her any more about your views, because her stock broker has convinced her that he is her financial adviser! Sad, but true. (07/03/2009)
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.
Q: Hey Ulli: I retired last year and received my lump sum in August. I followed a plan laid out by Swensen, who manages the Yale endowment.His allocation was 15% bonds, 15% TIPs, 20% REITs, 5% Emerging markets, 15% International equities, 30% Domestic equities.Rebalancing was a large part of his philosophy. I chose Vanguard due to its low expenses and index funds.I didn’t start reading your newsletter until after I had set my plan in motion. So I’ve been invested according to my plan since I retired.And obviously I’ve taken a big hit. But I bought more stock based on the rebalancing principle while things were heading south. My main question for you concerns REITs. Do you know of a tracking index which would indicate when to buy this sector?Also, any other thoughts on my plan would be appreciated. I was always told not to try to time the market, but I can see the value of your TTIs. (06/26/2009)
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.
Q: Ulli: I am a reader of your site since 2006, and I have a question about adding on to my investment. Since your recent international buy point, I have committed 1/3 of my international funds to two mutual funds. One is up 5.15% and the other up 3.56%. If I understand the rule, I should be adding another 1/3 to my position that is up over 5%. Should I also add to the position that is up only 3.56% or should I wait (assuming the overall TTI for international is still at a buy position) until that fund is up over 5%? (06/19/2009)
A: Ray: Yes, you got the idea. I only add more $s to those funds, which have actually crossed the 5% threshold.
Q: Ulli: It appears that when you rebalanced your hedge strategy on 3/3/2009 you simply bought more of Fund A and Fund B rather than selling some SH then using the proceeds to purchase the other two funds.When you rebalanced on 4/6/2009 it appears that you simply sold some of Fund A and Fund B without purchasing any more SH.Is this correct? Do you always keep the number of shares in your hedge (SH) constant and only vary the number of shares of the long positions? (06/12/2009)
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.
Q: Ulli: I would assume my exit point would be from my original purchase (7% loss) or a turn down in the international TTI? (06/05/2009)
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.
Q: Ulli: Good morning, as always, thank you for your blog and newsletter. Just some thoughts on P/E. I see hardly anyone discussing current P/E levels. My understanding is that20 range is normal,bear markets end with P/E in the 9 to 11 range ( which we haven’t obtained yet) and currentS&P 500 levels are in the 120 range. I recall an article in printbetweenCharles Schwab and William O’Neil (Investor’s Business Daily), before the DotCom bubble/bust and they were discussing about how P/E wasn’t really important anymore in choosing stocks. And the P/E levels were skyrocketing at that time,but still weren’t this high. The spin doctors who can spin away P/E of 120, I assume are the same ones whocan sell NINJA Loans as good for the individual andeconomy,and create and trade Derivatives (non standardized Derivatives and other financial vehicles that are so complicated that the SEC and credit rating agencies can neither understand them nor rate them properly) to stratospheric heights that have only one way to go, DOWN! I do not understand how a market with current P/E levels can have any legs to recover and go higher. But to the opposite, I would think we have a lot more basing to do before we get our house in order for recovery. Your comments are always appreciated. (05/29/2009)
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.
Q: Ulli: What is your opinion for a fixed income investment, Annuity, Mutual Funds, or Bonds? I am 65 and retired. Thank you. (05/22/2009)
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
Q: Ulli: Once again, please accept my thanks for the wisdom you offer at no charge to readers. I am trying to decide how exactly to implement your international buy signal and to prepare for a possible domestic one. I’ve been studying the list of ETFs and while I appreciate its thoroughness but also have trouble choosing. I am concerned about the volume of trading on some of the ETFs that might affect the tracking accuracy of some of them. I wonder how difficult it would be for you to give some indication on the list of the approximate volume of trade or somehow flag the ones that have larger volumes. Thanks again for all you do. (05/15/2009)
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.
Q: Ulli: I retired last year and received my lump sum in August. I followed a plan laid out by Swensen, who manages the Yale endowment.His allocation was 15% bonds, 15% TIPs, 20% REITs, 5% Emerging markets, 15% International equities, 30% Domestic equities.Rebalancing was a large part of his philosophy. I chose Vanguard due to its low expenses and index funds. I didn’t start reading your newsletter until after I had set my plan in motion. So I’ve been invested according to my plan since I retired.And obviously I’ve taken a big hit. But I bought more stock based on the rebalancing principle while things were heading south.My main question for you concerns REITs.Do you know of a tracking index which would indicate when to buy this sector?Also, any other thoughts on my plan would be appreciated.I was always told not to try to time the market, but I can see the value of your TTIs. (05/08/2009)
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.
Q: Ulli: I’ll make it short and sweet. I’m 28 with a wife and three kids under 3 years old.I am currently enrolled in my companies 401K program through Prudential. We are allowed to transfer and pick and choose which investments we would like. So for a moderate- conservative investor, where is the best spot for me and any advice for a beginner? I work hard for my money so I want to make the best choice for me and my family. Thank you for your time. (05/01/2009)
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).
Q: Hello Ulli just a quick question…Last week’s letter indicates a selective buy for country ETFs. The only ETFs above a %MA of zero are PGJ, EWT, GXC, EWY and EWM. None of the listed funds are between 0 and -5 DD%. Should we select one of the funds above the zero %MA and ignore %DD? Please clarify. Thanks! (04/24/2009)
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.
Q: Ulli: Sorry to ask such a rudimentary question, but I could not seem to find this answer on your web site… What is the Trend Tracking Index? I understand that it’s exact calculation may be proprietary. But, what does it comprise? Does it comprise prices? Of what? S&P 500, or some broader base of stocks? Does it factor in other technical indicators?I would greatly appreciate if you could provide a your basic description of the TTI. Thank you. (04/17/2009)
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.
Q: Ulli: If indeed there is a bull rally in the making near term, would mutual funds generate higher returns than would ETFs? Also, would small cap mutual funds out perform mid and large cap funds? (04/10/2009)
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.
Q: Ulli: Thanks for your excellent advice over the last few months. I had been totally out of the market with my 401K for over a year saving many thousands of dollars. However, last week I confess I succumbed to the excitement of the market rally and jumped back in with both feet. My question is should I get back out next week?(knowing that I will get a nasty letter and maybe be banned for a period of time by Fidelity for conducting a round trip trade quicker than 30 days). (04/03/2009)
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.
Q: Ulli: I’m surprised that you continue to not track tax-free funds because tax-free municipal bond funds are one of the few places where some money is actually being made this year so far. Some of the muni funds are up an astonishing 30% or more according to Bloomberg.com. I’m also wondering why the general financial media aren’t talking at all about these funds either. My understanding is that they were beaten last year down by many hedge funds when they had to liquidate their holdings when the margin calls came in. So municipal bonds are now paying historic rates and are at steep discounts in many closed-end funds. Isn’t this a good time to buy them up ? I thought that municipal bonds are relatively safe investments, your state of California notwithstanding.Please explain. Also, I’m so fed up with all this relentless doom and gloom. Today I read one guy saying that DOW 3000 is the bottom! Are you as bearish as this ? I hope not. (03/27/2009)
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.
Q: Ulli: I love both your website and daily blog. (No need to make any changes regarding blog content) I recently initiated a position in Gold (GLD). I have my stop loss currently set at 10%. Should I need to execute the stop loss I will exit GLD with a 1% profit. If GLD resumes an upward trend after I execute my stop loss, how do I determine when to make another purchase in GLD? Thanks for any help you can provide. (03/20/2009)
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.
Q: Ulli: I sure do like your no-nonsense approach and hopefully, if I can get back established in the southland, I want to look you up. For right now, yes, I have subscribed to the buy/hold method and as you know I am paying for it. I read all of your e-booklet on hedging and find it very informative. As of right now I have an IRA and 401K that have lost ~40%. Do you recommend at this point moving all the funds to a safe harbor until I can set-up some hedging strategy? Thanks again for your newsletter. (03/13/2009)
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.
Q: Ulli: What investments are good for Self Directed IRA’s?Real estate (houses, apartments, self storage, land)? Lending to others at a higher interest rate than normal since cash is king? Give me your take on this. (03/06/2009)
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.
Q: Ulli: When you consider buying ETFs sometime in the future what is the minimum average 90 day (or so) average volume that you will require an ETF to have? (02/27/2009)
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.
Q: Ulli: I appreciate your blog greatly. You have protected me from many losses. I disagree strongly with the comment that you are reprinting others too much. As you say, I can read it or not, but frankly with all that’s out there, I appreciate your judgment about what’s worth reading. My question is, do you have any thoughts about gold and gold mining, either short or long term? I’m completely in cash, which is fine during deflation, but at some point the printing and spending of dollars will surely cause inflation. When if at all do you see value in gold or gold mining stocks? (02/20/2009)
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.
Q: Ulli: I am talking with a financial adviser about retirement portfolio. I have some concern in the direction in which he wants to invest. He has 3 buckets in your portfolio and invests in Jackson future guard, AXA Equitable variable annuities, Transamerica Series of variable annuities, CNL property portfolio, CNL lifestyle properties inc, Behringer Harvard Multifamily REIT I, Grubb & Ellis healthcare REIT & Transamerica Principium II. If they go broke I would think you are out the money. Plus he charges 1%. With the money press working, I just feel this is not the best way to go. Any thoughts in this area would be welcome. (02/13/2009)
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.
Q: Ulli: Any thoughts on individual stocks…those of high quality that pay dividends….as a source of income? (02/06/2009)
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.
Q: Ulli: I’m beginning to lean toward EFT investments (vs. no load mutual funds) when I decide to put my toe back in the water with a lot of cash mainly because of the expected volatility.I really appreciate the opportunity of selling any time plus, receiving a dividend, in place of paying a fund fee depending on the investment. When you see the market twist to a huge loss and lack the ability to sell is rather frustrating. Thanks again for your ‘Blogs’ and the Website! (01/30/2009)
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.
Q: Ulli: I read with interest your response (last week) to Don’s question re investing in ETF’s vs. mutual funds, and add this observation: if one should invest prematurely in a mutual fund and decide to get out within something less than 120-180 days, depending upon the fund/fund family, one would be hit with a Frequent Trade charge of something like 1-1/5% of the order. With an ETF, the cost is nothing more than the cost of a single trade (or a round trip, depending on how one looks at it).For a large investment, that difference in the cost of the round trip is significant, and definitely favors the ETF over the mutual fund. (01/23/2009)
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.
Q: Ulli: I’m beginning to lean toward EFT investments when I decide to put my toe back in the water with a lot of cash mainly because of the expected volatility.I really appreciate the opportunity of selling any time plus, receiving a dividend, in place of paying a fund fee depending on the investment.When you see the market twist to a huge loss and lack the ability to sell is rather frustrating. Thanks again for your ‘Blogs’ and the Website! (01/16/2009)
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.
Q: Ulli – As always I enjoyed reading your article on protecting assets from a bad market. Do you use real stops or do you keep mental stops in place? Many people advise against using stops as the MM’s (Market Makers) will take you out. Thanks again for your work and have a blessed 2009. (01/09/2009)
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.
Q: Ulli – I’ve been putting money in Intermediate Treasury Bond Funds and Funds with large investments in Mortgage backed securities. Looking at YTD returns some are as high as 12-14% I think they got a bounce due to lower interest rates so I’m ignoring those and investing in funds with higher 4.75 – 5.0% yields. Good plan? (01/02/2009)
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.
Q: Ulli: Because the market took such a large drop all in a matter of weeks, your trend line probably will not catch up for a month or two. What happens if the market bottoms out and then starts up? If the sell off had been normal, your trend line would have followed it down like it has done since 2000 and then when the market made its turn-a-round, the trend line would have shown when to get back into the market. As it is now, the market could be on the way to recovery long before the trend line catches up.Do you expect to make a modification in your approach because of such the sudden steep drop or wait till the time passes and the line catches up with the market? (12/26/2008)
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.
Q: Ulli: I’m starting to form the opinion that movement in the stock market can’t be rationally explained, and rather than try, it really is a game of following trends, regardless of why they are occurring.I don’t know if you are in total agreement with this statement or not. I have been reading a lot about moving averages, and am finding your website quite educational. I do have 2 questions so far: From your policy statement pdf for customers, you state the following: For example, a $100,000 account may go to $120,000, back to $108,000, then to $130,000 and possibly to $150,000. If you took profits too early, say at $120,000, you will not give yourself the opportunity to see your account potentially grow to $150,000. Question 1:Using your 7% rule, wouldn’t you have taken profit from the initial $100,000 investment at 93% of the $120,000 at $111,600. Does the last sentence above mean you would really take your profit at $111,600 but then buy back in later, vs selling at $120,000 and not getting back in at all? Question 2:General question about moving averages: My understanding is that moving averages are averages of the daily closing price of a fund.When funds go ex-dividend fund prices drop to reflect this payout of profits.Doesn’t this cause a false spike, triggering a false sell signal, or am I misunderstanding something? (12/19/2008)
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.
Q: Ulli: I own DSM and saw it is at a -29.1 premium. I will need income in about 2 years. Is buying additional shares at the lower price at this time the right thing to do? Thank you for your advice. (12/12/2008)
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.
Q: Ulli: You provide a great source of information and advice. My question is: In your 11/28/08 update, you suggested that the market will make new lows.Some believe we are now in a bottoming phase.What makes you believe that the market will go lower? (12/05/2008)
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.
Q: Hi Ulli: Luv your blog and your philosophy, you are one of the very few very few that will preserve capital by getting out and sitting on the sidelines till the storm passes, you are to be commended. I recently discovered Harry Dent, and was wondering what you thought of his theories, practice and prognostications. Since your TTI indicators are so good and you know when things are headed to the downside, why don’t you suggest some shorting or inverse ETFs? Thanks for a great newsletter. (11/28/2008)
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.
