Saturday, June 23, 2012

If your "broker" is a coach potato you will be too

Most people agree that a sedentary life style, commonly referred to as being a "coach potato" is not good for your health. Today I want to give you a bit of a financial health check.

In 2011 while stock analyst and other highly paid professionals at the largest financial management institutions, including Goldman Sachs, were highs for the S&P 500 that year from around 1350-1550 I was still predicting that the index would decline only about 1% for the year to around 1245. I missed the mark by 12 points, about 1%. The index was nearly exactly flat for the year having moved just .04 of one point.

There was much movement throughout the year though. So much that I was able to give my client a 9% return while guaranteeing against any loss -- something no institution will do. I only did this part time and beat 75% of the full time professionals.

This year I made a similar prediction and I am now being joined by some of the Wall Street analyst. More and more analyst are now starting to make the call that the major indexes may remain flat or with a slight upside bias and that clients should look for stocks yielding high dividends. The "buy and hold" strategy is no longer the rallying cry of stock brokers.

Trading is a strategy that I again recommended for this year. Although I a high of 1352 [which was already beat by 50 points] and a low of 1108, possibly 992, I believed that the index would finish the year at 1323. That would be a hefty 8% gain as measured by recent years. However it would miss the greatest opportunities.

The market has already experienced a 15% gain and then given up nearly all of it. On 05 January 2012 I said, "I look for European difficulties to reach a peak around April. That month may prove to be a good buying opportunity for a bounce." On 02 April 2012 SPY, the trading tool for the S&P 500, reached an intraday high of $142.21 -- a gain of 13% since the beginning of the year. Through 18 May it declined 9% to an intraday low of $129.55. The low for this year came on 04 June 2012 at $127.14 producing a total decline of 10.5%. As of the close on Friday 22 June 2012 of 133.46 SPY is now up 6% for the year.

Just as the 13% gain reached on 02 April was reduced to a 1% gain I believe that the current 6% gain will be reduced to a loss before the end of the year but will then turn around into a gain based upon political resolution and some stability in Europe after the dust settles from an impending calamity that will drive the market lower.

My timing on the decline of the S&P 500 began in April as predicted but the best buying opportunities didn't occur until May and a few days into June. Point being is that the market moved just as I had predicted on 05 January 2012 and for the same reasons. Point being is that just a casual market participant as myself can see these macro trends and predict them and make trades based upon them then a professional market participant should be able to do the same or better. After all, these are the people who are hired because of their various degrees and spend their entire day engrossed in the financial markets. So why is it that last year I beat 75% of the professional fund managers and appear to be doing the same again this year? I contend that it is the couch potato syndrome.

There once existed a conventional wisdom that home prices never decline -- that was resolutely debunked beginning in 2007 and running its course through 2010 that saw declines in some markets of 50% while every market experienced at least some real loss. Another conventional wisdom was that stock traders lose money and that it is best to buy and hold. Well if you bought and held SPY 5 years ago you would be at only at an 11% loss. At 10 years ago you would be at a 35% gain, not including dividends [usually around 2%], which gives an annualized return of under 3% or about the rate of inflation. Thus, your weighted return is the dividend only. So what that really means is that buy and hold will match inflation and you will get a return on your investment of the dividend only. Buy and hold as a high quality investment option has clearly been debunked.

To make money in the stock market one needs to apply the same principles as one would to daily living and parenting. Stock portfolios need to be maintained just as houses or relationships do. Fund managers who take an inactive approach will produced insufficient results much to your demise.

In a time when many are lamenting their financial performance they are failing to direct their assessment of blame towards the proper culprits -- themselves. Just as the fund managers who control their retirement/pension fund or investment portfolio have done they have also taken a couch potato approach to their money management. To be effective one must be prepared and willing to make instant adjustments to conform to the ebb and flow of the tides of life.

As I provide coaching to people involved in child custody disputes I observe the same underlying causes that have led to their plight -- a failure to be prepare and make changes as circumstances and demands change. There is no justification to a buy and hold attitude with money management nor any of the other disciplines that are integrated into the experience we call life. Don't let the attitude of your "broker" that makes you "broker" do the same to the relationship with your children.

If you need assistance with financial or child custody matters 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.

Subscribe to this blawg.

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

©2012 Stuart Showalter, LLC. Permission is granted to all non-commercial entities to reproduce this article in it's entirety with credit given.

No comments: