01/04/2006
You’ve put away the holiday decorations, you’ve popped the cork on the last bottle of champagne, you may have even decided to use your treadmill for exercise rather than for a coat rack, but have you pulled out your investing statements and devised your strategy for making money this year?
2005 was a pretty pitiful year for buyers and holders of the broad-market indexes. Enough said. Living life in the rearview mirror will never lead you to your goal. That’s why you need to look ahead with a proactive approach, so here are a few pointers:
1) Clean the junk out of your portfolio.
2) Replace your mutual funds with a comparable ETF wherever possible.
3) Develop a strategy in which you can profit from sector momentum. Specifically, I see healthcare, China/international and technology as being significant players in the market this year.
4) The exit strategy is more important than the buy.
5) Always have a "safety net" under your investments, or don’t invest at all.
So there are five mandates for doing better with you money in the New Year. Basically, you need to get rid of the junk, for once and for all. You need to figure out what you should buy and when. As a trend follower, the when is even more important that the what. And, you must know under what conditions you will exit those positions to protect profits.
That, my friends, is Trend Following 101. It’s fairly simple, but it’s infinitely important. Knowing what to buy, when to buy it and when to sell is of primary importance to growing your money. In fact, you cannot grow your money over the long term without such a strategy.
You know, everyone made money in the nineties. Everyone. Soccer moms stood on the sidelines and talked. They didn’t talk about their kids, they talked about their big gains in ETOYS. When you went for your physical, you and your doctor would swap stock tips. It was so much more fun than talking about your weight, your blood pressure, and your various other bodily functions. And remember the holiday parties when everyone talked about the trips they were planning, the homes they would purchase and even the plastic surgery they would get in the New Year, all because of their investment in Amazon.com.
Yes, the New Year reminds everyone how flights of fantasy left unchecked can wipe out fortunes and leave those most unsuspecting just praying for a roof over their heads. That is what the Fabian Safety Net is all about: preventing the catastrophic losses that erode both fortunes and spirits.
Is your portfolio protected against bear market losses? The trading year got off to a good start yesterday, but that doesn’t mean that you should throw caution to the wind. The best time to put together a plan for protecting yourself against danger is when danger is not clear and present. By preparing your investments for a bear market before a bear market presents itself, you will have the presence of forethought to make the best plan for your nest egg.
We have several warning flags flying right now:
· Alan Greenspan has gone on record as saying that budget and trade deficits left unchecked will cause "extremely painful adjustments." Check his record, he’s never been wrong.
· The housing sector isn’t holding up. After nearly 6 years of record gains, a decline is settling in. How far will real estate decline? Are we looking at a soft landing or a recession?
· Speaking of recession, the warning bell was sounded last week with the inversion of the yield curve.
· The U.S. stock market has performed poorly against its international counterparts. A shift of power is drawing our money eastward as China and India are growing at a rate nearly 3 times that of our economy.
Yes, there are threats to the U.S. equity markets, but that doesn’t mean that you shouldn’t invest. You can’t afford not to. You have to grow your nest egg, but you have to so with the awareness that there are issues that require vigilance and an exit strategy.
For 28 years, Successful Investing has protected and grown family nest eggs just like yours. For less than 50 cents a day, you can get the Fabian Safety Net under your investments to help you avoid the kind of catastrophic losses that a bear market brings. Make 2006 the year you draw a hard line against bear markets by becoming a Successful Investing subscriber. Let me help you keep that resolution by offering you the first 6 months risk-free. Go to the link below to learn how Successful Investing can help you grow profits and mitigate risk:
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What a difference a trading day makes! Last Friday’s trading session closed the books on Wall Street for 2005 and it was pretty unexciting. The S&P 500 Index eked out a 3% gain for the year. The Nasdaq 100 saw a putrid 1.6% increase for all of 2005 and the Dow Jones Industrial Average actually finished the year down .6%.
