Scylla
February 8, 2004, 4:12am
22
pantom:
I actually agree with you on a lot of those points, and I have read up on portfolio theory, which is one of the reasons I hold a bunch of different things besides stocks. In my 401k, for instance, I divide between the aforementioned Russell 2k fund, a bond fund, my company stock, and a GIC fund that pays 5% interest on average. The diversification works well, and it behaves pretty much like one of those balanced mutual funds.
Sounds good to me.
Anyway, I think you misunderstand my point. Most people, being merely human, get scared at bottoms and don’t buy, and hold on too long at the top and don’t recognize when a big fall is coming. I understand that a regression analysis isn’t the normal way to look at the market and that most people don’t use it, and I know that it’s not the standard definition of bull and bear markets, but for that precise reason I firmly believe it gives me an edge. I sold out in '99; as in everything. Bought a house with the proceeds. That was partially because when I looked at the SP 500, it was more than two standard deviations over its long-term trend, and I believed at some point it would have to come down. In 2000, I tiptoed gradually into a gold fund partially because I believed gold had nowhere to go but up, in the same way stocks had nowhere to go but down, because of doing a regression analysis, once again. That was only one input of many into the decision, but an invaluable one, IMO. I just sold out of gold and gold stocks a couple of weeks ago partially because it’s now more than two standard deviations over its long-term trend, which of course is also a declining trendline. The methodology I used was to note that gold was way over its trend, and the fundamentals had deteriorated - one very important piece of this is that the fundamentals for the dollar are improving, at least temporarily, and gold and the dollar move in opposite directions to each other. At that point I noted my stop and determined I’d sell all gold-related investments when it was violated, which it was a couple of weeks ago. I kept silver because it responds well to economic recovery, the fundamentals are good (see Zulauf in last week’s Barron’s) and it’s not overpriced by this simple metric (it also has an ascending long-term trendline, oddly for a commodity). I was early getting out of stocks in 1999, and I’m probably a little early in getting out of gold, but my favorite quote on the markets is the quip from either Baruch or Rockefeller, where he said that the secret to his success was “I always sold too soon.” Words to live by, IMO.
Allright. It sounds like your using a combination of fundamental, technical and momentum tools to make your decision. If it’s working for you, who am I to criticize?
Except for this:
They’re really not telling you that. I’d suggest your weak spot is that you need an independant measure to determine fair value besides market action. Play the two off of each other and you may get even better results.