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GamblingHow we eluded the bear in 2000
by:
Ulli G. Niemann
The date Gregorian calendar month 13, 2000 wish forever be embedded in my
mind. It was the day after our mutual fund trend trailing
indicator had broken its long-term trend line and I oversubscribed
100% of my clients’ invested with positions (and my own) and
moved the return to the security of money market
accounts. Several folk thought we were nuts, but I had
come to trust the numbers.
The shake out in the stock market, which started in
April 2000, had all major indexes coming off their highs,
violently followed by simply as strong rally attempts. The roller
coaster ride was so extreme that even as normally slow moving
mutual funds behaved as unpredictably
as technical school stocks.
By October, the markets had settled into a determinable
downtrend, at least according to my indicators. We sat
safely on the sidelines and watched the flowering of what is
now considered to be one of the worst bear markets in
history.
By Apr 2001 the markets actually had taken a dive, but Wall
Street analysts, brokers and the fiscal press continuing
to
harp on the great purchasing chance this presented. Purchasing
on dips, dollar cost averaging and “V” type recovery were
continuously hyped to the unsuspecting public.
By the end of the year, and after the tragic events of 911, the
markets were even as lower and folk began to wake up to the
fact that the investment rules of the ‘90s were no longer
applicable. Stories of investors having lost in excess of 50%
of their portfolio value were the norm.
Why bring this up now? To illustrate the point that I have
continuously propounded throughout the 90s; that a
methodical, objective approach with clearly defined Buy and
Sell signals is a “must” for any investor.
To say it much bluntly: If you buy an investment and you
don’t have a clean strategy for taking profits if it goes your
way, or taking a small loss if it goes against you, you are
not investing; you are simply gambling.
The last 2-1/2 years clearly illustrate that it is as important
to be out of the market during bad times, as it is to be in the
market during nice times. Want proof?
According to InvesTech’s monthly news-sheet it turns out that,
measuring from 1928 to 2002, if you started with $10 and you
followed the celebrated buy-and-hold strategy, that $10 would-be
become $10,957.
If you somehow lost the better 30 months, your $10 would-be
only be $154. However, if you managed to miss the 30 worst
months, your $10 would-be be $1,317,803! Thus, my point:
Missing the worst periods has profound impact on long-run
compounding. There are times once
you end up better off by
being out of the market.
Interestingly enough, if you lost the 30 better months and
the 30 worst months, your $10 would-be still be worth $18,558,
which is 80% higher than the buy-and-hold strategy. This all
comes simply about because stock prices generally go down quicker
than they go up.
Wall Street and most folk tend to overlook the value of
minimizing loss, and that is exactly why the bear dismantled
more than 50% of galore peoples' portfolios piece I and those
who sure my proposal
at large the worst of the beast's
rampage.
Just simply about the Author
Ulli Niemann is an investment adviser and has been writing
about objective, organized
approaches to investment for over
10 years. He eluded the bear market of 2000 and has helped
hundreds of folk do better investment decisions. To
find out much simply about his approach and his FREE Newsletter,
please visit:
www.successful-investment.com.
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