Leading Off…

March 12, 2014

Did you panic sell today? Did you sell because of fear?  Honoring a stop, a target or your plan is of course acceptable.  What is not  acceptable for the long-term health of your portfolio is taking action based on emotion.

I was meeting with a client this morning talking about this very issue.  I was mentioning that most folks get short or sell at exactly the wrong time.  Most folks don’t have a plan and panic when crisis seems to hit the markets.  On the flip side most folks tend to take profits too soon.   I then proceeded to tell him the strategy that I created that addresses the issue head on and fixes it for most investors.

I don’t have a fancy name other than to call it my ETF strategy.  It’s widely popular and proved to be so effective at producing positive results while protecting gains that it was adapted into several core products by my former employer.  So what is at the heart of this “miracle” cure?   Discipline.   Good old-fashioned discipline.

The strategy is rule based – meaning you take action based on technical signals from the market.  You don’t argue and you don’t hesitate.  You take action.

It’s very simple – when the market enters a new uptrending phase you buy one or two specific ETFs.  And then you sit and wait for your signal to exit.   Eventually the market will become weaker – the charts will tell you when – usually when a cluster of high volume selling days – distribution days – appear in a 30-45 day window – you sell and move to cash.

This type of exit based on distribution removes the emotion from your investing.  It also will stop you from blowing up your accounts like many did in 2008.

The question you have is what ETFs and what’s the timing.  You most likely want to know the results.  I use specific ETFs and I’m disciplined in my entrance and exits with the strategy.   As for the results over the last ten years you would have achieved a 254% gain VS a 200% over the Nasdaq.

Not impressed?  Consider the following… to get that 200% gain in the Nasdaq you would have had to sit through all of 2008 praying and hoping that the market would come back.   My strategy would have had you in cash during the violence of the markets that wiped out so many of our fellow investors.

So what is the risk?  Since 12/21/11 this strategy has returned 30%.  You should now ask – what drawdown would you have had to suffer through to earn that 30%.  The biggest drawdown was 3.21% – meaning that to achieve a 30% return you would have had to risk 3.21% since 12/21/11.  Can you use 2x or 3x ETFs while minimizing your risk?  You bet.  There is one ETF I use that has achieved a return of 97% while risking only 7% during the same timeframe.

I’m working on a class and will present this strategy during an evening webinar in the near future.   In the meantime if you’d like to learn more please email me at tim.reazor@noramasset.com or follow me on Twitter @TJReazor

Best Regards,

Tim