The Swing Timing Alert
The economic crisis has exposed the buy-and-hold investing model as flawed. Put simply, it has ruined hundreds of thousands, if not millions, of retail investors and wiped out trillions of dollars in savings.
The buy-and-hold model works fine when the stocks are rising. In times of crisis, it fails miserably to protect investors’ capital.
So, what should investors do instead?
First and foremost, you need to become financially educated. If you aren’t, you shouldn’t be surprised when you lose money in the next wipe out.
You should also seek good advice. The mainstream didn’t see this crisis coming. The talking heads on CNBC laughed off warnings from underground investors such as Pater Schiff and James Dale Davidson and labeled them as quacks.
And Jim Cramer famously assured investors that their money in Bear Stearns was safe just before the Bear came tumbling down. So far, Cramer has called the end of the recession more six times. And six times he’s got it wrong.
Now is a bad time to be ill-advised, as trillions of dollars of lost investor wealth attest to. That’s why we believe you must seek the advice of investors’ investors… the guys with “skin in the game”… the contrarians.
As an investor, you should keep three key goals in mind :
1. Limit significant drawdowns — this is the most important
goal for your portfolio. In other words, before you make any
investment, you should ask yourself one simple question: “How
much can I lose on this?”
Note: The S&P500 index is still 25% below its 1/1/2008 level.
2. Ensure an appropriate level of volatility for the time
horizon — your investing should be goal driven. This can be
boiled down to a simple equation: you have $X and you need $Y
in Z years. As you approach Z, the time when you need to
access your capital, you should make sure to minimize the
volatility of your portfolio… or suffer the consequences.
3. Provide a rate of return to meet your goal — you need to
make sure that your portfolio can provide you with enough
money to do whatever it is you’re saving for by a certain
time. If it doesn’t, it is useless.
To be a successful investor, you also need to be diversified. The definition I want you to use for diversification is this :
“the less that any single bad event of any kind can affect your portfolio, the more diversified you are.”
It’s patently simple at face value but the 60/40 stock/bond split fails that very basic test. A stock market crash would cripple that portfolio because the hit to the equity side would completely overwhelm any offsetting gains for the bonds.
To put some numbers on it, a 60/40 stock/bond portfolio is going to have 80-90% of its performance determined by the stock market (exact percentage depends on time frame and calculation methods).
In other words, if all it takes is a stock market crash to trigger massive drawdowns in your portfolio, you are not diversified. The 60/40 stock/bond split fallacy explains the roughly 40% losses experienced by many retail investors in the Great Wipe Out of 2008.
Leverage has gotten a bad name lately – and for good reason. Reckless use of leverage can lead to catastrophic results. Just ask former Lehman boss Dick Fuld. But leverage can also help you diversify your portfolio. When used with a firm and careful hand leverage is extremely powerful because it allows you fine-tune asset classes to your risk/return preference.
By being able to craft your portfolio with leverage, you can now use many other asset classes that may have previously been too volatile or not high-yielding enough. This in turn can lead to diversification.
For example, even if you wanted to stick to a pure stock/bond mix as before, you could use leverage to craft your portfolio to have the same notional exposure with less exposure to a stock market crash.
Of course, once you add in more and more asset classes you will see correspondingly better returns for the same amount of risk (or conversely, less risk for the same amount of returns).
If you believe we are heading into an inflationary environment you can adjust your portfolio towards commodities, real estate, TIPS, etc. If you see a low-inflation environment on the horizon, you can adjust towards bonds and equities. And so on for each of the four categories set out in the framework.
You don’t need to accept that crashes and huge losses are an inevitable part of the investing process. They are not. There is an alternative to the stock market’s insanity.
Investing is simple. You just identify the big trend and invest with it. The Swing Timing Alert can do that for you :
If you get started today, I’ll send you both the weekly Hot Stocks Digest and the Bear Stocks Report at no charge and also show you how to create a truly hedged portfolio using both long and short stock positions at the same time.
Whether the stock market rally falls off a cliff or soars to new highs you want to be properly positioned to profit. Let nothing, absolutely nothing, interfere with immediate action. A change for the better justifies no delay. Don’t watch others make money which you can make.
Be up and doing now. Some other time may be too late. Place your order this very minute. Take the action now that means more money next week, independence next year.
The Swing Timing Alert
