A Solid Investment Strategy For a Shaky MarketJul 12 • Categorized as Investments
by Alexander Green, Investment U’s Chief Investment Strategist
Investment Strategy for Today’s Volatile Markets
As you may have noticed, the stock market is acting hinky again. That makes now a good time to review your investment foundation.
Here’s what I mean…
We keep past issues of our Oxford Club Communiqué – which includes our Trading Portfolio – posted on our website. A few months ago I received a letter from a new Oxford Club member who went back through the past couple of years and was astonished by what he found.
“You were heavily invested in top-performing stocks before the financial crisis, then went totally into cash early in the meltdown, then profited from the enormous market rebound that followed. How in the world did you get it so right? How did you know what would happen?”
The short answer is we didn’t know, never will know and neither will anyone else.
What will happen in the future to interest rates, currency values, and stock prices is always an open question. This is especially true when you throw in unforeseeable geopolitical events, thousands of pages of government legislation (and their unintended consequences) and a large dollop of fear, greed, and hope.
Accept the truth. You will never know what the future holds. And that’s okay because you don’t have to…
Taking Advantage of Stock Market Uncertainty
What you need instead is an investment system that allows you to take advantage of the uncertainty inherent in the markets.
Start by looking back at history. You’ll notice two important things.
- Owning profitable businesses is the best way to preserve and build wealth.
- Over the past two hundred years, the stock market has gone up more than three-quarters of the time.
Over the long term, shareholding is a winning game. Trying to time the market’s ups and downs isn’t. So we buy great companies – those we believe will post the biggest earnings surprises in the months ahead – and don’t worry about the tone of the market.
Protect Winning Positions With Trailing Stops
Yes, bear markets (which are normal) are nasty and will take your stocks way down. We don’t want that to happen. So we don’t let it. Instead, we carefully protect our winning positions by using trailing stops. As long as our holdings are trending up, we’re happy to stick with them. But when any stock pulls back 25 percent from its closing high, we bid it adieu.
That’s exactly what happened in the financial meltdown a couple years ago. When things started coming apart at the seams, our trailing stops protected our profits and raised cash. By October 2008, we had sold all 44 positions in our portfolio for an average gain of 28 percent. (Not bad for a year when the S&P 500 fell 36 percent).
Since we are not market timers, we started gradually rebuilding our portfolio and were able to profit handily all over again. We currently have 27 positions in our Oxford Trading Portfolio. Twenty-five of them are profitable. And our average short-term gain is 43 percent.
Yet here’s what millions of other investors did over the last few years instead:
- They watched their profits evaporate and didn’t buy much while things were cheap.
- They panicked, switched to cash and missed the rebound or
- Worst of all, they rode their stocks down, panicked and sold, waited too long to invest and only recently bought back in. Now they’re starting to feel nervous again.
Get Rid of the Fear and Anxiety of Stock Market Investing
Fear and anxiety are natural when you don’t know what the heck you’re doing with the money you intend to live on some day. But you can get rid of the fear by dumping an investment approach that doesn’t work.
Please understand, we couldn’t possibly have known how everything was going to unfold. And neither could anyone else. But we used – and still use – an investment system, for our Oxford Club members, that allows us to profit in good times and protect our capital in the bad.
Now that the market is acting jittery again, the question to ask yourself is “Am I using a system that allows me to capitalize on the uncertainty that is inherent in the markets? And, if not, why not?”
Editors Note: For additional information on this and similar topics, please see PremierOffshore.com