Q: I am new to your newsletter and am in the process of digesting your articles and investment philosophy. So far, I must admit I am impressed. I read so many ‘newsletters’ that seem to be doomsday approaches. My situation is this: I have been a mutual fund buy and hold investor since the early 80s. Everything went well for years I thought I was a financial genius. The last 8 years have proven me really wrong. I didn’t really get it during the 2002 timeframe. This time around, I am down at least 50% in equity no load mutual funds. Recently, I have put a small percentage of funds into silver and the silver ETF for the eventual inflation situation that seems to be inevitable.Your StatSheet has very clear recommendations on it. The problem I am having is, although I am understanding the trends you are in concert with here, I will take a deep cut by selling things off at this point. If I would have sold things before the drop, things would be great.But, what about now?Should I wait for a rally and then sell or pull everything out and hope to get back in later.Thank you in advance for your thoughts. (11/21/2008)
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.
Q: Ulli: I’ve read that the only investments I need are ETF’s, namely VTI, VEU, & BND in the appropriate proportions to my age.This has been advised as a better investment when compared to mutual funds in the current investment environment. Does this make sense? (11/14/2008)
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.
Q: I read your email with interest. The only ETFs I have made money on are the Short and Ultrashort. I don’t recall your having mentioned them in your emails, yet you forecast the market as in a down trend. What is your view of these Proshares ETF’s? DOG, DUG, DXD, EEV, EFU, FXP, MZZ, PSQ, QID, REW, RSW, RWM, SCC, SDD, SDP, SDS, SH, SKF, SMN, SRS, SZK, TWM? (11/07/2008)
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.
Q: Hi Ulli: I enjoy your weekly investment letter. It’s always kept me on the right side of the market. Just curious- Did you invest in bear market ETF’s when the market started to tank in June? It would seem that by doing this, you would always be fully invested no matter what the market is doing. (10/31/2008)
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.
Q: Ulli: I’ve been unable to find a credible explanation as to why the USD is getting stronger while our economy is in such a mess. Any thoughts? (10/24/2008)
A: Sure Linus the theory is that, on balance, Europe is/will be in worse shape than the U.S. hence the dollar rally…
Q: Ulli: Is money in a Treasury Bond fund the same as sitting on the sidelines? Thanks. (10/17/2008)
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.
Q: Hi Ulli: I purchased Fidelity mutual fund FLATX in 2005. As of May of 2008 it had gained 110%. Not knowing much about when to sell it started on its downturn and as of today I have 12 % gain left. I kept hoping it would go up. Is Latin America pretty much done? Should I sell or still wait for the turnaround? (10/10/2008)
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.
Q: Ulli: Although I recommended you, my close friend is interested in stocks! He is looking for a Brokerage house to open up a new acct for investment managing his money developing a stock portfolio! Any ideas or quality recommendations? A.G. Edwards? (10/03/2008)
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.
Q: Ulli: The Feds move to take on bad bank debt, and to inflate the currency by adding money to the system will let it pay off the bad debt with much cheaper dollars! Right? Thanks to your constant warnings, I am mostly in cash and avoided big losses when the market dropped.But if indeed the Feds actions result in high inflation, is it not now very dangerous to stay in cash? When stocks rise double digits in one day I am uneasy about waiting for the trend which in more ordinary times has made a lot of sense. Do you believe high inflation will be the result of the Feds actions? What are your best thoughts about how to protect from inflation even during a recession when earnings and stock prices may remain low or drop for a while? Thanks for your sage advice. (09/26/2008)
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.
Q: Ulli: How do I determine if a Fund/ETF is gaining momentum week over week as opposed to losing momentum? If an ETf has a high momentum rating it still could be falling from a higher point thus declining in momentum. Do I look to the DD% (DrawDown percentage) the closer to 00% the better? (09/19/2008)
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.
Q: Ulli: My 401k at GM portfolio has lost 20% since December. I’ve put 30% in cash, but it still keeps dropping. Is it too late to put it all in cash or should I ride it out? The plan has limited options and all are losing money fast. (09/12/2008)
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.
Q: Ulli: Do you have an opinion about the Nuveen closed-end California municipal bond funds? Do they pay out monthly? Are their management fees too high? (09/05/2008)
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.
Q: Ulli: Your letter gets better and better all the time. Keep up the good work. I have two questions for you. First, in this horrible and seemingly endless bear market, what kind of investments are you recommending to your clients, especially those looking for income? Secondly, do you follow a system of entering and exiting the market with income investments such as high yield bonds, preferred stock funds, etc? If so, how does it work and how is it different from your regular stock funds exiting/entering strategy? (08/29/2008)
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.
Q: Hi Ulli: I take it from your recent posts that you don’t think much of a high dividend yield portfolio in current market conditions. I believe you said that it makes no sense to own a stock with a 10% dividend yield if that stock subsequently declines 50% in value. I currently have this type of portfolio & yield, but I also have about $200K in m/mlts. Would you recommend that I dump the dividend payers & place my total discipline in your type of strategy? I would then have to withdraw about $30,000-$35,000 annually to supplement my Soc. Security. I am 72 years old. (08/22/2008)
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)
Q: Hi Ulli: I read your blog regularly and look forward to your weekly newsletter. We are currently on the sidelines thanks to your trend tracking index. How do you set trailing sell stops for mutual funds? Our online broker only provides this feature with Exchange Trade Funds. For mutual funds, we only find out the price after the market has closed. We can then only sell the next day, and receive the next day’s market price, which may be worse or better than the 7% loss target. Is there a way to have the funds automatically traded on the day they break the 7% stop loss price? (08/15/2008)
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.
Q: Thank you for all your sage advice. You are a master tactician in a most perplexing market. I am wondering, given the housing bailout package Congress recently passed, do you see any real estate ETFs or REITS that are poised for a run-up because they will benefit from this boost? If so, which ones and at what entry point? Also, do you recommend any entry points for KOL or GAZ? Right now I think coal, with so much American coal being shipped abroad, is perhaps the most attractive of the fossil fuels. How do you see it? Finally, with the dollar firming, do you expect gold (GLD) to pull back significantly? Again, thank you for sharing your time and expertise. (08/08/2008)
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.
Q: I own some small positions in the XLU, JXI and a few other utilities…EP and Duke energy. Since people need electricity and utilities pay dividends, I thought adding to my positions to increase dividend accumulation would make sense, even in this bear mkt. I’m going to be 65 this year, so income is right up front on my must have list. Would you still wait for the TTI to go positive? (08/01/2008)
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.
Q: Ulli: This is probably stupid, but I have a long position in two funds closed to new investors and some substantial gains which I hate to loose!I want to hedge the positions but do not know what funds to use? Position one is T. Rowe Price New Asia and I am currently using EFU as a hedge?Position two is Vanguard precious metals and mining and I have no idea what to use as a hedge?Any help will be appreciated. (07/25/2008)
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.
Q: Ulli: I have been out of touch with the market for the last couple of weeks, and I noticed recently that your bear funds are a buy, and I missed that June 25 call. I actually have about an 8% long position (in funds) that has done well simply because they are energy related. Do you think it is too late to initiate a bear fund position? (07/18/2008)
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.
Q: Ulli: I just read your Monday blog (2 weeks ago), and it actually triggered a few questions that I have related to your buy strategy. I do like your answer about being flexible and simply follow the TTI.But don’t you also want to have a diversify portfolio? (Means having holdings both domestic and international). Based on the flexible buy strategy, there is a very high probability that you will end up holding more domestic or international stock and very well you can have 100% exposure on all international stocks.Is that still a proper diversification? I remember either your blog or some article indicating that you never wanted to have more than 50% exposure to international stock even if your risk tolerance is high.What is your thought on this? (07/11/2008)
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.
Q: Ulli: You recommend having stop losses in place on all investments, and I agree. However, mutual funds don’t permit them and your suggested stop losses of 7 to 10% are based on day end figures for ETFs. How do you keep track of prices during the day, or do you just ignore them? Do you have a spreadsheet for tracking prices and % draw downs? I am a little confused as to how to do the analyses. My broker (TD Ameritrade) offers a stop loss program for ETFs, but I have been stopped out by intra day fluctuations. Any help would be much appreciated. I have a system for buying that works well, but want to get selling under control. (07/04/2008)
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.
Q: Ulli: In light of your caveat Friday regarding a market downtrend, do you agree with me that Energy and Health funds remain a secure investment as we proceed thru this election year? (06/27/2008)
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.
Q: Ulli: Where would I put approx. $60K of taxable money that would be moderately liquid (I might need some of it to purchase a new car in a year or two or three)? I live in NYC so the city, state & fed taxes are a heavy burden. Thanks. (06/20/2008)
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.
Q: Ulli: Thank you for your website! If a sell signal comes, where do we put the money? I am thinking not bonds or municipals from your last post? And Money markets have had some negative feedback too? Since I am following your entry-exit points in my 401k to enhance performance, if I exit my choice is PTTAX or WFIXX? Bonds or money market? What are your thoughts for the best squatter choices? (06/13/2008)
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.
Q: Ulli: What do you think about commodities and in particular RJI, DJP and JJA? What percentage of our portfolio should be invested in these as a diversifier? Thank you very much. (06/06/2008)
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.
Q: Ulli: I started following your blog and newsletter a few months ago. I appreciate your insight to the market, but what I’ve been most impressed with is your patience when entering trades. So many sites I’ve visited want to have the individual investor actively trading even when market direction is not clear. Following your blog has helped me to step back and wait for the market. I have a question regarding how money market funds are priced and how their NAV and rates of return are calculated. I have some money in a 457(b) and the only choices I have for cash are money market funds. I see where one fund, Fidelity FSLXX, has a YTD rate of return of 1.28% as of 5/28/2008. When I pulled up the chart for this fund on Prophet.net, I see where the NAV has gone from $4.80 to $2.68 since the beginning of this year. This is roughly a loss of 44% by NAV price alone. How can this fund report a gain of 1.28% when the NAV is 44% below where it started? Am I missing something? Any clarification would be helpful. Thanks again for your blog and your newsletter. I look forward to reading your posts every day. (05/30/2008)
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).
Q: Ulli: I have enjoyed your blog in recent days pertaining to sell stops…I was wondering what your current opinion is on REITs from a technical perspective? I’m a big fan of Ken Heebner and the Focus Fund which you track, and like his REIT (CGMRX) as well. If a client likes real estate, what is the max percentage you like to put in this sector? As always, thanks for allowing me to pick your brain! (05/23/2008)
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.
Q: Dear Ulli: Why is it that with all that’s going on in the economic climate with the Credit Crunch, record breaking foreclosures nationwide, skyrocketing fuel prices and food prices rising by over 15-20%, the market indices continue to rise in a bull like fashion? After the Fed rate cut of 25 basis points the market was down double digits. Now it is rallying back up again by almost 600 pts in the last 30 days. Am I seeing something awry or maybe you can make sense of this to me? (05/16/2008)
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
Q: Ulli: Good afternoon. Thank you again for your service which to me is unbeatable! Your TTI system is extremely impressive especially with your minimum buy and sell signals. Have you had to do any adjusting or modifying to your TTI system over the last several years? Good advice from you back in Dec. on SWYSX which I did sell. If not, my portfolio would be many thousands less as that fund has taken a huge hit! I’m not sure there are any good bond funds to get into for the balance of 2008! Take care and have a good weekend. (05/09/2008)
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.
Q: The charts for the closed end exchange traded bond funds are getting close to a buy signal and it is not too early to be thinking about possible selections. In your portfolio, what role does leverage and insurance play?I see your 4/17/08 list includes both leveraged and un-leveraged & insured and uninsured funds. Are you restricting yourself to certain types of funds? Many thanks for this and all your sage counsel and information. (05/02/2008)
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.
Q: Dear Ulli: Continue to enjoy the letter. I’m not clear why country ETFs are a sell. Can you explain? (04/25/2008)
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.
Q: Hi Ulli: Sending you this so you won’t get bored from lack of activity! How is John Montgomery’s track record as a Fund Manager?? I am very much interested in one of his funds BRSVX and wanted to check with an unbiased source, so you were elected immediately… I am retired and still have not touched my 401K. I’m age 67 now. Do not plan to dig into the Retirement funds for another 3 years and would like to get into some semi-conservative funds. I also have DODFX, FSDIX, and FLVCX with some ETFs to make life interesting. Thanks in advance for your inputs! (04/18/2008)
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.
Q: Ulli: I would like to have your opinion/recommendation on how to allocate investments of about $200,000. I want to use all ETF’s as opposed to mutual funds or individual stocks. Also, I would like to use your categories of Domestic, International, Country & Sector only. Would you recommend equal investments of $50,000 each when buys are indicated or would you advocate weighted category amounts? How many ETF’s in each category would you advise? I certainly appreciate this help & I do hope you will keep your system going as it is one of the best on the internet! (04/11/2008)
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.
Q: Ulli: Do you ever think MBIA, which by the way I own some (oh well..sigh), will ever recover. I don’t know if Ackerman is the one with the brains or why would Warburg Pincus be investing in the company if they weren’t confident that a solution may be worked out. Anyway, I bought a while ago when it was at 50 so throwing in the towel at this point may be fruitless. I am not asking for investment advice just your humble opinion. Who would have thought the investment banks were selling and the monolines were holding all this M.B.S or as they say junk in the trunk and the monolines would have been so greedy, stupid or both? I would love to be a fly on the wall in Eliot Spitzer’s or Eric Dinallo’s offices. Cheers. (04/04/2008)
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.