Yesterday’s post-holiday trading session looked fairly ho-hum until the minutes from the most recent Federal Reserve meeting were released. From that moment on, it was off to the races for the market. The Dow, not bearing any resemblance to the lackluster behemoth we saw last week, gained 130 points. The Nasdaq roared back and added some 38 points, and the S&P gained 21 points.
The sectors leading the market forward included the Internet, semiconductors, oil and gold. The broad-based rally gives investors hope that 2006 may turn out far differently that its predecessor. We are carefully monitoring the markets at these levels and would consider an uptrend firmly in place if and when the S&P hits and holds at 1275.
My biggest areas of surprise for a continued uptrend are energy and Asia. Both of those sectors ended the year strong and opened up strong.
Concerns I have for this market going forward are as follows:
1) A weaker manufacturing number for the month of December, even in the wake of reduced costs for raw materials, poses a threat to the employment market. The strength of the manufacturing sector directly impacts the strength of the jobs outlook.
2) The decline in housing sales, the worst in 11 months, could foretell a precipitous decline in housing values. Housing values impact consumer spending. Be on the lookout for a softening in spending.
3) Energy prices are still high, even though they have come down from their hurricane high levels, and I have an ongoing inflation watch in place.
For these reasons, I would be participating in this market to capture welcome gains, but remaining ever vigilant for a pullback.
Now that we have some clarity on what the Federal Reserve’s thoughts are on our economy going forward, it’s a good time to take a look at a few other forces out there that can affect this market and your investments in the New Year. Some of which are:
1) Corporate Earnings: these are a biggie for the stock market. The last earnings season was quite rosy. What does that portend going forward? You know the old adage: sell on good news, buy on bad.
2) Employment: continues to be strong in the midst of good numbers regarding housing, manufacturing, the services sector all of which keeps consumer spending rolling along to support 66% of our economy.
3) Housing: the bloom has fallen off the rose for this sector and the question remains as to how barren the bush will become.
4) Manufacturing: One weak number does not a trend make, but keep an eye out as we continue to send our purchasing dollars internationally without comparable reciprocation.
5) Inflation: Gasoline is well below $3 a gallon, hip-hip-hooray. We have all become so accustomed to being screwed at the pumps that we say thank you when it ceases to be excruciating and simply remains painful.
6) Extremely painful adjustments: Someday these words may make "irrational exuberance" passe. Alan Greenspan’s warning about out of control spending in the form of federal entitlement programs and consumer lust for the biggest plasma screen TV China can make are the wake-up call that the entire nation seems to be sleeping through.
7) The lack of a plan: Investors are so caught up in the "next big thing" that they are not seeking profit protection.
2006 is a New Year with a new focus. The switching over of the calendar year gives investors the opportunity to digest the trends that drove the markets in the previous year and to recalibrate their investments and contemplate the likely avenues for profits going forward. This exercise is crucial for us trend followers because trends are not set in place forever. In fact, just like most everything else in life, the only constant is change. The one thing we do know is that sector rotation happens with all trends. Where you made money last year is probably not going to be the top-performing sector this year.
Take the following steps to protect your assets in the New Year:
1) If you are sitting on gains from last year’s investments, be sure to monitor those gains carefully and set a trailing stop loss to protect them.
2) Make 2006 the year you beef up your international investments allocation to as much as 50% of your portfolio, and remember, your exit strategy must be firmly in place. Look at EWT.
3) Prepare a watch list of investments you are interested in accumulating should the trend fall into place. These are not equities that you will necessarily buy, they are just your best guesses as to what might set a trend. Be sure to add names to the list as appropriate. It’s not a commitment, it’s just a list.
4) Carefully monitor the trends occurring with all of your investments; those you own and those on your watch list.
5) Actively employ the use of the "Tools" section on my website at http://www.dougfabian.com. This section of my site gives you everything you need to monitor the market activity and its impact on your investments.
My dear friends, I am so pleased to embark on a new year with you. New Years bring new hopes, new joys and a new opportunity to re-commit to yourself and your goals. Let’s make 2006 a wonderful and profitable New Year, and let’s do it together.
HAPPY NEW YEAR and HAPPY NEW OPPORTUNITY!
Doug