Making Money Alert
A Tale of Two Investors
04/14/2010
The Dow now trades above 11,000, and the S&P 500 just breached the psychologically significant 1,200 mark. As this bull market passes new milestones, there are two types of investors left wondering how best to play this roaring ride. I call this a tale of two investors and, yes, I borrowed the concept from the great Charles Dickens.
On the one hand, you have investors that largely have stood on the sidelines in anticipation of a market breakdown. If you’re in this camp, then now is definitely not the time to put new money to work in stocks. I know it’s tempting to capitulate and just throw your money into equities, but if you aren’t in the market already, then you are tempting fate by buying at these vaulted levels.
On the other hand, you have investors who are long this market and are wondering if now is the time to sell, or if they should put more money into stocks. I say that neither answer is correct. If you own stocks right now, then congratulations. Your money is working for you, and there is no reason to sell now out of fear of a pullback. Certainly, you should have tight stop-loss orders in place to protect your gains, but there is no reason to get rid of your equities until we see signs of a real correction.
When we do see signs that the inevitable correction is here, and stocks pull back by 5-10% or more, then that will serve as your green light to start re-allocating new money into the market. Essentially, regardless of what type of investor you are, the prescription now is to be patient, and to wait for this amazing bull to change direction.
ETF Talk: Ready to Ride Banking's Rebound?
Rising interest rates usually help banks increase the spread between the amount that they pay for deposits and what they can charge for loans. It is one of the reasons why banks that are not hamstrung with inordinate levels of bad loans on their balance sheets are gaining traction among investors. One example of the resurgence in the sector is the SPDR KBW Bank ETF (KBE).
First of all, if you have any doubts that interest rates are going up, consider the runaway U.S. government spending that is sending the nation’s deficit to unprecedented new heights. Look no further than The New York Times to affirm that interest rates are destined to climb. The newspaper published an April 11 article, “Interest Rates Have Nowhere to Go but Up,” explaining that economists claim it is an inevitable result of the nation’s soaring debt and budding economic recovery.
As for KBE, the fund jumped 21.9% in the first quarter of this year and it rose 5.77% so far this month through April 13. The SPDR KBW Bank ETF features well-know financial institutions among its holdings. As of the end of March, the fund’s top ten positions and their weightings featured Bank of America, 9.96%; Citigroup, 7.83%; Wells Fargo & Co., 7.37%; JP Morgan Chase & Co., 6.26%; US Bancorp, 6.21%; Regions Financial Corp., 4.81%; Fifth Third Bancorp, 4.45%; BB&T, 4.39%; SunTrust, 4.39%; and M&T Bank, 4.36%. As that list shows, the fund includes a nice mix of money center banks and big regional banks.
KBE also is a pure play on the financial sector, since 100% of its holdings consist of investments in that arena. By all means, only consider investing in KBE with a modest amount of money as a way to diversify your overall portfolio and potentially ride the recovering banking companies to heightened gains. The fund is designed to match the returns and characteristics of the KBW Bank Index, before accounting for expenses. The index rose 86.93% during the past year, as of March 31, on an annualized basis.
Keep in mind that the banking sector is trying to recover from a difficult last few years when even some of the best-known financial institutions struggled or required government bailouts. The use of an ETF is a great way to avoid the possibility of trouble at one bank destroying your investment in the banking sector. KBE is not one of my current recommendations, but it is a fund that certainly has caught my eye.
If you want advice about which ETFs to buy and to sell, along with where to set appropriate stop losses, please sign up for my ETF Trader service. As always, I am glad to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in an upcoming ETF Talk.
A Very Special Fabian Anniversary Offer
It's hard to believe, but 33 years ago this month, my father, Dick Fabian, wrote the first issue of what was then called the Telephone Switch Newsletter. His approach back then was simple and straightforward; follow the market's trend and you will stay out of trouble.
After living through the bear market of 1973-74, Dick realized that you could not leave it up to your mutual fund manager to keep you out of harm's way. His major innovation was to tell investors that they could exercise their rights, and move their money to cash during periods of major market decline. Back then, this process involved picking up the telephone and switching your holdings between stock funds and money funds -- hence, the name Telephone Switch Newsletter.
Of course, the technology is completely different today, yet the underlying principle remains the same in what is now the Successful Investing newsletter. That principle is your right to take control of your money -- and to put it to work when the markets are in an uptrend, and to get it out of harm's way when stocks are trending lower.
Now, I am pleased to announce that in honor of the 33-year anniversary of our flagship Fabian publication, my publishers have agreed to a special offer for a one-year subscription to Successful Investing for only $77. That's the same rate you would have paid 33 years ago!
Your subscription includes my weekly market commentary sent directly to your email inbox, our monthly newsletter, special reports, timely buy and sell alerts and our one-hour instructional DVD.
If you don't already subscribe to Successful Investing, now is your chance to get our flagship publication for the same price we charged 33 years ago -- so, I encourage you to act right now.
Great Moments in Fabian History, April 2010
I know the vast majority of Alert readers haven’t been with us throughout our entire 33-year history (although I know a few of you who go back to the time before I even joined the newsletter). As a result, I want to give you a sense of some of the major events that have unfolded in the financial markets during the past three decades, along with some of the specific advice that served Successful Investing subscribers exceedingly well. Here is a recap of what I like to call great moments in Fabian history.