Q: Ulli: you replied to my feeble request to put everything in cash for now. Please explain what you mean by cash. It can’t be cash under the mattress so do you mean prime money market? Do you also consider bonds cash? I have GNMAE high yield short term inflation protected securities. I am thinking of selling all stock funds and put it in long term treasury bonds. Is this what you are talking about when you say cash or not? Thanks for your patience. (03/28/2008)
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.
Q: Ulli: With the Bear Stearns debacle, how likely are other brokers to be affected and be close to bankrupt positions? In particular, what are the risks for Charles Schwab and Fidelity in this Subprime/credit/housing crunch? How safe are my retirement funds at those brokerages? (03/21/2008)
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).
Q: Hello Ulli: Is the old adage buy low sell high still a good practice?Is it a good time to add incremental additional monies to remaining funds that I have left since the markets are in decline? One more question is it a good time now to buy Emerging Markets with their pull back I like T. Rowe Price Emerging Markets Stock PRMSX. Thanks again for your insight. (03/14/2008)
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.
Q: Ulli: I have about 90% cash today and have been so since late December. The other 10 % has been 50%short using the sds, qid, and dxd the other half is long some selected stocks that are currently down 4.5% YTD and lucky to be there because of some covered call writing. I have traded the short positions and was closed out of my sds Friday at 65, and very nearly closed out of the dxd and I would have been fine if that happened because the market has been so volatile and the bear trend has been hard to work with. The majority of my portfolio is invested in mutual funds as a long when the TTI engages the upside. With that as background, I am looking to get an aggressive short position on somewhere between 25 and 50 % when the TTI suggest that type of move, however the on the horizon Bear Market Funds have a selective buy, but this choppy market has not really worked for a long bear position yet. What signs are you looking for, if any, to take such a short? (03/07/2008)
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.
Q: Ulli: In your tax-free Muni chart, does the current yield take into account the discount/premium of the CEF at the time you buy it? Long time follower. (02/29/2008)
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.
Q: Ulli: Given that all, or at least most, of the housing and real estate news is so negative, is this a time to look for funds that specialize in real estate or REITS? And since you are into money markets is there a safe, short term alternative that pays higher interest? (02/22/2008)
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.
Q: Ulli: I would appreciate your outlook concerning U.S. long term interest rates for fixed income investing.What do you think those rates will be for CDs, Muni Bonds, Treasuries, etc. in about 2 to 3 years?-2010 thru 2013? Will the current financial crisis lead to higher inflation and higher long term interest rates? Your opinion please. Thank you for your newsletter and your very informative website. (02/15/2008)
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.
Q: Ulli – Wanting to short the global economic slowdown I’ve recently been considering short fund Short MSCI EAFE ProShares (EFZ). A concern I have is with daily volume. It averages just 13K shares a day over past three months. Would this prevent you from investing in this fund if you wanted to short the EAFE? There doesn’t seem to be many alternatives and my preference is to not venture into shorting emerging markets even though funds shorting EM’s are more active. (02/08/2008)
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.
Q: Ulli: Your article/news letters are very interesting and informative. Thank you for giving the free services to educate us the consumers. I do want to save/protect my money. Currently all my IRA money is invested, hoping it would start to go up again it’s too late to sell now. I have no option except go with the ride and slowly start to sell, when it go up again. Who knows when, right? I am already 59 and lost my job few years ago, depending on my IRA saving to pay my every day living. I also have the 72T program set up 2 years ago, withdrawal certain amount from my IRA.Appreciate your advice! (02/01/2008)
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.
Q: Ulli: Thank you for your newsletter, I have found it to be most interesting and profitable reading. Since it now appears that there are very few investment areas to seek cover within, I am wondering what you think of converting existing Fund/ETF assets into Long Term U.S. Treasury ETFs such as IEF, TLH, or IEI (all Lehman Treasury ETFs of varying maturities)? The Federal Reserve Open Market Committee finally seems ready to pursue a strategy of lowering interest rates in order to stimulate the U.S. economy. Meanwhile, European central bankers appear ready to adopt the exact opposite strategy (i.e., raise interest rates) in order to fight inflation. Also, disparities between U.S. and European interest rates would suggest continued weakness of the U.S. dollar and further increases in the value of gold and other hard assets (energy, minerals, etc.) denominated in U.S. dollars. (01/25/2008)
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.
Q: Ulli: Where can a retiree run in this crazy, unstable, lacking direction, market? What would you say as to finding shelter in Utilities like XLU and VPU?? Thanks in advance for your inputs. (01/18/2008)
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.
Q: Ulli: Thank you very much for your newsletter. I find your information very helpful. I do have a question regarding the payouts that many funds have at the end of the year. Many funds may drop 10-15% in one day and pay out to the share holders as capital gains and dividends. What matters to me is how much money I started with and how much I end up with. With year end payouts like these, I don’t lose any money yet the %return charts show a significant drop. How are these drops evaluated by fund performance screeners and do they affect your buy and sell rules? (01/11/2008)
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.
Q: Hi Ulli: See any signs of a near term pull back?I have no specific data, but my sensitivities suspect one in January anytime. Curious. (01/04/2008)
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.
Q: Ulli: Do you have an opinion on American Century Emerging Markets Fund? I am considering buying it but I would appreciate an unbiased opinion. Thanks very much for your input. (12/28/2007)
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.
Q: I found your web site a couple of weeks ago.Since then, I have registered for your free newsletter. I have received the latest two editions. I also have spent time browsing and reading your web site.I think that I understand your approach/methodology. I am actually thinking about implementing it in January 2008 (a new year a new start).Nevertheless, I still have a question for which I cannot find an answer. I understand that currently you have a Buy signal in terms of General Domestic Equity Mutual Funds and a Sell signal in terms of International Equity Mutual Funds/ETFs. My question is: if you had a Buy signal for both equity markets, would you buying in both markets on a different percentage basis? (12/21/2007)
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.
Q: I have 3 of these funds in my portfolio: BGT, EFT and VVR. I bought these for income they are down in value about 6%. Should I sell or buy more? What is my risk? (12/14/2007)
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.
Q: Ulli, good morning. Would you please do me a favor and take a quick look at SWYSX (ultra short term bond fund). I purchased this fund as a part of my fixed income allocation looking for its income flow and price stability. I purchased it @ 9.43 and it’s now @ 9.17. If you owned this fund with the current market’s fixed income volatility, would you sell now or set a stop price level (% based) to sell at? My concern is that it has no bottom in sight and could take forever to recover even to 9.43. (12/07/2007)
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.
Q: Ulli, I have been told a trailing stop could result in a sale below the sell point if a purchase was not made and the stock continued to fall. However, with the sell stop limit price it would either sell or not below that point. Can you clarify? (11/30/2007)
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.
Q: Ulli: Although your TTI has not yet developed a sell signal, I am curious to know if the TTI does in fact flash a sell trigger, would you then be recommending some bear funds, or would your strategy be to remain in a money market account? I noticed that throughout this period you have had a sell on the bear funds, but I did notice that when you exited the market in May of 2006 you did not (at least I think) you did not recommend a bear position. That turned out to be a short correction, and not a bear market. This obviously was spot on. (11/23/2007)
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.
Q: Ulli: Your new data field (M-Index) should be very beneficial when making investment decisions.I am just trying now to get the relationship with MA and DD.For example, some ETF’s with a high M, also have a high DD (possibly because of the recent downturn – and as you mentioned, the highest flyers are the most volatile). I had previously looked for a low DD (zero if possible) with a good MA.I guess MA just represents what people are buying while M represents actual average gain over a 4, 8, 12 week and YTD period.I guess the bottom line is that M is perhaps the most significant of the three data fields.But, MA and DD might also come into play regarding a buy or sell decision. Your thoughts regarding this would be very much appreciated. I would have sent this via the blog, but felt the limitation on number of words allowed might come into play.M should be a great addition to the Stat Sheet. Thank you and best wishes. (11/16/2007)
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?
Q: Ulli: I have been retired 13 years and have earned approx 8% in my 401k, taking 2,000 month withdrawals, nearly maintaining my 300,000 balance. I am considering changing from my 401k to an IRA with Fidelity. My 401k, which I manage, utilizes Fidelity and other funds. However, with new ETFs and Bonds funds, I am becoming confused on proper investments to maintain the $2,000 month withdrawals. What do you think you could do for me? (11/02/2007)
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.
Q: Ulli: In selecting ETF’s, would selecting those that have a DD% of 0 or only slightly more, be a better choice or am I just chasing momentum? It seems that overbought funds are those doing best and seem to continue to do so. I guess I’m just a bit nervous that they might correct too quickly. (10/26/2007)
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.
Q: OK, If the DD% runs negative, can this be a good buy? It appears that based on your new M-Index that that is the key component in determining whether to buy or sell. Thoughts? (10/19/2007)
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.
Q: Why do the ups and downs of many of the foreign country ETFs tend to move in the direction of US markets when in fact the specific country ETF is made up of companies originating in the country of the ETF? (10/12/2007)
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.
Q: Ulli when funds are so close the TTI, or a fund may be 4-6% from the recent high, do you continue to add new money or how do you determine what to do? (10/05/2007)
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.
Q: Ulli: First off, thank you for putting the M-Index in the master list.It has been very helpful to me.In 26 trading days, my portfolio is up 12.6%, in large part due to your advice and newsletters. It’s been a pretty steep learning curve, and I’m well aware I might be enjoying some beginner’s luck. My thought was this (as I painstakingly went through this week’s and last week’s master lists checking and crosschecking): Wouldn’t it be nice if the computer calculated a column that indicated the fund’s rise (or fall) in the index? My sheet is now marked with +3, +8, -1 etc. next to each ETF’s current M-Index. This helps me determine how much it has improved (or declined) in relationship to last week’s ranking. To my way of thinking, this helps me weed out the laggards and sell them off, perhaps for something that has jumped dramatically from last week. This would indicate to me a fund on the rise whether or not its return and other indicators reflect that yet. Another trajectory calculation that I’ve start playing with is: Trading sessions held divided by % gained.This gives me a relative figure that tells me at what rate the equity is rising.My portfolio average is .49, so anything below that can be considered in the laggard pool and watched carefully. I’m sure none of this is new, they are just thoughts my little head kicked out. What do you think? Again, thanks for all your insight and the service you provide.I consider myself very lucky to have you in my corner. (09/28/2007)
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.
Q: Ulli: Thanks for creating the M-Index it is a real time saver. I have a concern about how the Index is calculated. It is based on the 4wk, 8wk, 12wk and YTD momentum numbers. Since the YTD can vary from 1wk to 52 wk, wouldn’t it provide more consistency to the index to use a constant time period such as 26 wks? (09/21/2007)
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.
Q: Ulli, how would you position yourself if you would be buying the QLD ETF?What stop would you put on this? Would that be a mental stop?Thanks so much….really look forward to your views…. (09/14/2007)
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.
Q: Ulli: I just wanted to say how much I like you web site and the information presented there. I understand about selling a position if there is a 7% drawdown or a break below the trend line. What about the following situation: an 8% drawdown but still above the trend line. If you sell, how do you know when to get back in the market? I am sorry if this has already been answered on your web site, but I could not find the answer there. (09/07/2007)
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.
Q: Ulli: Since your Domestic TTI has not given an all out sell signal, I was wondering what your thought are for funds we own that also did not give a sell at the minus 7-10% point. Since they are still less than -7%, when might be a suitable place to add new money here? I also still have a global and international fund, which I did reduce when the International TTI gave a sell, but since my funds were at better than -7%, I decided to stay with them. As for adding to these, I thought I would wait for a new buy from the International TTI. (08/31/2007)
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.
Q: I am a new subscriber to your newsletter, and I am very impressed with your expertise and methodology. I am interested in investing in individual foreign country EFTs and I wonder if the Tracking Indexes for individual countries are available in some manner. If not, could you tell me where to get the information required to create my own index?For example, for China could I use an established index just as the HSI and apply a 39 week simple moving average?I know you show the current %M/A on the weekly updates, but I would like to be able to react to Buy or Sell signals more quickly.Thank you for any information you can provide. (08/24/2007)
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.
Q: Ulli as always, thanks for your good work. Ulli, in the way of a technical indicator that points to a recovery (coming off the bottom), similar to the double shoulder at the top…what do we look to?? I see mixed recommendations for sector/country/regions…what do you see? I believe that emerging markets will continue to be strong, select Europe, Singapore and Hong Kong, especially as China continues to develop. (08/17/2007)
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.
Q: Ulli: Although your TTI has not developed a sell signal, I am curious to know if the TTI does in fact flash a sell trigger, would you then be recommending some bear funds, or would your strategy be to remain in a money market account? I noticed that throughout this period you have had a sell on the bear funds, but I did notice that when you exited the market in May of 2006, you did not (at least I think) recommend a bear position. As that turned out to be a short correction, and not a bear market, this obviously was spot on. (08/10/2007)
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.
Q: Ulli: In a situation like last Thursday and today (it being July no less) when there have been precipitous drops do you ever try and anticipate a trend change and cash your chips in early and sell off. For example, during the dip in 2000 how far down did you follow the decline before cashing out. In recent years market declines can be large and very quick so is your trend line a hard and firm rule? (08/03/2007)
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.
Q: Ulli: This is probably a stupid question, but what determines the price of an ETF? Is it the buy/sell of the fund or the buy/sell of the stocks in the ETF? Hypothetically speaking, could a very low volume ETF do better in a massive 1 day sell off due to it’s low volume? (07/27/2007)
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.
