Thursday, December 15, 2011

S&P to Finish the Year Down - Investors and Parents Missing Out

On January first of this year I was asked where the S&P 500 would finish the new year after closing out the previous year at 1257. My answer was a resounding lower! This was in contrast to numerous analyst who were touting figures mostly ranging from 1325-1450. At that time the accounts under my management were 100% cash. Although I did miss some upside I have not succumb to the price declines felt by the buy-and-hold crowd or worse -- those who bought in during the first part of the year but sold after July.

Being an active manager has allowed me to beat the market by about 11.5% since the beginning of August after being 100% cash until that time. I do this by following what seems to be a self-evident principle that most investors and fund managers miss -- buy lower and sell higher. Instead of trying to maximize profits buy guessing the "low" and the "high" I simply seek a profit by buying lower and selling higher. Notice the fine distinction between that and "buy low and sell high" -- greed.

It is irrelevant what your buy-in price is as long as you follow this principle -- buy lower and sell higher. I trade the Standard & Poor's 500 ETF, referred to as the Spiders [referring to the Standard and Poor's Depository Receipts[SPDR] ETF, under the symbol SPY. Yesterday I got online at about 10:10am. I logged into the account and noticed that SPY was at 122.10. I had expected the market to weaken throughout the week after the exuberance of the non-event European Union agreement last Friday. I didn't bother looking for a trend, checking the news, volume or any of the comments by analyst and managers. Instead I followed my strategy of buy lower and sell higher. I placed a market order which hit at 121.957. That was lower than the price I had sold at over a week earlier. I was also hoping to strengthen holdings prior to today's unemployment report which I expect to improve slightly.

This decline also reinforces my conviction and basis for the prediction that the S&P 500 would finish the year lower. Regardless of what agreements may be reached by the European Union to prop-up member countries that have the potential to default on debt, no agreement will resolve the underlying issue -- governments are borrowing too much cash. Money that could be going into equities is going into bonds.

It is important to observe that most government and household debt is a result of the servicing of that debt -- the interest and opportunity costs. That is they are now paying the high cost of their procrastination and the opportunities they missed.

As we close in on two weeks to go the S&P 500 is down about 4% for the year as of Wednesday and is being guided by headlines from Europe. Specifically it is fear of a European contagion that is choking the US equity markets, and much of the world, at this time. Investors, reticent to ride the roller-coaster gyrations of the market, have been pulling funds out of US equity markets this year. The greatest amount was pulled out in August when prices were near their lowest for the year. Mutual funds have seen net withdrawals every month since.

This is going to be their undoing. Fear, an emotion, is being allowed to guide investment decisions. Instead, individuals should be assessing their personal financial situation and dedicating a proportional amount of their wealth to a managed US equity account based upon sound, logical principles.

This is unlikely to happen. In helping to manage the lives and custody cases of hundreds of people over the years I begin to see patterns. Being a student of Psychology and Anthropology reinforce the theories and conclusions gleaned from my observations of these cases. I suppose this is what makes me a successful stock trader, beating out three-fourths of professional fund managers who this year have not beat the S&P 500.

Fear and hesitation/procrastination will result in the loss of profit potential for many investors just as it will parenting time and other divorce settlement issues for many parents.

I am regularly contacted by litigants who are fearful of going into court, of making mistakes, of losing parenting time with or custody of their children. Often these parents have allowed their fear to paralyze themselves and then contact me in moments of desperation. In effect asking me to toss a life-preserver to them in an effort to rescue them from the anchor they have tethered to themselves which are now pulling them under.

Parenting, just as custody litigation, is not a moment-by-moment process to be addressed upon approach to a deadline or in response to an event. People that are effective in both view each as an ongoing process, a development, that must be tended to regularly. It is those who are proactive rather than reactive in their approach that achieve the greatest success.

In the coming year there will continue to be wild gyrations in the S&P 500. I will take a proactive approach and position my portfolios to take advantage of those. Unfortunately for most investors they will wait until the S&P 500 has maintained an upward bias with a floor of 1315 and much of the volatility has subsided before they reintroduce their money into the US equity markets. their investment decisions will be guided by fear of a loss and the hesitation to get in on a market until it solidly is moving up. That is called chasing profits. Their lack of foresight will cost them nearly all of any potential profit.

In the coming year I will continue to have parents come to me to "prepare for a custody hearing next week". This reactionary approach will continue to daunt many and leave children in a situation that is less than optimal -- fear and hesitation will continue to rule. Their lack of foresight will cost them financially and personally - missing out in the lives of their children for which they profess to care so much about.

Others will come to understand the importance of planning, receiving guidance and being proactive in their lives and that of their children. If you want to be one of these people please visit my website and contact my scheduler to make an appointment to meet with me.

If you would like to follow my activities more closely then send a friend request to my Political FaceBook page.

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More information about child custody rights and procedures may be found on the Indiana Custodial Rights Advocates website.

©2011 Stuart Showalter, LLC. Permission is granted to all non-commercial entities to reproduce this article in it's entirety with credit given.

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