|
Sector Model
|
XLU & XLV
|
1.14%
|
|
|
Large Portfolio
|
Date
|
Return
|
Days
|
|
CAJ
|
9/25/2012
|
-2.65%
|
270
|
|
BOKF
|
2/4/2013
|
12.99%
|
138
|
|
SWM
|
2/12/2013
|
39.21%
|
130
|
|
ABX
|
4/11/2013
|
-30.21%
|
72
|
|
TPX
|
4/22/2013
|
-10.28%
|
61
|
|
TTM
|
5/6/2013
|
-10.89%
|
47
|
|
DLB
|
5/13/2013
|
-2.97%
|
40
|
|
GMCR
|
5/24/2013
|
2.04%
|
29
|
|
MATW
|
6/6/2013
|
-0.51%
|
16
|
|
OKE
|
6/17/2013
|
-6.47%
|
5
|
|
S&P
|
Annualized
|
8.53%
|
|
|
Sector Model
|
Annualized
|
22.80%
|
|
|
Large Portfolio
|
Annualized
|
28.17%
|
Rotation: selling SWM; buying TSCO.
As I noted on the blog, the sector model has been adjusted
to hold two sectors instead of one. The
returns are more consistent, and if one sector is in free fall (such as XLK in
the 2000-2001 dot com collapse), the second sector will serve as a control.
Now, there are two ways to do this. One could hold both sectors and trade all the
whipsaws, or buy the first sector, hold when it moves into the second position,
and only sell it when it hits the third position. A small cash account would be best served
with this approach – and in fact that is what I’m doing with one account. This is a bit of a conveyor belt approach,
and holds longer while avoiding all whipsaws.
The drawback with that conveyor belt approach is that it is
not as stable as holding two sectors.
In any case, the first position is XLU, and the second is
XLV. Both of these are defensive,
bearish sectors (utilities and healthcare services). They fairly reflect the amount of fear in the
market right now.
The full model is scrambled.
These are the top industries:
|
AUTO
|
|
FUNL SVC
|
|
ENTTECH
|
|
GOLDSILV
|
|
FURNITUR
|
|
UTILWEST
|
|
BUILDSUP
|
|
ELECFGN
|
|
BANKMID
|
|
THRIFT
|
Auto, Bankmid, Elecfgn, and Thrift are bullish sectors
typical for a market bottom (not a top, but a bottom).
Goldsilv, Furniture, and Building Supply are late bull
inflation plays.
Enttech, Funeral Services, and Utilwest are more bearish.
So, two bullish sequences and one bearish one.
In other words, it’s ANYONE’S guess what the market will do.
So I want to talk about something different – namely, the
different approaches to investing people have.
The vast majority of folks who actively trade are trying to
time the market. They read the news and
look at charts to try to determine where the markets will go next.
There’s a problem with that.
Our brains are cross-wired so badly that we cannot be trusted to make
sense of charts. There’s an entertaining
Cracked article that I STRONGLY RECOMMEND:
No, serious – stop reading what I write until you finish
that article. It’s… eye opening.
Don’t cheat. I mean
it.
Read the article yet?
Good.
Now back to me…
1) Don’t trade the news.
2) Don’t trade a price chart.
There, I just eliminated 90% of trading activity online.
That leaves the three profitable types of trading.
Buy and hold: buy a non-leveraged index ETF, and walk
away. Have a life. Save regularly. Work hard.
You might be able to even retire if you start early enough. People who’ve been adding a little each month
to SPY have made money this past decade, and will most likely make money in the
next, and the next, and the next.
Buy based on fundamentals: think Warren Buffet. You aren’t buying a stock. You’re buying stock in a company. So look at the freakin’ company instead of
the stock. If you buy a company because
you like a stock, you’ll lose money. If
you buy a stock because you like a company, you’ll make money.
Be a mutant: think George Soros. This one takes a bit of explaining. Remember those first warnings – Don’t trade
the news and Don’t trade a price chart?
Those folks lose money to people like Soros. I don’t know what makes him tick or how he
does it, but somehow that man is wired differently than the rest of us. He’s like a magician on stage pulling sleight
of hand tricks and making money off of our confusion. He’s brilliant, but if you don’t have the
gift you’ll lose and lose hard.
Here’s the long and the short of it. People who buy and hold stop losing
money. People who buy based on
fundamentals stop losing money and make money instead. Both profit off of the economy and earnings.
Soros doesn’t profit off of the economy and earnings. He profits off of people who trade the news
and watch price charts.
Buy and hold folks are long and don’t time. Fundamental folks are long and don’t
time. Soros is long and short and times –
making money off of people who trade the news and trade price charts.
I can’t stress it enough.
The first goal of an investor is to stop losing money.
PERIOD.
Now, there are services out there that can give
options. I’ve even recommended a few. But you have to STOP losing money first, and
that means ignoring the news and price charts.
And don’t think you’re Soros. You’re not.
If you were, you wouldn’t be looking at my little blog.
In any case, the news is scary right now. I don’t know if it’s a good time to buy or to
sell.
And that depends on the way you think of time.
Remember when Buffett was screaming “BUY BUY BUY” in October
2008? Was he right or wrong on the
timing? He was wrong by 5 months and
right by 5 years.
The key is to get the years right and you won’t have to
worry about the months so much.
Tim
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