Q: Ulli: This ‘nervous’ market makes me nervous. I’m thinking a huge downturn is only a few weeks away. My portfolio has been ‘static’ for the past few months, which makes me wonder if ‘cash’ may be an ‘alternative’ at this point! ‘Up and down’ seems to be the current trend and this doesn’t make you any money when you’re a 78 year old! (07/20/2007)
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.
Q: I was told by Fidelity Investments that I could not place a Trailing Stop Loss on certain ETFs (EWW and EWA). This was new to me as I have done it in the past. I was told that this was not a Fidelity policy but was an industry wide restriction. Can you enlighten me on what is going on and how far reaching this apparent restriction goes? Thank you. (07/13/2007)
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.
Q: Ulli: Have utility mutual funds and ETFs had it for the year?Should I lock in my gains and sit the rest of the year out? What do you think? (07/06/2007)
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.
Q: Hi Ulli: I bought a fund (WWNPX) on June 1, 2007 at a price of 28.66. It is now 28.41. The recent high is 28.68. If you get a TTI sell and I haven’t hit my 7% trailing stop, do I follow the TTI sell or my 7% sell stop? Thank you. (06/29/2007)
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.
Q: Ulli: First of all, I appreciate your data and find it hard to criticize considering that I’m getting it free. Now my guess is that you do not investigate ALL no-load funds. Because I have located a fund, OBCHX, which would seem to deserve a place at the top of your international list. Do I not find it because it is just one that you don’t track, or because its performance is not as good as I thought, or because I just couldn’t find it even though it was there? Also, I am sad to say that the instructions you gave me for incorporating your tables in an Excel file are very time-consuming. I would have preferred that you stick to the old method, but I understand that you may have other considerations. Thanks again for the service you provide. (06/22/2007)
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.
Q: Hello Ulli, I am retired 13 years and have remained in my company 401K, which probably was one of the industry best, with over 60 Fidelity funds. However, they are now reducing the funds to less than 30 with only a few Fidelity funds and some newly formed index, LC and SC funds. The Fidelity round trip penalties for 30 days in/out of funds also remain intact. Do you utilize the Rydex Bear Funds in your practice? What are the pro and cons cost wise as I have absolutely no idea of all the charges that I might incur when I leave the 401k? I need to be flexible to retain my monthly withdraw of $2,000. I have done this for all 13 years and only down $15,000 in my 401k principal. Any suggestions on the IRA I should look at and is Rydex funds a place a novice should stay out of. Thanks for any suggestions and I do appreciate all the guidance you provide. (06/15/2007)
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.
Q: As I recall, summer is when most major indexes take a breather. Am I correct? Shouldn’t we be getting prepared for a downturn & a possible haven for our recent gains? I understand about the stop loss rule but every summer the market dips & new leaders emerge with new sectors rotating into a leading position. (06/08/2007)
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?
Q: Ulli: I have cash to invest and with the market at new highs, do I still apply the 1/3 system or wait for a correction? What are your comments for this situation? When selecting a mutual fund now, do you avoid funds that have had large moves and are above a certain point? How should I decide what is best now? Or better yet, what to avoid? Thank you for all your help. (06/01/2007)
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.
Q: Hello Ulli: I really enjoy your insight and have always gotten good advice from you about market conditions. I am astonished by the Trend of this market. I would appreciate your insight as to what economic or trend indicators you look at to foresee a change in direction. Your input would be deeply appreciated. (05/25/2007)
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.
Q: Ulli, I would like to ask your opinion on international real estate funds, such as EGLRX. I am maintaining a nice mix between country ETFs and Sector ETFs. PS: I love your service and 7% rule. I have learned (the hard way) that intraday stop losses are no good. Indeed, if you wait till the end of the day to make your decisions, you may miss many low points! (05/18/2007)
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.
Q: Ulli I really appreciate your newsletter. I have a suggestion for Lou (last week’s question). Morningstar.com is a great way to watch your portfolio. He can enter two separate portfolios and watch their growth separately without having to move his money. (05/11/2007)
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.
Q: Ulli: I recently read your article, The 10 Rules for Successful Tax-free Income Investing. It was an excellent article. I would like to separate my income funds from my growth funds. Do you have a suggestion as to how I can separate the income from the growth and get a better picture as to how each is doing. I know how to use MS Excel. If there is a spreadsheet in existence i could use that. Thanks for your help. (05/04/2007)
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.
Q: Hi Ulli.I don’t think I understand ETFs which use ADRs and/or GDR’s. Asia was up yesterday. Europe was up today. My investments are about 90% invested in ex-US.But my Asia ETFs such as EPP and Europe ETFs such as VGK were down today. Are the ADRs that closely related to what happens with the US market? The S&P was down a fraction of one percent today.The ETFs mentioned were down much more. I would have put this on the Blog, but don’t have that buffed out yet (don’t know if you are receiving input). Any insight on this would be appreciated Ulli. It has happened often. (04/27/2007)
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.
Q: Do you have a percentage of total portfolio value that you would put in domestic, in foreign, if you were 100% invested? (04/20/2007)
A: Wayne, well, right now we have about the following portfolio allocations: 30% international (not country funds)<br> 50% domestic <br>20% sectors <br> Again, the exact composition is not as important as having your sell stop discipline in place should the markets head back south.
Q: I wish to get 6.5% cash flow from 401 K funds approximately $160000 without touching principal for 10 years. What should I invest in? (04/13/2007)
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.
Q: Ulli, in regards to sell stops: When determining what the 7% reduction from the high is, do you simple find the 52 week high figure on any website and drop that by 7%? Do those figures reduce the high by any paid out dividends that might have dropped the price immediately afterwards? (04/06/2007)
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.
Q: Ulli: I wanted to take this opportunity to thank you for your anchor during this most recent tumultuous time. Even though I didn’t like the direction at times, I had some comfort knowing I had an exit strategy. While the overall sell was never triggered, I had a few funds that did hit the 7% decline off their highs but by the time I noticed it, they had recouped. Still lagging though, so I am wondering whether that 7% is engraved in stone or there wiggle room? (03/30/2007)
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.
Q: Greetings, Ulli: In following your recommendations as things turned bearish last May and June (and also on the rebound later in the year, to considerable advantage I might add), while basically following the timing signals, I generally sold into mini-rallies and bought out of mini-dips that occurred shortly after the signals issued. Any thoughts on the relative prudence of doing this? Thanks. (03/23/2007)
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.
Q: Ulli, I have what think is a diversified portfolio but I don’t have any REITs or Real Estate funds to cover this area.Residential houses have been taking a beating but the office, business, shopping centers, rentals apartments and REITs in general have really performed well. Do you think that people should have some exposure to real estate, in a commercial or investment property type, excluding residential houses? Please give me your opinion. (03/16/2007)
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.
Q: Ulli… I have been retired for a couple of years, with more time to follow the market. I had an excellent diversified group of about 8 no-load funds in various facets of the market. They all [each and every one] took a dump this past week, and I bailed out at about the -5% area as I have to suffer through the end of the day with my funds. My question: Is it OK for a retired guy to bail out before the 7%/10% stop loss figures are reached? What happened to me is that I still have a sore rear end from 2000, the funds slid so fast, that by the time the 7-10% stop loss numbers were reached, I lost another 3-5% before my accounts could be closed. The fact I had to use an 800 number and be put on hold for a few hours didn’t help either. Thanks, and I really enjoy your Friday e-mail article. (03/09/2007)
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.
Q: Ulli, I have one question. I can find some non-load funds having more than 15% return for 10 years time or its life time. This exceeds the goal of annual 10-12% compounded growth, if I am right. So why not I just buy these funds and hold them. Please help me on this. (03/02/2007)
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.
Q: Ulli, Where does a portfolio of index funds fit in the scheme of things? The return and diversity seem good and don’t require much attention. How would you substitute ETFs for mutual funds? (02/23/2007)
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.
Q: Ulli, when one invests in a fund that is going up in value, and it then stays pretty stable, how long before you sell it? Do you wait until it has dropped 7%, the fund holding period has expired, or what are the criteria for selling? The money could be reinvested in another fund, that hopefully will give a better return. (02/16/2007)
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.
Q: Ulli, I think you are a nice, kind and caring person, which is getting harder to find these days and I enjoy reading what you have to say each week. I thought I read in your weekly letter that you would notify your subscribers, to your free letter, via e-mail when you make a distinct buy or sell signal. I was looking at your letters dated 5-17-06 and 9-05-06 where you mentioned that a signal had been generated. Am I supposed to receive an e-mail after the close of the market when these signals are generated? Or do I have to wait till the following Friday letter comes out to find out about the signal? Please enlighten me as to what you do in the situations. Thanks for all the work you do. (02/09/2007)
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: <a href=http://www.successful-investment.com/newsletter-archive.php>http://www.successful-investment.com/newsletter-archive.php</a> 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.
Q: Ulli, I came across your website about 2 weeks ago and have to commend you for sharing your hard work for free. The data and information on your website and blog is awesome. I have lot of data to digest. Question: I understand your sell rule -7% drawdown or TTI whichever signal’s first. If a sell is triggered by 7% rule, and TTI is still in buy range, how do you scale back into position if TTI remains in buy mode for 4wks, 8wks, 12wks, etc. after 7% loss signal got triggered? I apologize in advance if this is already somewhere on the website. (02/02/2007)
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.
Q: Ulli, in your email letter of 1-19-07 you stated that you are replacing some of the no load funds which have been disappointing. Would you please elaborate? Are they disappointing year to date or maybe over the past 3-6 month period? I’m just not sure what you mean. Thanking you in advance. (01/26/2007)
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.
Q: I just found your website and signed up for your newsletter. Good information. I also prefer trend analysis but obviously not to your sophistication. I am curious why, after 10-13-2000, you didn’t jump back into the market in 9-01 or 7-10-02 with the levels so low that a significant gain could be achieved just from the sell-off? I stayed invested in 06 since only the 200 SMA was broken and recovered nicely without incurring any transaction costs. Just another variation I suppose. Again, thank you for your time. (01/19/2007)
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!
Q: Ulli, for a thirty-something, what allocation of a portfolio do you feel should be in an international fund? (01/12/2007)
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.
Q: Ulli, the wealth of your info keeps growing, now with your latest blog addition, and of course that is great. However, since I am one of those types that only now consider ETFs for a host of reasons, outside of my 401k, can I make a suggestion? Have you considered in addition to the categories that you post to post one master list of ETFs all together? Your current version has ETFs mixed in with mutual funds in some categories and the others are not grouped together. It takes a long while to cut and past to get one grouping then re-sort. I am sure many of your followers would like to see all ETFs ranked against each other: Domestic, International, Sectors and Global, so we can view those that are overall leaders. Just a thought. (01/05/2007)
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: email@example.com.
Q: Ulli, thanks for the continually timely information on the market. I was looking to open a position with Dodge & Cox International Stock DODFX. What do think? Is it a little late for the foreign market? Please advise and thanks again. Happy Holidays! (12/29/2006)
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.
Q: When a fund pays dividends/capital gains at year end, how do you adjust your exit point? Some of these price drops can be very big. How can you track the dividends/capital gains when they are reinvested for updating your portfolio shares? A BIG drop could trigger an exit signal when this market is going up and down like it is. (12/22/2006)
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.
Q: I’m a college student, and I’m about to start a Roth IRA considering I want to invest the money I’m earning from part-time jobs. I’m probably going to invest in index funds and I was wondering if you knew any good index funds I should start investing in. I only have about 1000 on me, but eventually I would to diversify, investing in large-cap, medium-cap, and small-cap index funds.For example, do you think I should start at Vanguard or T. Rowe Price’s S&P 500 Total Index Funds? (12/15/2006)
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.
Q: Ulli, I enjoy receiving your Newsletter each week.There is so much great info in it — every week.The www.tradestops.com looks interesting and I will be subscribing to it. I know you have written about this before, but would you please review for me how you set your stops?Also — if you have hit a stop, what do you look for before you go back in? Many thanks. (12/08/2006)
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.
Q: In your newsletter you mention a sell stop. I understand a sell stop for stocks but how do you set up a sell stop a mutual fund? I’m assuming you have a selling point in mind and when your fund (or TTI) drops below that point you manually enter a sell for your fund(s). Is it the TTI or each individual fund? I am with Vanguard and thus am unable to enter a sell stop for funds but am curious about the process. Do you know of any investment firms that allow sell stops for funds? Looking forward to your assistance. (12/01/2006)
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.
Q: Ulli, having followed your Buy signals, I am pretty much fully invested now and need to track my stop loss points on a daily basis as you suggest. Since I am traveling frequently, I am curious to find out if there is a way of automating this task? Thanks for a great newsletter. (11/24/2006)
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<a href=http://www.tradestops.com/>http://www.tradestops.com</a> 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.
Q: Ulli, I can’t seem to find Vanguard’s VPACX fund in any of your lists on the StatSheet. Is there a reason? Thanks for your attention. (11/17/2006)
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.
Q: Ulli, I wanted to buy recommendations from your Fas-Trac Fund/ETF page. I noticed that the listings are from 9/11/06. Have you updated them? I am interested in both, domestic and international ETFs. (11/10/2006)
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.
Q: Ulli, I was wondering if you attach any significance to the Domestic TTI reaching or exceeding its previous high of early 2006. In any way can this be interpreted as a positive sign for future market gains? Or is it simply another point on the plot, and not indicative of anything? Thanks again for making your work available, I find it extremely worthwhile. (11/03/2006)
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.
Q: Ulli, thank you for your weekly information. I really like you data. Can you help me understand why some of the 4wk figures you post are different then sites like Marketwatch for example? Case in point, recently IWO had a return of 5.76% return for the previous 4-wk period on your site and the Marketwatch ETF site posts 4.92% for the same 4wk period. Which one is correct? (10/27/2006)
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.
