It Sure Seemed Easy Back In 2003 to 2007... Ride Each Market Advance Up And Be Sure Sell The Top And Catch The Next Wave.
Saturday, January 24, 2009, 03:24 PM
Bank failures are caused by depositors who don't deposit enough money to cover losses due to mismanagement.
-- Dan Quayle
UPDATED 1/27/09
Stay Tooned for "How I Run My 401a Part 3"
"How I Run My 401a Part One"
is here: http://joefacer.com/pblog/index.php?m=1 ... 107-195005
"How I Run My 401a Part Two"
is here: http://joefacer.com/pblog/comments.php? ... 205-215802
But first scope out this chart of the S&P 500 between 1990 and Today. CLICKIT!!!!
Note that the widely watched index went from 300 to 1500 in ten years, a huge gain. Then it lost half it's value. Then it had a similar cycle but over six years rather than ten. Yes the overall direction is up. So if you have 100 to 200 years to average everything out and you can cash out and retire on a spike up, the spikes up and down over that period don't mean much.
BUT IF YOU DON'T HAVE 100 YEARS TO AVERAGE OUT THE HUGE SPIKES IN BOTH DIRECTIONS AND YOU DON'T HAVE A CHOICE ABOUT WHEN YOU HAVE TO RETIRE, WELL THEN, THE HUGE SPIKES UP AND DOWN ARE INCREDIBLY IMPORTANT.
So you HAVE to keep track of what is happening in the economy and the market. "How I Run My 401a Part Three" is how I do it....
"How I Run My 401a Part Three"
I do a lot of reading. I'm pretty good at it. I'm also intellectually curious (I'm what in motorsports is known as a "gearhead".) It's great that things work and that I can use them. But I enjoy knowing why and how they work and how to tune and fix and improve them as much as I do using them. It happens a lot. When my wife and I did a recent tour of a functional/historical museum of Alaska gold mining/tourist stop/operating gold mine, I ran down the mine manager in the gift shop and got a glimpse of how the real business operates. I've taken my interest in Hi-Fi Stereo and gone into the business as a manufacturer and my interest in motorcycles and become a motojournalist. Since I'm old, going hard of hearing and arthritic, my pension and IRA's have become my center of interest and I'm now a part time stock trader and mutual fund investor. So I've followed through with the paradigm that I used to learn audio, manufacturing, mechanics, race craft and journalism; I read everything I could until I could make sense of what seemed to be important and what was a waste of time. Then I put it into practice to find out what works for me.
Here's what I'm doing, distilled for brevity;
I've keyed in on what Benjamin Graham said, "In the short run, the market is a voting machine. In the long run, the market is a weighing machine." Certain stocks/stocks in general become popular and people buy them, driving the price up and creating a trend. The trend becomes self reinforcing and continues longer than might be expected. As the trend continues, ultimately it comes to rely on the fundamental aspects of the business and the economy; the economics of the business that the stock is in and the economy that it operates in, be it local, national or international. The fundamentals continue to support the stock and the trend continues or the fundamentals fail to support the stock and the trend stops or reverses.
I try to buy and hold stocks and mutual funds that are going up and I sell stocks and funds that are going down. I use charts in part to do that because they tell me the two pieces of data that I absolutely understand as well as anyone ever could; Price and Time. Stocks/funds that have increasing price over time are what I look to accumulate.
I look for changes in the trend. Short term changes in price can be everyday volatility (noise) or the dynamics of a large market made up of individuals (noise). Short term changes in direction or rate of change can become long term changes in direction caused by changes in popularity (emotion) where the fundamentals don't support the stock price, or changes in the fundamentals where they used to but no longer support the stock price. Changes in the trend of sufficient duration to trade are of interest to the trader in me and longer term changes are of interest to the 401a investor in me.
Charts tell me what has happened and is currently happening. Reading gives me in detail information and speculation on what may be happening behind the scenes, what may already be but has yet to be recognized, and what may or may not happen in the future. This may tell me what to watch for or tell me something of the dynamics behind the charts. My reading provides the material to measure my level of confidence in the trends that I follow. I try to expose myself to as much opportunity to profit as I can, within the framework of avoiding losses of any significance. I am greatly inclined to sell to avoid losses. My reading gives me the intellectual framework to judge how great the risk of losses is.
DOES IT WORK?
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