Monday, April 16, 2012

Strategy: "Time for Some Trading?"

Gerald M. Loeb was writing something similar back in 1935, three years after the '32 bottom. Quoting from 2010's "Happy 75th Anniversary to one of the few MUST READ Investing Books: Gerald M. Loeb's "The Battle for Investment Survival"':
...For the rest of the month I am going to excerpt snippets from this timeless classic.
The book is written as a series of three and four page chapters, almost in the form of notes from a friend.

Today, the Fisher forward and part of the introduction:
"To a 1935 reader...nothing was more terrifying than the prospect of buy-and-hold..."

"Loeb's preferred strategy of continual in-and-out, concentrated, 'speculation' seemed radical, fresh and far safer than buy-and-hold."

"Loeb recommended swapping...eerily like churning...he specifically recommended against letting money ride in the market."
"That may not be sound advice today"
Remember, the forward was written in mid-2007, as it turned out selling your losers on single-digit percentage drops was the only way to save yourself, if long, from October 2007 through March 2009.
Buy-and-hold meant dead-and-gone....
So here we are, three years after the 2009 bottom. It must be a cyclical thing.
Barron's Feature article this week:
As global markets gyrate, a growing number of advisors are telling investors to set aside as much as 25% of their portfolio for shorter-term bets. Sizing up the risks and returns.

A fundamental tenet of financial advice is to settle on long-term goals, then pick an asset-allocation strategy and stick with it. A corollary is that trading in and out of positions in response to daily market gyrations is almost guaranteed to undermine an investor's long-term objectives.

But this advice, while often repeated, is not absolute. In the face of pervasive market volatility, some financial advisors recommend earmarking a portfolio for the short term and medium term, to take advantage of big market moves. This more active investing approach, often called a tactical overlay, is also an opportunity for financial advisors to demonstrate their value to clients.

"We have a target allocation and then adjust, based on whatever themes will likely affect the markets in the next six to 18 months," says Michael Yoshikami, CEO of California-based Destination Wealth Management, which has $1.2 billion in assets under management.

Yoshikami sets aside 25% of a client's portfolio for these trades. "We call it a thematic allocation strategy," he says. "It's still a long-term strategy, but with a short- to intermediate-term overlay. It's a way we can add value away from a standard allocation."

About 70% of Destination's investment decisions are based on valuation and 30% on broader economic themes and trends that tend to affect market psychology, Yoshikami says. "Some investors might suggest that a purely 100% bottom-up, value-based strategy is the best course of action. We disagree. Headlines and macro events matter."...MORE
..."When the 2000 Internet bubble burst, many investors were devastated as a result of an excessive belief in a particular theme. Our investment philosophy seeks to avoid this kind of dogmatic thinking. The world can change very rapidly."...
Don't try this with a crooked or incompetent transaction-compensated person you saw on CNBC:

October 18, 2001