Q: Ulli, after reviewing your glossary of terms used in the StatSheet, I have a question regarding how to apply %MA (39-week simple moving average). Is it best to buy when the %MA is high with the thought that the investment has the most momentum and may continue in an upward direction faster than other funds/ETF’s with a lower %MA? Or, is it perhaps better to select investments with a somewhat lower %MA with the thought that such investments have more upward potential? It is quite simple to make investment decisions based on your other StatSheet indicators, but a clarification on how to best use %MA would be very much appreciated. (10/20/2006)
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.
Q: Ulli, thank you for adding TR Price to your StatSheet not too long ago. We have some of our funds with them but spend far more time in their money market since their exchange privileges are so limited. Are you able to move in and out with them any more readily due to size of your investments? (10/13/2006)
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.
Q: Ulli, I have a large position in energy mutual funds and stocks. I’ve had them for some time and would like to hold on to them for a while longer. However, with the price of oil dropping in value over the past few weeks, they have taken quite a beating. Do you think oil prices will continue to drop, perhaps below 60.00/barrel, or will oil increase in price by the end of the year, recovering some of their losses? Is it time to buy energy investments? (10/06/2006)
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.
Q: I am 60 and have just completed the 5-year part of a 72T with investments that haven’t performed well. How do you sort through all of the sales pitches, spin tactics and great promises to get an objective view of what one should do? The variable annuity guys bombard you with information showing why they are better than mutual funds the mutual fund guys do the same. And then you have the banks with trust departments telling you that their strategy of using professional advisors with organizations like GlobalBridge Performance Leaders is the right way. I am reasonably intelligent, but the seemingly contradicting information is really confusing. Your comments are appreciated. (09/29/2006)
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: <a href=http://www.successful-investment.com/articles18.htm> http://www.successful-investment.com/articles18.htm</a> Hope this answers it.
Q: Ulli, I have a question. What funds have you entered? Your newsletter said you were cautiously entering 1/3 of your capital and waiting before making further commitments. That is the last I saw of your selections, which wasn’t anything. Would you provide a listing of the funds you consider for investment? (09/22/2006)
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: <a href=http://www.successful-investment.com/fas-trac.php> http://www.successful-investment.com/fas-trac.php</a> Hope that helps.
Q: Ulli, what is your option of the Dodge & Cox International Stock fund (DODFX)? It’s not on your list of International funds, but it appears to be a very good fund. What is a good way to judge if a fund has ran out of gas after several years of a good run? Thanks again for your weekly insights, (09/15/2006)
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.
Q: Dear Ulli, the question from reader Joe in your last newsletter is a very good one, and one that I have been thinking about. In your response to his question on the benefits of the calculated buying and selling method you recommend, you compare the returns of the S&P 500 index over the past 6 years or so to the returns of your portfolios to justify the buying and selling method (compared to buying and holding method). Wouldn’t it be more accurate to compare the net returns of several indexes to your portfolio returns since I presume your portfolios hold international funds, emerging market funds, and perhaps individual foreign country funds, which have done well over the same 6 year period? Thanks for your newsletter which I enjoy reading. (09/08/2006)
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.
Q: Ulli, I’ve been thinking a lot about your 7% RULE i.e., sell after a fund has fallen 7% , then wait for the trend to change before you start going back in to a fund. Looking over the historical data for many of the funds I have owned in the past, I have found that a 7 to 10 % drop usually represents a BUYING opportunity, especially if you are invested in balanced or equity-income type funds. If you sell out after a 7% loss, very often you end up buying at a price higher than what you sold it for. In addition, you incur a sales charge and a tax consequence if you are working with a taxable account. Conversely, when a fund has advanced about 10 % from where it was bought, that usually is a SELLING opportunity for at least a reasonable percentage of your holdings in that fund, say 20% to 25 % of your total holdings. What would be your thinking about a strategy based on this kind of incremental buying and selling according to certain set percentages around your average share price? What would you see as the advantages and drawbacks of such an approach? I know you are trying to avoid a major loss from a bear market, but most broadly diversified funds rarely decline much more than 25 – 30 % in a bear market before they start coming back. I just wonder how an investor in diversified funds might have fared over the course of the 2001 – 2003 bear market following this kind of strategy versus your strategy of selling off all holdings completely and buying back later when a trend change called for it. Have you done any kind of study that would support your approach? Thanks, Ulli. (09/01/2006)
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.
Q: I truly enjoy getting your weekly news letter since I found you. I’ve been recommending it to all my friends. Thank you. I have a general question in dealing with selling mutual funds that are closed to new investor. If I have to liquidate the fund based on your SELL signal, how can I get back into the same fund when the BUY signal comes up? (08/25/2006)
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.
Q: Ulli, I have enjoyed your weekly emails and have developed a fascination with your investment strategy.As someone much wiser than me must have said, investing without a disciplined strategy is like going to Vegas. 2 issues: 1. Since using your model in a volatile market could mean moving in and out of the market from a few to several times a year. How do you factor tax consequences into your exit strategies? Is that a bullet you just bite? Depending on your investments taxes could be significant. Trading within an IRA would mitigate that but sometimes that’s not always possible. 2. I have been investing a long time with some success. (More ups than downs)But at the stage of life (and health) I am approaching I am looking at investing for income.Some of which would be tax free as you address but I may want to look at higher yields and bite that tax bullet in return for higher yields.I notice you don’t mention much about income investing, except tax free is that an area you do not go? 2a. Do you have any strategies for income investing? I read your 10 points for income investors. (08/18/2006)
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.
Q: Ulli, why International equity mutual funds – Sell and A global perspective – Hold? Are not they (about) the same thing? Why do you always focus on Austria? Austria was a very interesting market some years ago, but today I think (maybe I am wrong) that it does not perform differently from other countries. Thank you for your VERY interesting newsletters. (08/11/2006)
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.
Q: Ulli, thanks for your weekly newsletter update. I recall you mentioning in your newsletter that, after the order was filled, we immediately establish two points at which we will sell this order, an upside Sell and a downside Sell. But how? I have tried to place 2 sell orders – one upside and one downside for sell stop, but the system responded your sell orders is greater than the quantity held in your account. Your help would be appreciated. Thanks. (08/04/2006)
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.
Q: Ulli, would you please tell me when the buy date for A GLOBAL PERSPECTIVE started? I understand it is now a hold. I think your site is a must for any investor. Thank you. (07/28/2006)
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. <br> 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.
Q: Ulli, I am a reader of your newsletter for some time now. As many people, I lost some money in this recent market drop, mainly because in entered the market very late and did not define well an EXIT point, or STOP LOSS, as you might want to call it. My question is: how should I choose an index to check against my portfolio, to try to foresee market behavior?Or: should I use your TTI as a general guide? If so, do you make it available on the Internet in some way?Or: should I create my own index, based on my portfolio? I had 11 different positions on my portfolio, focusing different sectors, different countries and regions (South America, Europe, USA and Asia). (07/21/2006)
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.
Q: Ulli….in response to question by Ron (last week’s Q & A) ….I have Vanguard funds also …I have setup a portfolio on Yahoo financial where you can enter purchase price, date of purchase, and limits upper or lower. If the fund crosses the limit it will tag the fund with a * next to the fund symbol if it is hit……you can start by checking highs / lows at Barchart.com and then change limits as they change up…pick your own limits…I set mine at 5% just to give me notice to be AWARE of a downer…have followed your theory of in / out and works fine…your fan… (07/15/2006)
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.
Q: Ulli, I am interested to know where you park your cash when you pull it out of the market. I have begun experimenting with buying T-bills although I am disappointed with the difference between the reported return and what I am actually getting (5.2% versus 4%). Either I need a new on-line broker or possibly money markets are a better idea. I enjoy your weekly email and I appreciate the opportunity to send you this email. Thank you. (07/14/2006)
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.
Q: Ulli, I just wanted to THANK YOU for all the work you perform and the information you provide on your website and for your weekly newsletter. Most people would charge for this information, your information is Free and Timely. You, Sir, are a credit to the Financial Industry which has very few upstanding members. I would also Thank You for answering my questions via email at a timelike this with all the markets correcting. All I can say is keep up the Great Job! PS: Great Call to EXIT the Market on 5-17-06 (07/07/2006)
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!
Q: Ulli, I really like your output. Question: Most of the talk shows give you two speakers with each having a different side of the same question. Both are having some quality remarks. My question is, from your experience, do you feel we are in a bear market beginning or a bounce in the bull that was running? Percentages go with the bears. Gut feeling are worth more attention. I just picked up a Profund bear fund. (06/30/2006)
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.
Q: Ulli, I certainly look forward to your email each week as well as a host of others. Naturally since this is free, folks like me always do not appreciate your effort and may tend to ask for more. Apologizing for that, I am just hard-headed enough to still think I can control my own money. I understand that part of your living comes from managing money and allowing folks, such as me, to view your work is a free service you provide. I was wondering, have you thought about an alert email when your Trend Tracking Index crosses to negative and make that part of a premium service? I got crushed in the international market from the time your trend tracking indicated to get out and when your newsletter/email arrived Friday evening. Well, I must admit your Sell signal was certainly right on this time around, and I am glad for your clients. (06/23/2006)
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.
Q: Ulli, I enjoy your weekly publication, but there is one step further that would make this more useful. Why don’t you publish a model portfolio? Even better – three model portfolios (conservative, moderate, aggressive). In this way your fans can track your suggested portfolio allocations as well as the timing of any changes you make to them. (06/09/2006)
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.
Q: Ulli, I was just wondering about the old adage, Sell in May and go away as it applies to international stock markets. It seems to have some validity as far as US stock markets are concerned, but is there any evidence that this rule of thumb applies to international markets as well? (06/02/2006)
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.
Q: Now that the TTI has generated your sell signal, will this apply to all domestic equity holdings regardless of their individual records? As your own database reflects there are many funds that are outperforming the general market and, in fact, outperforming most realistic expectations. Do you sell on the theory of keeping the gains because of the inevitability of a decline? (05/26/2006)
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.
Q: Ulli, I was wondering why you do not use the Icon International, Icon Asia-pacific, and Icon Europe in your charts? All are doing as well as the other International funds and they are no load. (05/12/2006)
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.
Q: Ulli … If there is a sell signal alert mail sent out, does this go to all readers or only to your managed funds clients?What about the 7% loss rule? How does this work in case of an alert? I personally use the 5% loss rule as a strong alert notification in case the market revives and then 6% rule applies to get out. I think 7% is a little long to wait. Guess I’m too conservative. (05/05/2006)
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.
Q: Ulli, in another few months I will have around $150,000 that I need to invest. I am interested in your services and my goal is to realize an average 2% monthly gain on my money without incurring huge risk. I am 24 years old and would like to grow this money fast yet safely so that I can retire and live off of interest income at a much earlier than normal age. Can you explain to me how feasible this plan is and what kind of risk I would be incurring and how your services would be the best for me and my goals for growth? (04/28/2006)
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.
Q: Ulli, firstly, thanks for your newsletter and writings.I look forward to reading every week.I am treasurer in a local investment club and am learning/growing in investment knowledge. Regarding my personal finances, I am planning on building a home and will likely be in a permanent mortgage situation in 12 months and breaking ground in 3 months.I am looking to have a construction to perm loan process and general contractor my job.I am trying to maximize my down payment and minimize draws to pay the construction expenses out of my pocket versus relying on bank. I have a big portion of my down payment money saved in Oppenheimer Conservative Investor Class C Fund (OCCIX) and I have a modest savings in Ameriprise / Riversource S&P Index (ADIEX).This one is Ameriprise’s only index that has no commission. It is proving fairly easy to deposit and withdraw. I intend to contribute over next several months to this ADIEX and hold OCCIX until construct proves I need to redeem. Do you agree with this strategy to optimize my savings for construction funds over the next several months? Please advise. (04/21/2006)
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.
Q: Ulli, I am at the point of dealing with EWZ. My purchases were made over time according to your method. Today (3/28/06) it spiked below the 13 day line. I’ve always liked the long term chart on this issue. While you do tech analysis, I do look at the fundamentals and the way they reduced debt, see Forbes 3/2/06. So what is your take on this issue?How much lower and I am over 21! Thanks. (04/14/2006)
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.
Q: Ulli, my advisor keeps telling me that large caps are due for their day in the sun. I’m really getting tired of waiting! I see no indications that large cap funds are making any upward moves. TWCIX has been flat for several years! (03/31/2006)
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.
Q: Ulli, based on your experiences, is it better to buy the top performing fund…which may already have extracted improved market positions on the individual stock in the portfolio…or is it better to buy a middle of the pack fund which is clearly doing well, trending upward but may not have yet benefited from good stock choices…. Thanks for the newsletter it certainly provides some very thought stimulating information….. (03/24/2006)
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.
Q: Ulli, I recently attended a seminar hosted by A.G. Edwards. One of the speakers stressed the potential for investment in China as their economy will be the largest in the world within 10 years. With that in mind I researched my mutual holdings with companies in China and decided that in addition to my domestic companies involved in China like Yum Brands that I should add a fund strictly invested in China/Asia. I went to Morningstar’s web and found OBCHX which coincidentally is run by a local dairyman Jim Oberweis, who is running for Illinois governor. The fund is fairly new, but appears to be performing well in its infancy. Could you give me your opinion it, or are there better tools to invest in the Asian growth? (03/17/2006)
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.
Q: I am approaching 60 and plan to keep investing in my Pioneer A Fund for the next 6 years. I have always been of the buy and hold mentality. I am now questioning this policy. I would be open to any constructive comments. I would like to be more flexible and proactive in mutual fund investing. (03/10/2006)
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.
