If you're feeling overwhelmed by the investment choices and economic challenges in today's financial markets, that's understandable. As a veteran writer and investor, I can attest that it's all too easy to wander off into the weeds by getting too complicated.
That's a big reason why - in my Strategic Advantage advisory service - we try to keep things as simple as possible. It's a strategy individual investors would do well to follow.
If you can stay out of bear markets and participate in the largest portion of bull-market cycles, you can make a lot of money as an investor. They key idea is to make the markets work for you when they are open for business - and to get out of them when they're closed.
For Strategic Advantage members who wish to invest in the capital markets, we pretty much stick to just four menu items when making our investment choices. Those items consist of:
- A list of exchange-traded funds (ETFs).
- A list of stocks.
- A list of "special situations" (including options).
- And short-term, opportunistic product plays, such as one posed by Goldman Sachs Group Inc. (NYSE: GS) and other U.S. investment banks, which I detailed in a widely read column earlier this week.
The Key Question to Ask
Before we make any decisions, we first always ask a very simple question: Is this a good time to be invested in stocks?
We make this decision in a simple but effective way. If a market (U.S. stock indexes, European indexes, emerging markets, etc.) is trading above its 12-month moving average, particularly after two consecutive months, then we determine it is in a "bull" cycle.
But if that market isn't in a bull cycle, then we avoid it.
Naturally, there are nuances in some cases (for instance, as my many regular readers know, there are times that we'll resort to the seven- or 10-month moving average), but that is the thrust of our approach.
This method keeps you out of a lot of trouble.
When the broad U.S. stock market dropped under its 12-month average in December 2007, we recommended avoiding it (except for a couple of individual sectors and regions that bucked the trend through mid-year, such as steel, energy and Brazil). We didn't recommend getting back into the market in a major way until May through July of this year, when the 10-month average was breached from below at the close of a month.
This is just what the big cabals that run the markets do: They drive the markets down to make stocks cheap, and buy them when the economic outlook is terrible and the public is fearful - like last year and early this year.
By operating in this manner, these big cabals fulfill the prime investing directive that I outlined above: They make the markets work for them when they are open for business (and cheap) and avoid them when they are closed (and expensive).
Then they hold their stocks until everything looks golden a few years later, and they finally unload them on an unsuspecting public. Profiting as an investor is really not complicated at all once you accept this reality. You must stay "in synch" with the cabal. In terms of their clannishness and commitment to prospering as a group, they're not a whole lot different than the mob or the Syndicate.
The More Things Change...
I have studied biographies of the greatest investors, traders and financiers from the 1200s to the present day, and have also looked at the boom-and-bust cycles that have played out all around the world throughout history.
My latest book project - which I just completed - forced me t o once again look particularly closely at all the up-and-down cycles of the 1860s to 1930s.
The advice of all sages boils down to what I have just told you: Get involved in bull cycles as early as you can identify them. Keep holding through minor setbacks and stagnant sections that don't violate the primary trend. And sell short - or get out altogether - when the primary trend turns negative.
My new book - an annotated edition of the investing classic, "Reminiscences of a Stock Operator" - is a fictionalized account of the very real Jesse Livermore, one of the greatest traders of all time. Although the book was published in 1923, it remains highly relevant today. At one point, the main character - a trader named Larry Livingston (Jesse Livermore) - summed up the essence of successful investing.
"Big money is not made in the individual fluctuations but in the main movements, not in reading the tape but in sizing up the entire market and its trend," Livingston said. "It was never my thinking that made the big money for me. It was always my sitting."
That sounds simple, and it is, meaning it meshes well with the mantra of this column: Simple strategies work best. But there are some important implications that we must consider about the markets that we face today.
Right now, the major developed-nation markets are bullish. But they haven't really gone anywhere in a month. At times like this, it's tempting to think that the up-cycle is going to fall apart, and that you'll be left holding the bag.
But you have to trust me on this: Once a primary trend gets rolling, such that indexes have moved above their seven- to 12-month averages for more than two straight months, they are very hard to push off track. These cycles tend to last at least 18 months - and more typically persist for three or even four years.
That's why I tell investors who buy into ETFs to avoid much trading once they make their move. I am absolutely not an adherent of the buy-and-hold- forever theory.
But buy-and-hold does work if you buy low enough and hold just the right amount of time.
[ Editor's Note : As the story above demonstrates, Money Morning Contributing Writer Jon Markman has a unique view on the markets. With uncertainty the watchword and volatility the norm in today's markets, profitable investments are harder than ever to find. It takes a seasoned guide to uncover the best opportunities.
Jon Markman is that guide .
As this column demonstrates, this veteran portfolio manager, commentator and author sees it all. And that's why investors subscribe to his Strategic Advantage newsletter every week.
In the face of what's been the toughest market for investors since the Great Depression, it's time to sweep away uncertainty and eradicate worry. Subscribe to Strategic Advantage. Hire Markman to be your guide.
For more information, please click here. ]
News and Related Story Links:
- Money Morning Weekly Market Preview Column:
How to Profit From the "Evil Genius" of Goldman Sachs.
"Reminiscences of a Stock Operator:" Annotated Version by Jon D. Markman
- Strategic Advantage:
- Money Morning Special Report:
Markman on the Markets: Historic Bull Run in Bonds Points to Higher Prices for U.S. Stocks