By Al Thomas
If you have done any investing over the past few years you have become aware the market does not go straight up or straight down.
It surges. Then stops. Stays in a range for a while and then continues its journey in the direction it was going.
The surge expends it energy. It then consolidates and allows investors to either take profits or add to their positions – or just watch,
If the investor is experienced he will move his stops up under the previous consolidation area. When a bull move is in progress the investor can make and KEEP his profits. Never lower the stop.
Unfortunately most mutual fund managers have not learned how to do this. A wise investor will look at a long term chart (at least 5 years, preferably 10) to see if the fund manager knows how to protect the equity in the fund, Too many fund managers haven’t a clue as to what to do during a bear market.
They are not allowed to go short, but a few funds will allow them to buy puts to protect their positions.
The Buy N Holders are now screaming,”I told you so”. I will be listening to the cries of agony from these investors during the next major decline. And there will be one.
No I don’t know when. No one does. They are always a “surprise”. The reason there is a surprise is almost all economists and most analysts use the “rearview mirror” technique to predict the future.
It is like the driver of a car going down the road that is not looking ahead, but steering by looking in the rearview mirror. He thinks the road ahead will be just like the one behind. Until the next turn in the road (market).
This is the Buy N Hold method. The money manager does know his car has a steering wheel. He keeps on going straight ahead into the ditch with your money.
Finding a money manager that knows how to manage is difficult. For any fund in which the investor has an interest a 10 year chart can easily be made. It will show how the fund was managed during bear periods such as 2008. If it declined more than 20% the investor keeps looking.
The investor must protect his portfolio with stops. We don’t know when we will have the next surprise.
Copyright 2013 Williamsburg Investment Co. All rights reserved. Al's new ebook (32 pages) is available on Amazon.com for 99 cents. It explains the Golden Cross and the Death Cross. These are well known methods of determining long term trends in the market. If you only learn one method of technical analysis this would have kept you out of the 2000 and 2008 crashes and will keep you out of the next one that is coming soon. The title is Never Lose Money In The Stock Market Again.