Q: In answer to Keith (last week’s question) you write 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 Fidelity is a discount broker with access to ETF’s. I have a half dozen ETF’s in my portfolio including a couple of closed end bond funds and trade at $10.95(limit or market) for up to a 1000 shares. They also provide access to a boat load of no-load mutual funds downside is you have to hold them for six months otherwise you incur a redemption fee ($50). I also have a small account at Scottrade($7/per trade) the account is small because when you exit the market the money returns something like 1% (no money market option). I can’t tolerate that except for brief periods. I know you use Schwab I used to have a small account at Schwab and fees were excessive ($30/trade) including excessive fees to exit mutual fund positions held less than six months. Apparently you do not have the redemption fee problem at Schwab. Regards. (03/03/2006)
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.
Q: I am a young professional on Long Island who wants to invest for the future. I’ve been researching Roth IRA’s through Fidelity and wondering if it’s a safe move. What advice can you offer so that I can start investing money wisely? (02/24/2006)
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!
Q: I have a Roth IRA with a group that has not done very well over the past 5 years. The funds are in a class b, and I, being 57, need a larger return than I am getting. Should I consider paying and rolling these funds over to a no load fund with another company, or should I investigate other funds within the same company? (02/17/2006)
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.
Q: Ulli, I’ve just read your recent Reader Q & A’s and am impressed by your thoughtful and consistent answers. I have three questions: 1. Is there some place on the Internet where I can check whether an ETF or closed-end fund is trading at a premium or discount? 2. To what extent does trading at a premium deter you from buying a fund that has a high %M/A rating? 3. Why is it reasonable to sell ALL international funds when the IFC indicates a sell signal?Is there no truth in the saying that there is always a bull market somewhere? (02/10/2006)
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.
Q: Ulli, I have been invested using your program for several months now and I wish to increase my investment exposure. My question is how to obtain the long term Trend Line for each individual mutual fund or ETF as I feel that Trend Line is unique for each mutual fund or ETF. I can develop the Trend Tracking Index from many different sources, but without the long term Trend Line there is no way to determine buy or sell points.As an example, I will be selling my holdings in EWJ tomorrow, having learned of your sell activity this past week in that holding which I learned about in your recent letter. I was unable to determine my need to sell based on my information available this past week.I thank you for your guidance. I have done well using your program. I need more accurate and timely buy-sell guidance for higher monetary exposure. (02/03/2006)
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.
Q: Ulli … How do you calculate the cost basis if you purchase a fund on 8/02/05 for $16.93 and another increment on 12/14/05 for $18.97? After you have a cost basis for the fund then do you use this new cost to determine a 7% loss exit price or the cost separately for each purchase…..I know you use the 7% from highest price reached but the second buy may not reach more than a 3% gain. I hope this question this makes sense… thanks for your newsletter. It’s great! (01/27/2006)
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?
Q: Ulli, I have a question for you. During the time that a buy signal is valid, what is the strategy for choosing which fund to buy? For example, if mutual fund A is the strongest fund to buy today and then mutual fund B becomes the strongest fund the following week, should I change my original investment vehicle periodically if it falls out of favor (i.e. moves down the list of 25) and always buy the best performer? Or stick to the best performer at the time of the buy signal?If we should be chasing performance then how frequently should we churn our portfolios and sell the weaker funds and buy the stronger funds? By the way, you have a great web-site loaded with good information in a compact form and I really enjoy using it. Thanks. (01/20/2006)
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.
Q: Ulli, I made my first incremental purchase of five funds one month ago and they are doing well. In fact, one of them jumped from a gain of 4% to 6.5% in Tuesday’s trade so I placed my order for the second increment today. My question is: according to your tracking system, do I buy the third increment of this fund when my first purchase reaches 10% gain or when it reaches 11.5% which would be 5% above today’s second increment purchase? Or, on the other hand, do you treat them as independent purchases and wait for the second purchase to reach the 5% mark before purchasing the third? (01/13/2006)
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.
Q: Ulli, I have two questions: 1. Where do I find information on your site about the 1/3 incremental buying you refer to? 2. If you enter a trade at $100 per share and it doesn’t go up but drops 7% is that where you exit, in other words, the purchase price is the high? Thank you. (01/06/2006)
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.
Q: Ulli, I’m considering moving out of FLATX into FJPNX. Both look decent. I’ve been in FLATX for over a year now and have done well. I’m thinking it may lose some steam, while FJPNX has all the flavor of the FLATX when I purchased it, it’s picking up steam. I’m thinking if I leave FLATX to either do so incrementally or just switch out all at once. If some time today you hear a giant sucking sound, that will be me saying adios to FLATX and aloha to my new best friend. (12/30/2005)
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.
Q: Ulli, been reading some doom and gloom prophets for a recession next year makes me ponder what would one do to maintain purchasing power/cash value, should the US markets and US dollar start to crash. How and where would you protect the existing value/purchasing power? Thanks in advance for your viewpoint. (12/23/2005)
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.
Q: Ulli, I have tried your investment system in my Fantasy portfolio for several weeks now and have found it really works. I am now invested in five funds for real. My question is: If one of your chosen funds does poorly while all the others shoot ahead, at what point do you sell the lagging fund and replace it with (hopefully) a better choice? Do you have a predetermined plan for this occasion? Thanks for your tracking system and your willingness to share it with others. (12/16/2005)
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.
Q: Ulli, how are your advice and services better than any of the others hundreds ofsuccessful-investment pundits proclaiming professional prowess in funds, stocks, money markets, etc.? I would like to have someone manage my money, but after a bad experience with Edward Jones, I am afraid to trust anyone. How can you safely help? (12/09/2005)
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.
Q: Please give me your opinion about USISX. It has given below average returns for quite a while. Hold or sell? Thanks. (12/02/2005)
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.
Q: Ulli, which discount broker offers the shortest redemption time to jump in and out of mutual funds? (11/25/2005)
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.
Q: When selecting funds, which is the best one? Are all of the top funds listed in order of performance? (11/18/2005)
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.
Q: I am 18 years old and I am in college. I’m new to the whole mutual funds investing. Everyone has always told me to start young but they never told me where to start. So I was hoping to get a little advice. How do I narrow mutual funds down to choose the best one for me? Thanks. (11/11/2005)
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.
Q: Ulli, I’ve been following your method for quite some time, and I like your unemotional approach to making investment decisions. I would be interested in receiving more fund selections, since sometimes the top 25, for various reasons, are not enough. I wonder if you would ever consider making your entire data base available, maybe in spreadsheet format, on a subscription basis? I for one would be interested and would be willing to pay a modest monthly fee for that. I appreciate your comment. (11/04/2005)
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.
Q: Ulli, I just stumbled onto your site today and, while I was glad to find it, I was also a little surprised to see Schwab was your custodian. He’s mine also. I was curious why none of the Schwab funds, such as SWSIX (small cap), SWOIX (international), or SWHFX (health care), which have shown returns of 17.27%, 14.93% and 14.17% respectively were listed on any of your recommended lists. I know Morningstar has failed to include Schwab in their funds reviewed and I was curious why you also didn’t. (10/21/2005)
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.
Q: Ulli, I did have a sell stop on the Morgan Stanley India Fund, which has done great for me. I sold it recently at $40, and now it is headed up again. Should I climb right back in, or give it a month to see where it is headed? As always, thanks for your great data. (10/14/2005)
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.
Q: Ulli, I’m satisfied with my mutual fund selection process and I also use the same exit strategies (7% and 10%) as you. Question: What is a good indicator of when to start re-entering the market? When the 20 day MA crosses the 50 day MA or what? I generally re-invest about 25 to 30% at a time and continue until I’m 100% back in the market but I feel like I’m not as good getting back in as I could be. (10/07/2005)
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.
Q: Ulli, my husband had a retirement plan at an old job. He has his funds in T. Rowe Price GNMA (PRGMX) 57.9% and T. Rowe Price Spectrum Growth (PRSGX) 42.1%. He is just about to start a new plan at his new job on 9/1. GNMA is paying dividends and T. Rowe Price is re-investing these dividends. I keep telling him to take these funds out of T. Rowe Price and put them into the new plan. He just wants to let them sit where they are. Should he let them sit or should he move them? (09/30/2005)
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.
Q: Good morning, Ulli. It looks like we have a great opportunity to test your wisdom. Are you recommending that we go sideline for a while in the aftermath of Katrina? Any suggestions? (09/23/2005)
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.
Q: Ulli, I have read of funds that do not hedge their foreign stocks and in some cases buy ADRs.I am interested in diversifying into some foreign currency, but want to stay in the funds arena. Any suggestions? Thanks from an avid reader. (09/16/2005)
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!
Q: Ulli, thanks again for your unbiased and generous help. I have a 401k with the government. My funds in the TSP are divided as follows: 15% Treasuries, 15% in Bonds, 30% in S&P 500, and 30% in Small Cap (which I understand is closer to MidCap), and 10% in International. Roughly 90% of my retirement is here I am 57 and will retire by 2012 – 2015. I’m not too concerned about risk as I have time left. Am thinking about moving some money out of bonds, say drop to 10% each and add to International, which would give me: 10% each in Treasuries & Bonds, 30% each in S&P 500 & Small Cap, and then 20% International. What do you think? (09/09/2005)
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.
Q: Ulli, I have income funds heavily invested in Merck plus Pfizer, and it looks like a shaky future for these holdings?? What is your opinion of getting rid of these funds NOW!! (09/02/2005)
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.
Q: Hi Ulli, I have been investing in mutual funds for quite some time now. Most of my investments are in a managed loaded (5%) 60/40 fund and they are under performing. I’m 47years old and these are funds for my retirement. Should I switch to index funds and just forget it till maybe 12 years time or just leave it as it is? When investing in index funds, do we need to monitor and switch funds according to the market movement? I am also thinking of switching to a bond fund that is performing better that the managed fund. (08/28/2005)
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.
Q: I have quite a bit of money invested in the following Mutual Funds: AIGYX and TAREX. Would you move completely out of real estate funds atthis time? The market really hit these funds hard a couple of weeks ago. (08/26/2005)
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.
Q: Ulli – I noticed that VPU (Vanguard Viper utilities index) has enjoyed an upward trend steadily for 14 months. I’m wondering whether there is any indication of near term weakness. Buy more, hold, and sell some or all? I would appreciate your comment. (08/12/2005)
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%.
Q: Ulli, I like your approach of investing in no-load mutual funds. I have a question regarding my 403b in Fidelity and Vanguard funds. How do I get the 4 wk, 8wk, 12wk tables that you have for the funds you choose? Thank you. (08/05/2005)
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.
Q: Ulli, I have a question for you. Do the 52-week High/Low figures have as much significance to them for Mutual Funds as for stocks and indexes? Do you know of any published report on this topic? I would appreciate your opinion. (07/22/2005)
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.
Q: Ulli, I’m not sure what the stops are to implement I’ve just found your website. Ticker Symbols: BIGRX, TWCGX, TWCUX, WAMCX, JGVAX, JMCVX. (07/15/2005)
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.
Q: Ulli, you have laid out some clear guidelines about selling an investment, which is not performing well. How about the opposite case, when and how do you determine to take profits? This is a good situation, but I have watched profits disappear while hoping for more gains. Thanks. (07/08/2005)
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.
Q: Hi! I put $5,000 into the Black Oak Fund. $4,000 at the IPO price and $1,000 when its value fell to $5.00 a share, plus more at a lower price. Right now it is $2.20 a share. Should I sell, or wait couple years? (07/01/2005)
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.
Q: Hi Ulli, thanks for the emails and updates, and I hope you’re doing great. I was wondering, practically, how do you set-up those stop loss sales – is there an automated program available for that which I can access, or is it something you have track for instance manually in an Excel sheet and simply update the stop prices every day? It sounds like you have an automated program that can adjust the stop price intra-day? My account at Brown Co will only allow me to enter a stop loss price at a fixed $ amount rather than a % of high price, so it’s something I’d have to manually adjust each day, and was just curious if you knew a better way… (06/24/2005)
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.
Q: Ulli, we all look for the illusive crystal ball. We all can see where the market momentum has been. Funds focused on emerging markets, REIT’s, gold, metals, oil and natural resources have been strong most recently. Do you see transitions into other sectors in the near future ’05/06? (06/17/2005)
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.
Q: Ulli, I am curious about how you arrived at your strategy of selling funds when they fall 7% below the previous high. Is this based on any empirical evidence? It seems to me that, by and large, most stock funds fluctuate frequently in a relatively narrow band from high to low in a 10 – 15% range. Those 7% sell signals can easily turn into frequent whipsaws that can be quite costly. I recognize that, during extended bull or bear market moves, your strategy will do quite well. But is there any data to show that that the extended market gains will outweigh those annoying whipsaws? Also, do you vary the % for more conservative funds such as equity-income or bond funds? Thanks. (06/10/2005)
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.
Q: I’m a new subscriber to your newsletter and have a question about an investment error I recently made. I bought BPTRX when it was quite high (3/7/05) and now don’t know what to do. According to what I now know (thank you!) I should have sold it when it fell 7% alas, I didn’t. I’m still below this margin, but it’s going up again, so I’m confused about what I should do at this point. (06/03/2005)
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.
Q: Ulli, among others, I recently purchased Fidelity Medical (FSHCX), Fidelity Natural Gas (FSNGX) and TR Price New Era (PRNEX). They did well at the beginning of the year but faltered recently. Will they be good long term investments? (05/27/2005)
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.
Q: Ulli, love your work.In your 5/6/05 Looking for a Bottom, you said you were putting 10% into the Healthcare sector for your over 50K portfolios. Then you said if it went down 10% you would get out. I was under the impression you used a 7% below high as an exit point. What’s up? Thanks. (05/20/2005)
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.
