Worthwhile Thoughts On Investing

From time to time, I have quoted Al Thomas, author of the book “If it Doesn’t go up, Don’t buy it!” Al wrote another column this past weekend worth paying attention to:

A year ago I wrote in this column, “I don’t know what mysteries 2008 will bring, but I will predict that anyone without an exit strategy is going to have a bad year.”

Those who heeded this advice did not lose from 40% to 80% of their money. Even those with “expertly” managed 401Ks lost more than a little. Of the thousands of mutual funds it is doubtful that more than 1% actually made a real profit. Now the braggarts are telling their clients that the S&P; went down more than 40% and their account only went down 30%. And those bums actually believe you should be congratulating them.

A properly managed mutual fund or one managed by any financial planner should not have lost more than 10%, maybe 15%. Actually if they knew what they were doing there should have been only about 5% losses and a knowledgeable manager should have shown a profit this year. I did.

The milk is spilt. Get the mop. Life goes on. For the poor investor (pun intended) it is now time to understand what happened and not to let it happen again. Those are the key words, “Not to let it happen again”.

There are times as in this past year when all money should have been parked in a money market account. This is standard procedure during bear markets. Investors don’t make any money, but even more important they don’t lose their money.

As I continue to preach the secret of the market is not buying, it is selling. An exit strategy must be in place at all times. Most fund managers do not have one. Your money should not be with this fund.

Whoever controls your funds should give you a written statement of how much they are will to let your account decline before going to cash. Few will give it to you. Find one who will or learn to manage it yourself. You could not have done much worse in 2008.

There are many good reasons to be long now. Long means it is time for those who were smart enough o sell out in early 2008 to take the rubber bands off their cash and plunk it down on the black. There are some who were smart enough to stay out while the Wall Street roulette wheel was coming up red on every play. The odds have changed.

For those who listen to the voice of the market it is saying it is going to go up for the next 3 months and maybe even 6 months. It will give the Buy N Holders a chance to sell. They won’t. Their brokers will tell them the bull market is back and it is going to make new highs. It won’t.

With a good manager you will have an opportunity to get back about 50% of what has been lost this year.

Start shopping now for a new fund, broker or money manager who knows how to protect clients’ money.

It’s a pretty safe bet to repeat Al’s prediction for 2009 that anybody without an exit strategy will have a bad year again.

I agree with his notion of a rally in the near future before the markets will head south again. It doesn’t really matter if this prediction comes true or not, what matters is that you have a plan in place for dealing with the uncertainties of the market place. That requires you having a reason for entering into a position as well as a plan to exit should your decision turn out to be wrong.

Remember, taking small losses is part of investing; watching your portfolio go down 40% is inexcusable.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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