September 1976: Dick Fabian self-publishes the book, “How To Be Your Own Investment Counselor.” This was the first (and in my opinion, still the best) primer on the trend-following approach that formed the basis for the current Fabian Plan. After experiencing the devastating bear market of 1973-74, Dick knew investors needed a better way to manage their serious money. Dick demonstrated that with a simple, easy-to-understand plan for beating the markets, investors really could build serious wealth with only minimal time and effort expended on their investments.
April 1977: Motivated by the overwhelmingly positive response to his book, Dick teamed up with his wife, Marie Fabian, to launch the Telephone Switch Newsletter right from their dining room table. The basic purpose of the newsletter was to report and to monitor the results of the buy and sell signals generated by the plan laid out in his book. In his original newsletter, Dick included funds such as Fidelity Magellan and 44 Wall Street. He reported on the prices of these funds and the major market indices for the previous 39 weeks. He also produced charts of these indices by hand.
September 1979: Doug Fabian joined the newsletter as a mutual fund analyst.
July 1981: The Telephone Switch Newsletter issued a bear-market sell signal. The sell followed subscriber profits of 40% during the preceding 14-month buy cycle. The bear market that followed registered a drop of 27% in the Dow Industrials. This plunge was the first bear market that Fabian subscribers would avoid. At that time, money funds were paying a whopping 18% annually -- accompanied by a nationwide inflation rate of 20%.
September 1982: Dick issued a new bull market buy call that generated returns of 45% in the next 15 months.
June 1985: A buy signal was issued for the newly created International Plan. This buy signal lasted more than two years and produced gains in excess of 140% in international funds. At that time, the U.S. dollar was in a major bear market that provided a strong tailwind to international investments. This uptrend in international markets ended with the 1987 stock market crash.
October 1987: A sell signal on Oct. 15 warned subscribers to move into the safety of the money funds. Four days later, the market experienced its biggest, single-day decline ever. Fabian followers walked away with gains of 23% in calendar year 1987. The Telephone Switch Newsletter was one of five publications to have predicted the decline, according to news reports of The Wall Street Journal. Of course, we did not predict anything. We simply stuck to our disciplined investment approach and followed the rules of the Fabian Plan.
August 1990: The Fabian Plan issued a new sell signal, as Kuwait was invaded by neighboring Iraq. This geopolitical event instigated a global stock market bear that would end only after an American-led coalition of 80 countries booted Saddam Hussein out of Kuwait. We were only out of the market for three months before issuing a new buy signal that led to a 34% gain during the next 18 months.
January 1995: After a year in which the Federal Reserve raised interest rates four times and when most economists were predicting a recession, the Fabian Plan identified a new uptrend that kicked off a bull market run in the late 1990s. During the next five years, the Fabian Plan produced annual gains of more than 20%, led by the technology stock boom and the proliferation of more than 10,000 mutual funds.
April 2000: The Fabian Plan issued a new sell signal for stocks as the NASDAQ market began to fall. A decline of more then 70% ensued during the next three years.
January 4, 2008: The Fabian Plan issued a new sell signal for stocks well before the bear market selling of 2008 intensified. This call put subscribers into the safety and security of the money market. While most investors tossed and turned at night, subscribers to this service slept like babies.
I could go on and on here, but I think I’ve made our point. You see, the Fabian Plan isn’t some here-today, gone-tomorrow gimmick. The Fabian Plan has worked for longer than many stock brokers out there have been alive. And, with a strong adherence to tradition and a constant attempt to learn from the past, we’re going to continue making great calls for you for another three decades.
Now is the time to take advantage of our special offer for a one-year subscription to Successful Investing for only $77.
A 'Wimpy' Explanation of Our Budget Mess
The Internet blogosphere is replete with lots of wild and crazy political, economic and financial musings. To be certain, there’s a lot of pure junk out there. Yet, every so often, I come across a gem of information, and/or an interesting video that presents valued information in a unique and insightful manner.
This week, I found just such a video post, courtesy of a Web site called Wimpy.com. The video’s title is “Visualizing Obama’s Budget Cuts,” and it essentially demonstrates just how small a $100-million slice of our overall federal budget truly represents. And how do the authors accomplish this task? Simply by using pennies.
If you like being informed and educated at the same time, then I highly recommend you check out this short video clip at Wimpy.com.
Temporary Means Permanent in Government Speak
“Nothing is so permanent as a temporary government program.”
--Milton Friedman
The brilliant economist and free-market advocate reminds us that however temporary a government program sets out to be, the forces that come to rely on that program for their sustenance are so strong that they make virtually any temporary program permanent. Keep this in mind whenever you hear a politician call for temporary measures to “fix” the economy.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars or anything else. Click here to ask Doug.
Sincerely,
Doug Fabian
P.S. Don’t miss out on the 22nd annual MoneyShow Las Vegas, May 10-13, 2010, at Caesars Palace. This event will be your one-stop resource for the comprehensive education, efficient research, and valuable advice you need to make smart investment decisions in 2010 and beyond. Join me and hear leading experts reveal where they see growth opportunities in stocks, bonds, ETFs, commodities, and options. Also hear about which overseas markets may outperform in the near term. Visit The MoneyShow Las Vegas to register FREE online, or call 800/970-4355 and mention priority code 017444 today!
P.P.S. My publisher, Eagle Financial Publications, is now on Facebook. Click here to see our page and be sure to become a fan when you get there.