Q: Hi Ulli, thanks for the update. It has been a tough year in the market. I have found a fund, GATEX, that uses calls and puts to produce cash and protect from the downside. It serves as an alternative to cash in my 401K. I thought I would get your thoughts on such a fund. I am also in a Real Estate fund that is not market sensitive. I recently pulled out of the US and Foreign Equities after tiring of the beatings. I await a stronger Buy signal to re-enter. Thanks for your great newsletter and insight! (05/13/2005)
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.
Q: Ulli, You recently have been mentioning closed-end muni bond funds selling at discounts as a good source for income investments. However, with the current economic environment of historically low interest rates, a fed policy toward tightening, and the brewing of inflation (see Volcker article you referenced), doesn’t holding bonds of any kind at this time represent a huge risk to principal that is unlikely to be offset by the income? Thanks for your great newsletter. (05/06/2005)
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.
Q: Ulli, I understand your selling stop of 7% off the high that a fund reached, but have a question. If my fund drops more than 7% from it’s high and I sell and your general indicators do not give a sell signal, but actually improve to the upside and my fund goes back up at what point would I buy my fund back? (04/29/2005)
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.
Q: Ulli, where can I get definitions of terms? I do not understand how the 12wk (as of 3/31/05) return can be different than the YTD (as of 3/31/05) return. What date does the year begin? (04/22/2005)
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.
Q: Ulli, my broker at my bank tells me that there is no such thing as a no load fund, as fees are included in all funds. The mutual funds I invested in with him have back load fees. Can you comment please? (04/15/2005)
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.
Q: Your newsletter is both interesting and informative to the average Mutual Fund Investor. As gas and oil prices continue to climb, there is concern that inflation may rise. During an increasing inflationary time, what type of Mutual Funds would weather this type of period? Thanks. (04/08/2005)
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.
Q: Ulli, I would like to let you know how much I have appreciated receiving your short, concise, and informative newsletter, without the constant and usual pressure to participate in an investment program. However, I do have a question for you. My Financial Advisor recently recommended that I revise my Portfolio to increase my holdings in Tech and Health Care. Could you suggest some solid and good performing mutual funds heavily weighted in Tech and Health Care that I might look at for consideration. My wife is preparing to retire this month and I plan to retire at the end of the year. Thank you again for your Newsletter and the great information provided every week. (04/01/2005)
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.
Q: Ulli, why don’t you provide a real-time portfolio of what you consider THE VERY BEST funds, ETFs, etc.? A lot of people can not pick out the very best with the hopes of making some money. You might have a portfolio of $10,000, $25,000, $50,000. Also provide when you sell a fund, and when to purchase another. Then people would have some guidance. Thanks for listening. (03/25/2005)
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.
Q: I keep hearing a lot about the potential for large cap growth. It’s time as arrived.Small caps have had their ride up, mid caps have risen up with the tide, but large caps have lagged somewhat. I see the potential, their time upon us. What are your thoughts? (03/18/2005)
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).
Q:With all the concern about energy, why is the market not addressing alternative energy more aggressively? PowerShares is coming out with an ETF hopefully in March – iShares has nothing. Is anyone else bullish on this besides me???? (03/11/2005)
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.
Q: Ulli, a question regarding your 7% stops. Do you set them at 7% from their recent highs or 7% below the acquired price? With a mutual fund can you actually put in a stop or do you use a mental stop? Many thanks. (03/04/2005)
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.
Q: Ulli, I have just recently found your site and am so thankful for the information. I currently have a substantial cash reserve to invest. I noticed in your most recent newsletter that your current allocation is 55% Equity Funds, 33% Int’l funds, and the remainder in country ETFs. In order to get started at this point in the buy cycle, would you recommend that I use the same allocation and start with an initial investment of 1/3 of each allocation amount into each of the 3 areas? Thank you very much for your assistance. (02/25/2005)
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.
Q: Ulli, at your buy signal (Oct. 5, 2004) I purchased IJR and kept buying per your instructions as it went up. I moved my stop loss up as the price increased. In January the price dipped and took me out at $152.75 and went back up that day and is still rising. Should I invest again at your next buy sign in this market? (02/18/2005)
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).
Q: Ulli, I enjoy your weekly updates and especially the StatSheet. I have been through the growth years with my investments and would like to invest a part of my portfolio ($500k) in such a way that it generates reliable monthly income. This may not fit in with your approach, but I would appreciate a suggestion. (02/11/2005)
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.
Q: I have been invested in small cap stock and value funds for years more than large cap in my IRA and 403b accounts. Would you suggest a change in that philosophy for this year, 2005, given the start of the stock market? (02/04/2005)
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.
Q: Ulli, I own the Janus Fund in a IRA, and have 3 funds in a taxable account. They are: Ameristock fund (4/2001 buy), White Oak Growth fund (2/2001 buy, biggest loser), Royce Low Priced Stock fund (4/2001 buy). I am not in need of any tax losses (unfortunately). When do I sell these? Thank you. (01/28/2005)
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.
Q: Ulli, I am in an aggressive energy fund. With the market slide in January, I’ve been taking a hit. Where is energy going in the near future?Should I get out? (01/21/2005)
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.
Q: Hi Ulli when funds distribute a dividend, the NAV (Net Asset Value) will drop. Janus Mid Cap Value recently made a distribution which dropped the NAV to the sell point.I did not sell, because I verified that the drop was, in fact, a dividend distribution.How do you deal with these events? Do you have a formula? Or, do you simply allow for a greater NAV drop prior to selling because of the dividend? Your advice will be appreciated. (01/14/2005)
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.
Q: I noticed that you do not have any sector funds (example: Deutsche Asset management, real estate or funds for natural resources). Are they too volatile and risky to address? (01/07/2005)
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.
Q: Ulli, I recently scanned The Next Great Bubble Boom by Harry Dent …. and wondered if you see these next few years as he does…? (12/31/2004)
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.
Q: Hi Ulli. I enjoy your newsletter, and I am curious as to how you view Wall Street’s constant performance comparisons to the S&P 500 index. Also, could you share your definition of successful Trend Tracking? (12/24/2004)
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.
Q: Ulli, in reading your last newsletter with the question from Linda, I realized I am woefully ignorant of some of the terms you guys use. (Of course, that’s why I am so relieved to have you managing some of my investment dollars so I don’t have to get in any deeper than I want or spend hours learning what sometimes seems like a whole new language.) Anyway, now I’m curious. Would you explain the terms DMA and %MA and how you use them? (12/17/2004)
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.
Q: Ulli, I like your new list of foreign ETFs very much and hope you will continue to track and report them each week. By the way, I noticed that you follow the %MA (% above Moving Average) for each of your funds in your StatSheet. I was wondering what you have learned over the years about this piece of data and why you are tracking it. Are there any general rules for when to sell a fund once it arrives at a certain % above its 50 dma (Daily Moving Average)or when to buy it when it has reached a certain % below the 50 dma ? Are there any good sources of information on this point that you can recommend reading or researching ? (12/10/2004)
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.
Q: Ulli, let’s say you are in two or three funds and one drops below 7% so you sell it. But the market is still above your trend line, so you are still buying. Do you pick another fund and incrementally move that money into the new choice? (12/03/2004)
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.
Q: Ulli, I will take advantage of your kindness and generosity and ask you a question. Won’t the present horrific federal budget deficit eventually ruin the economic system by raising interest rates and stifling growth? And, shouldn’t investors be ready to bail out as soon as the administration shows reluctance to do anything about the problem? Thanks for the valuable information you send me weekly and best regards. (11/26/2004)
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.
Q: Ulli, I am following your weekly hotline messages with great interest. Congratulations on what appears to be a timely call on the current trend on the stock market. I noted on one of your recent responses to a question from a reader that you apparently don’t support the idea of investing in bond funds, but rather like the idea of staying in stock funds and just sell off stocks when it is necessary for income purposes or when the market declines. Did I read that correctly ? Or do you recommend something else for your retired clients ? Also, I noticed that you don’t track bond funds as you do stock funds. Apparently, you don’t think that timing bond funds is worth the effort. I appreciate your help. (11/19/2004)
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.
Q: Ulli, I was looking through your Top 50 Funds from yesterday. I found some discrepancies between your 4-week and 12-week figures and those published by Morningstar for the same period. They are all trailing total returns, but there is a big difference between your figures and those of Morningstar. For example, NMTAX shows a 4.25% 4-week return, but Morningstar shows 3.49%. Your 12-week return is 13.82%, but Morningstar lists 10.89%. Can you clarify this? (11/12/2004)
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.
Q: What are your recommendations now since I’m just starting retirement? What allocation percentages in following: Equities (Mutual funds or individual stocks, and fixed Income consiting of bonds (funds or actual bonds and short, med, or long term), and other alternatives — treasuries, convertible bonds, money market, coprporate bonds, junk bonds, etc. Some brokers say 50% equities and 50% fixed income, or 60/40, or 70/30? (11/05/2004)
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.
Q: I have been working for a company for 1 year, so I want to start a 401k plan with them. The problem I am facing is they are asking me to select each fund I want to invest in and designate a percentage about for each investment choice. I thought I would just be able to say what percent I wanted to invest in Guaranteed, Low Risk, High Risk accounts, etc. I’m clueless on trying to designate which individual funds to select. I was wondering if this is something you can help me on? (10/29/2004)
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.
Q: I like the idea of buying and selling mutual funds.I bought a T. Rowe Price fund and sold it after 3 months and they have banned me from all T. Rowe Price funds because I am a day trader. I bought and sold 1 fund and that makes me a day trader!!!What do you think? (10/22/2004)
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.
Q: Ulli, I bought into a domestic fund in September 2003 and have gained over 25% now, but I didn’t realize at that time there was a redemption fee of 2%. My question is, do you think it is time to sell or do you think it still has some growth left in it? I have over 19,000 profit at this time. (10/15/2004)
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.
Q: My family and I have our own business which is slowly taking off. The business at this time is paying for itself with only limited funds left over for us to invest. I am not a sophisticated investor and trying to get a handle on how to proceed. Do you have an opinion? (10/08/2004)
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.
Q: Ulli, I believe it would be helpful to give information regarding the short term redemption fees charged by all the funds you cover, right after the symbol, for those mavericks who like to select our own funds i.e. OAKBX 1%/90d, and whether the fund is open to new investors or for additional purchases. Is that too complex? (10/01/2004)
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.
Q: I noticed that some of your listings of mutual funds in your StatSheet include names of some of the worst offenders of the mutual fund scandal, such as Janus. I am unsure as to whether I want to use these types of fund famlies in the future. What is your position? (09/24/2004)
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.
Q: Ulli, I have an account with Ameritrade and I would like to buy and sell myself. Can you suggest funds/ETFs that I can buy and forget for long period of time rather than have to buy and sell? (09/17/2004)
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.
Q: You refer to the Trend Tracking Index in your newsletter. Is this an index that I can view online? (09/10/2004)
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.
Q: Ulli, the Charles Schwab & Co website states there is a redemption fee for any fund held for less than 180 days from their Mutual Fund OneSource service (no-load, no transaction fee funds). Does this apply to your managed accounts as well? (09/03/2004)
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.
Q: Ulli, I noticed that out of all the potential funds on your Buy list last week, only 5 would be available and free through Fidelity. Half of the rest would cost a flat $75 a piece to buy and sell. Any thoughts? (08/27/2004)
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.
Q: Ulli, you indicated that you currently are 100% in Money Market Funds. Are there really no better alternatives, e.g. Municipal Bonds or other alternatives? (08/20/2004)
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.
Q: This maybe a silly question, but when following your recommendations, would you say that your Buy signals are as important as your Sell signals, or do you see one as more crucial than the other? I appreciate your comment and thank you for your great free weekly newsletter. (08/13/2004)
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.
Q: I am an Australian citizen, with passport, of course, issued by Australia. I am currently living/working in Dubai, United Arab Emirates – with a residency and work permit for this country. You have confirmed what I believe, that it is NOT possible for non-US citizens to buy mutual funds but they can purchase ETFs – this is what you are saying? I fail to understand why a person can’t buy into the fund, but can buy the ETF of that fund. (08/06/2004)
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.
Q: In reviewing your chart for TOP 25 FUNDS last week you list only 21 that qualify as of now. From this list the following are loaded with min of 5% or higher: DIAMX DHLAX DHSCX FRBSX VEIAX FMAAX KDSAX GCMAX Fund FLMVX is institutional with min of 3 million bucks. Fund FRBSX and PRSVX are closed. You may have access because of your status, but regular investors may preclude above funds. Maybe a remark about which funds are loaded, closed and large minimum investments should be considered next to each fund. (07/30/2004)
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: <a href=http://www.successful-investment.com/StatSheet/SS071504.htm>http://www.successful-investment.com/StatSheet/SS071504.htm</a> 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
Q: Ulli: Over the past 4 years I have mis-managed approximately $25,000 of IRA funds down to $5,800, that is sitting in cash at Scottrade. I have tried stocks, mutual funds, and ETF’s all with the same end…I get frustrated with their performance and I sell out and buy something else! Usually for less than I paid! I need a disciplined approach to investing.I am 57 years old (I am running out of time!). I have approximately $25,000 in my 401(K) at work, split between an equity fund, small cap fund and a total stock market fund, also a little in the international fund. I appreciate any suggestions you may have. (07/16/2004)
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.
