I want to assume that anyone getting to this page has made certain conclusions about his investment strategy.....
1) That they want to be able to participate in the major advances in the equities markets.
2) That they do not want to participate in the major declines in the equities markets.
3) That income is important, in addition to capital gains, but that chasing yield can be dangerous.
4) That capital losses are a bigger threat to financial success than opportunity losses.
There are strategies that, properly employed, will deliver results that can address the above listed concerns. All are considered to be Market Timing strategies..... and in spite of the insistence of the Wall Street Investment Sales Industry, it is in fact possible to time the markets. So, you may ask... what is your current outlook?
We have gotten investment capital and savings out of the market and have no long term outlook that a major advance can begin at the current levels. Our last timing signal for the long term, meaning the for the next 1 to 5 years, occurred in April, 2010, when we recommended all investment capital be moved into short term Government Bond investments, with our specific recommendation being the VFITX, the Vanguard Intermediate Government Bond Fund. Our recommendation was issued with the VFITX at $11.01.
So what is the strategy that has gotten us to this point? First of all, it is a recognition currently that the risk of losing capital is greater than any opportunity risk of missing a short term advance. We used certain timing tools to get us out on 4/26/2010 and into the VFITX, but the important point to grasp is that at that point, capital risk was greater than opportunity risk. Nothing that has occurred since has changed our opinion. And we have a set of expectations and timing tools that will get us back into the equity (risk) markets when the risk ratio has reversed. So for the foreseeable future, our recommendation is that investment capital and savings be safely deployed in to the safest, and yet liquid vehicles, like the VFITX. To be clear, we think there is a substantial interest rate risk, which prevents us from recommending long term government bonds or high grade corporate bonds. While a better yield can be obtained in longer term debt, the risk to capital in an increasing rate environment is substantial, and losses interrupt financial success.
While investment capital and savings are out of risk assets, we do recommend a trading account for those with the inclination, with a percentage of investment capital and savings be available for short term opportunities, and we are aggressive short term traders, relying on our proprietary Momentum Change indicator to set up Buy and Sell trades. While we occupy ourselves with short term trading with a small percentage of total investment savings, our attention is continually focused on our long term strategy tools, watching and waiting for the next opportunity to re-enter the equity markets.
Our investment vehicles when it is time to re-enter the equity markets will seem strange to you. Just as they seemed strange us as we first came across the concept. Like most investors, we always considered the proper investment vehicles for Bull Markets to be stocks and/or equity mutual fund. We were stunned to see the results achieved by changing our concepts for successful risk investment. Here we must tip our hat to Terry Laundry at T Theory for his input. While we have always been aware of possibilities offered by convertible bonds and stocks, and have utilized those vehicles, one investment vehicle had completely escaped our attention. That vehicle is High Yield Bond Funds!
Or, as they are commonly called on Wall Street, Junk Bonds.
To be completed 12/14/2010