Q: Hi Ulli. I started following your StatSheet recommendations with my IRA the end of January this year. Good thing I only invested 1/3 as per your suggestion (thanks), because the market topped shortly thereafter and declined. I sold out in May as well and my portfolio is down some 4%, in line with the S&P 500, which is acceptable. I’m the type of person who logs on to his account every day to see how my funds are performing, and I’m comparing my results with those of the Dow, S&P 500 and Nasdaq on a quarterly basis. I’m wondering if I’m too concerned with the short term and should look more at the big picture? (07/09/2004)
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.
Q: Ulli, it looks like we may be close to a Buy signal again. Will you mention the funds you are using for your managed accounts, or should I just pick them from the lists in the StatSheet? (07/02/2004)
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.
Q: Ulli, How do you get around trading out of mutual funds in Schwab accounts without paying for short term trading fee? Example, buy a new fund and things change within 60 days. I know this is not a short term trading plan, but I have found myself caught up in not getting out of a fund because of a 90 day trading penalty when the fund is reversing to a down trend. Please need some help, always losing money!!! (06/26/2004)
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.
Q: Hi Ulli, I am sorry for taking any of your precious time, but I have a question and it is a little complicated. I inherited a small amount of money when my father passed away in 1996, and put that money into three mutual funds and bought some individual stocks throughout these past years. I am 42 years young and don’t know anything about investing so I went to see a CFP last week who told me to liquidate ALL the assets in my account and he would set me up in a variable annuity (not really sure what this is). Now I have been reading on the Smart Money web site about variable annuities and this doesn’t sound like very good advice. We are only talking about $20,000, but I may need this money for emergencies in the near future as my husband is going to be entering the training tower for the Fire Department in September and will be taking a temporary cut in pay and also paying for an apartment while in training (an extra expense we have not been paying). I have approx. $7,000 in emergency funds, but now I’m not sure what to do with the $20,000 in the meantime. Any advice will greatly be appreciated. (06/18/2004)
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.
Q: Hi Ulli, greetings again. Regarding your 7% sell rule: If you buy at $10 and the price is now $40, is the 7% rule based on which price? I use a trailing stop loss (mental with funds) for selling funds. Thank you! (06/11/2004)
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.
Q: Ulli, I have never been real keen on funds that invest outside of the USA. The losses that I have had can be attributed to investing offshore (anywhere but USA). My feeling, right or wrong, is that many (most?) US companies are multi-national anyway and reflect the world-wide market in their industry. If I am invested in the total US market, I am pretty much covered. Or am I? I have about 3% of my total holdings in what may be considered International, Euro, and Pacific Index funds but I’m in those funds because I have read and listened to others who have tried to convince me that I must be invested internationally. I still do not feel that this exposure is necessary and am looking for a reason to expand my international exposure. Looking for a reason that I feel comfortable with. Any ideas, or am I a lost cause for this international exposure? (06/04/2004)
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.
Q: Ulli, I am new to your update and after reviewing the last four I feel like I finally found something that will help me preserve capital and undo some of the damage from brokers that I have used in the past. Question: Do you include the status of the International Bond Funds every week? In looking at the Bear Market Funds it looks like great 4 week, 8 week and 12 week numbers. What am I missing? I know this is a new feature but the indicator is confusing me. (05/28/2004)
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.
Q: Ulli, I enjoy reading your newsletter every week and agree with you on many issues especially the demise of buy and hold. I was curious if there is a way to use mutual funds to take advantage of the declining dollar, the increased demand for commodities worldwide and non-U.S. currencies in countries like Australia and South Africa. (05/21/2004)
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.
Q: Will interest rates keep going up for a long time and would it be safe to invest most of my money in RYJUX? (05/14/2004)
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.
Q: Ulli, You list many of the funds that were mixed up in the mutual fund scandal! I refuse to buy them. (04/30/2004)
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.
Q: Thank you for all of the great information I’ve been reading on your site. I was hoping to find a larger selection of large cap funds in your recommended list of funds. Are you planning on enlarging that list anytime soon? Again, thanks for rendering a great service with your newsletter. (04/23/2004)
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.
Q: Ulli, I enjoy reading your newsletter every week and agree with you on many issues especially the demise of buy and hold. I was curious if there is a way to use mutual funds to take advantage of the declining dollar, the increased demand for commodities worldwide and non-U.S. currencies in countries like Australia and South Africa. (04/16/2004)
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.
Q: Ulli, I’ve been following your weekly stats now for about 6 weeks. I’m watching the trends and noting your recommendations as they develop. I’m still confused on some of the tracking fundamentals. You say that you will sell if a fund drops 7% Below the draw down (DD) on the chart. This weeks (Mar 25, 2004) stat shows NAMCX at -10.23% down. Why hasn’t it been sold? Secondly, last week (Mar 19, 2004) in your Q&A section, a question from Lester (written Mar 12, 2004) was Which one fund in the top 25 would you recommend? You said SMCDX and you gave your reasons why. Well, here it is only one week later and this fund is not even on the chart. If Lester bought it, how does he track it now? (04/09/2004)
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.
Q: This is a follow up to last week’s question. Ulli, I have been following your approach successfully using ETF’s (Exchange Traded Funds) and I prefer them over no-load funds. What possibilities, if any, do I have to short the market should the need arise? (04/02/2004)
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.
Q: Ulli, this maybe a premature question, but when the trend turns around (eventually) and you receive a Sell signal to move out of mutual funds you move your money back to the safety of the money market account, right? Is there any way, during a down trend, to use bear market funds? (03/26/2004)
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.
Q: With the sell off this week a lot of red numbers have appeared on your 4wk and 8wk momentum numbers in your top 25. I am a new subscriber and still overwhelmed by all of your information. May I ask, if you had to pick only one fund for a small portfolio, which one would it be in this environment? (03/19/2004)
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).
Q: Ulli, I am a new subscriber and, unfortunately, I just found out about your approach to sensible investing. I used to be a Buy and Holder, on broker recommendation, and lost big during the market meltdown of the past few years. I have stayed on the sidelines for the past year not knowing if I could trust this rally. I am left with $250k in money market and I was curious as to what my return would have been during your current Buy cycle? (03/12/2004)
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.
Q: Ulli, as a new subscriber I have been following your recommendation and bought into a few mutual funds 4 weeks ago. Wouldn’t you know it, the market hasn’t moved much but I think I now understand much better your reasoning for using the incremental buying procedure. It avoids buying in with 100% of your money at potential market tops, right? (03/05/2004)
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.
Q: Ulli, I’m retired and always believed that investing in bonds or bond funds is the way to invest during retirement. With the economy recovering and higher interest rates ahead, I’m concerned about losing principal. What is your take on this? (02/27/2004)
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.
Q: Ulli, my daughter is getting married next year and my wife and I will pay for the wedding. We have the money available now and are wondering if we should invest it with you in the meantime? (02/20/2004)
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.
Q: Ulli, I’ve been following your recommendations since the beginning of your Buy cycle and I’m sitting on large unrealized gains. Thanks. Should I also be following your strict recommendation for selling any fund which drops 7% off its high? (02/13/2004)
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.
Q: Ulli, I’m considering becoming a new managed account client. I understand that you will move the money into and out of the various mutual funds as per your method. Does your company also have direct access to my money? (01/30/2004)
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.
Q: Ulli, I am having trouble printing out your weekly performance report and I am wondering if that is by design or whether there is a problem with my computer which I need to get fixed. I look forward to hearing from you. (01/23/2004)
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.
Q: Ulli, I just found out that there is a new symbol for your recommended Eclipse Small Cap Fund. What happened? (01/16/2004)
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.
Q: Ulli, I travel quite a bit and don’t always have the opportunity to receive your current StatSheet. Do I need the latest version, or can I use one that is 2 weeks old to make my mutual fund choices? (01/09/2004)
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.
Q: Ulli, I’m looking to invest and follow your methodology. Since you’ve been in the market since 4/29/03 (Congratulations) and there has been a strong upside move, which momentum indicator should I rely most on at this time, when making mutual fund choices? (12/26/2003)
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.
Q: Ulli, with the current mutual fund scandal it appears that small investors are getting the short end of the stick again by having to pay more and higher short-term redemption fees. How do you handle that? (12/19/2003)
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.
Q: I understand that Charles Schwab & Co, is the custodian for your managed account clients. Can you tell me what their short-term redemption fees for mutual funds are? (12/12/2003)
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.
Q: Can your approach also be used and an account set up for managing the assets of a Foundation? (12/05/2003)
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.
Q: I’ve been following your recommendations for a while and I thank you for your quality service. Can I use your methodology also in conjunction with my variable annuity investments? (11/28/2003)
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.
Q: I understand the selling of any fund which declines 7% or more to manage risk. When does your trend tracker go into effect by signaling a sell when it breaks below its trend line? (11/21/2003)
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.
Q: I live offshore in Thailand my place of birth is the UK. Can I still use your service? (11/14/2003)
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.
Q: I am intrigued by your approach and I want to know how you help people establish a mix of funds appropriate to their stage in life. I am 55 and 3- 4 years away from retirement. What do you advise for someone is willing to take only a moderate risk? Right now I am into ETF’s but also have a number of no-load mutual funds. Suggestions? (11/07/2003)
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.
Q: Thanks for preparing this great newsletter. Since I am living and investing in Europe, I would be interested to know if you are also preparing Mutual Fund Indicators for the European equity and bond markets or for other markets, such as Asia or emerging markets. (10/31/2003)
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.
Q: Ulli, I’m planning on rolling over my 401k into an IRA. Should I use a ‘rollover’ or ‘contributory’ IRA? (10/24/2003)
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.
Q: Ulli, I read (somewhere – it’s been a while ago and I don’t remember where I read this now) that Elf’s (Exchange Traded Funds) were doing much worse than mutual funds or stocks, comparatively, so I have avoided them. I don’t remember the details of this article now, but it sounded like ETFs were good things to stay away from. (10/17/2003)
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.
Q: Ulli, I received a shareholder letter from Janus Funds regarding the recent allegations by U.S. Attorney General Spitzer in which Janus totally distorted the facts surrounding the allegations. Have you followed this and would you still recommend Janus Funds? (10/03/2003)
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.
Q: Ulli, I would like to ask a more personal question, if that is okay? With your fund recommendations having performed very well (I was fortunate to be in from the beginning) what do you, as an investment advisor, invest in? (09/26/2003)
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.
Q: Ulli, I have been following your method for a while and wanted to place an order to buy your recommended top performing fund NAMCX, despite it having moved up already by some 50%. However, my broker (Schwab) informed me that this is an advisor only fund and not available to the retail customer. What can I do? (09/19/2003)
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.
Q: Ulli, this is a more sensitive question and not meant to offend you or your company. If I have my account managed by you, do you have access to my money, or how will I be protected against any possible fraud? (09/12/2003)
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.
Q: Ulli, I have most of my money in a variable annuity. Can your Buys and Sells be applied to annuities? (09/05/2003)
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.
Q: As a recent Newsletter PLUS subscriber I missed your Buy signal on 4/29/03. I understand the fund selection process, but should I invest all of my monies now? I have about $60,000. (08/29/2003)
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.
Q: I find your newsletter valuable and easy to follow. However, my schedule is too hectic and I’m often not in a position to place trades when necessary. I have talked to numerous investment advisors about managing my money. Since I’m a ‘small fish’ with only about $10k no one is really interested. Most require minimums of $75k or more. Can you help? (08/22/2003)
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.
Q: I don’t have a personal portfolio yet, but I’d like to follow along with your Buys and Sells with monies in my 401k plan. I’ve done very poorly with my selections in the past and need to improve. How would I do that? (08/15/2003)
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.
Q: Ulli, I’m a new subscriber and have an account with a deep discount broker? While you are suggesting only no load funds, they do have early redemption fees and ever increasing annual management fees. I wonder if I could use Exchange Traded Funds (ETFs) to follow along with your Buy and Sell signals. (08/08/2003)
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.
Q: Ulli, I noticed that in your Newsletter PLUS StatSheet you refer to a column called DrawDown. Could you explain again what it means and how I can use it? (08/01/2003)
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.
Q: Ulli, As a new subscriber I was wondering how I can apply your trend following strategy to my 401k plan? (07/25/2003)
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.
Q: Ulli, I followed your recommendation as a Newsletter PLUS subscriber and purchased the MUHLX fund, when your Buy signal was issued on 4/29/03. It is up by some 15% and I am very happy about it. I did notice that one of your other recommendations has gained 34% during the same time period. Should I sell the first fund and buy the second one, since it appears to be better performing? (07/18/2003)
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.
Q: Ulli, I am a new subscriber and I was wondering if you only update your investment positions or Buy and Sell signals on Fridays? (07/11/2003)
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.
Q: Ulli, I have been looking for an investment advisor and read your article about how to find one using www.investortree.com. Unfortunately, they no longer exist. Do you have another recommendation of a source that features investment advisors? (06/27/2003)
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.
Q: Ulli, I have had a portfolio with a broker over the past few years and lost about 50%. I don’t need to elaborate as to how I feel about that. I would like to have it managed by your company following your method. What is the procedure? (06/20/2003)
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.
Q: Ulli, I subscribed to your newsletter recently after your latest Buy cycle started. How do I go about investing now? Do I put 100% of my portfolio in the market all at once? (06/13/2003)
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.
Ulli, I subscribed to your newsletter recently after your latest Buy cycle started. How do I go about investing now? Do I put 100% of my portfolio in the market all at once? (6/6/2003)
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.
Ulli, I don’t have an investment account yet, but I do have a 401k at work. I have made poor decisions in the past and was wondering if you could help with that using your method? (5/30/2003)
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.
Ulli, I like your approach and the simplicity of it. However, I still don’t have enough time to follow and execute your investment plan myself. What is your suggestion? (5/15/2003)
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: firstname.lastname@example.org.
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.