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Making Money in Today’s Market. Bottom Fishing for Big Run-Ups A Timing and Stock Selection Strategy used for about one month, two or three times each.

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Presentation on theme: "Making Money in Today’s Market. Bottom Fishing for Big Run-Ups A Timing and Stock Selection Strategy used for about one month, two or three times each."— Presentation transcript:

1 Making Money in Today’s Market

2 Bottom Fishing for Big Run-Ups A Timing and Stock Selection Strategy used for about one month, two or three times each year Presented by Herb Geissler, Managing Director of The St.Clair Group And Leader of Rational Investing Special Interest Group of Pittsburgh AAII

3 Good news: Will show you how to profit during bear markets Bad news: Bear markets likely to persist for 10 more years Ugly news: Doing nothing can yield the worst results

4 Primary Determinants of Investment Performance Widely held notion that asset allocation policy explains more than 90 percent of investment performance between mutual fund managers (with stock selection the remainder) is now disputed by Ibbotson Associates Widely held notion that asset allocation policy explains more than 90 percent of investment performance between mutual fund managers (with stock selection the remainder) is now disputed by Ibbotson Associates Ibbotson’s research now demonstrates that “about three-quarters of a typical fund’s variation in time-series return comes from general market movement, with the remaining portion split roughly evenly between the specific asset allocation and active management (of stocks held).” Ibbotson’s research now demonstrates that “about three-quarters of a typical fund’s variation in time-series return comes from general market movement, with the remaining portion split roughly evenly between the specific asset allocation and active management (of stocks held).” March/April 2010 issue of the Financial Analysts Journal March/April 2010 issue of the Financial Analysts Journal Clearly, being in the right direction (bull vs bear) is far more important than selecting the best industries or best stocks Clearly, being in the right direction (bull vs bear) is far more important than selecting the best industries or best stocks There is only one side of the market – and it’s not the bull side or the bear side, but the right side. - Jesse Livermore

5 Is the Big Bear Ready To Go Into Oblivion?

6 Bears Come in 3 Sizes Twice each century, Secular Bear markets drop more than 35% during depressions requiring capacity corrections Twice each and every year, Seasonal Bear markets typically drop 5 to 15% Twice each decade, Cyclical Bear markets drop 20 to 35% during recessions requiring inventory corrections

7 Mapping Market Terrain to anticipate bottoms “20” year cycle of lean and fat years “20” year cycle of lean and fat years Presidential Cycle of pump-priming Presidential Cycle of pump-priming Annual Seasonal cycle in Spring & Fall Annual Seasonal cycle in Spring & Fall

8 Buy and Hold is in a Coma with flat returns likely for ten more years Invest (buy & hold) during strong bull markets Trade (buy & fold) during consolidating decades; Requires smart timing and stock selection and disciplined entry and exits Driven by demographics year cycle increases two to ten-fold, then wobbles going nowhere during next years During next 10 years, must make money on the wobbles

9 Cyclical Economic Forces Drive Market Direction Earnings per share InflationRateInterestRates Stock Prices MarketConditions UpUpDownUp Bull market begins UpDownDownUp Bull market thrives UpDownUpUp Rarely happens UpUpUpUp Bull market ends DownUpUpDown Bear market begins DownDownUpDown Rarely happens DownDownDownDown Bear market thrives DownUpDownDown Bear market ends Truth Table in VectorVest Views on 3/21/2003 for Economic Cycle Currently, we are in a bullish cyclical period within a secular bear market While industry has cut back debt and cost-excesses at a remarkable pace, tax and interest rate increases in 2011 will stifle economy

10 It's profitable to be in the market when the S&P500 EPS is rising and to hunker down when the EPS is falling

11 Presidential Cycle Is Encouraging for 2011 DJIA Gains during Presidential Cycle since1886since1950 % up Years Annual Gain % up Years Annual Gain Pre-Election79%11.1%100%18.7% Election Post-Election MidTerm

12 For Cyclical Periods, 12 Month Moving Average Pinpoints Reversals During past 10 years, would have averaged 6.6% annual gain with 11.5% max draw-down vs 1.2% gain and 52.6% mdd with Buy & Hold Explained more fully in Dynamic Allocation book

13 Two Corrections Each Year Wait for that FAT pitch Warren Buffet

14 Bottom-fishing lowest momentum stocks produced spectacular results Jail Break gained 201% between 3/9 and 4/17, as SPX gained 27%

15 Key Elements in Bottom Fishing Strategy 1. Identify “juicy” low points in market 2. Determine when bottoming is over 3. Find “strongest midgets in the room” 4. Enter positions cautiously, with a tailwind 5. Exit before the party is over 6. Enter momentum strategy for more gain 7. Exit momentum to assure cash for fishing 8. Wait patiently for the next “fat pitch” I made the most money in the waiting. - Jesse Livermore

16 SPXA50R Reveals The Really Juicy Points

17 Bottoms Are Juicy When Less Than 1/3 in S&P 500 are over their MA50 Good Entries and Exits when SPXA50R crosses its MA20

18 Vector Vest Has Many Bottom Fishing Strategies

19 Historical Results were Spectacular, even with simple one-month hold 4 out of 5 forays were profitable 4 out of 5 forays were profitable Winning forays were 3-4 times more profitable than the few losers Winning forays were 3-4 times more profitable than the few losers Small Cap strategies averaged 25% gain within 1 month, beating Jail Break Small Cap strategies averaged 25% gain within 1 month, beating Jail Break

20 Small Caps were profitable 90% of time with average gain of 30% in one month Thanks to Earl Novendstern for the analysis

21 During past four years, small cap bottom-fishing gained 65%-90% per year 2 or 3 forays each year, held for one month per foray

22 Stops Help Somewhat, But Must Be Refreshed

23 FINVIZ.com

24 Enter With Tailwind Buy positions after “amateur hour”, only if market indexes are moving up Buy positions after “amateur hour”, only if market indexes are moving up Premature entries are more costly than a delay of a day Premature entries are more costly than a delay of a day Buy “half position” on MA10, balance at MA20 Buy “half position” on MA10, balance at MA20 But if $SPXA50R > 50%, it’s too late But if $SPXA50R > 50%, it’s too late Panics end more abruptly than “climbing the wall of worry” Panics end more abruptly than “climbing the wall of worry”

25 Exit When Comfortable, before the party ends Hold for One Month or… Hold for One Month or… Exit all when SPXA50R < MA20 or… Exit all when SPXA50R < MA20 or… Exit each stock at 30% gain or…. Exit each stock at 30% gain or…. Exit each with Chandelier stop or…. Exit each with Chandelier stop or…. Exit each at its’ MACD crossover Exit each at its’ MACD crossover Then switch into a Momentum Strategy

26 Knowing When You May Be Wrong 1. When SPXA50R fails to cross its MA20 within a few days of crossing MA10 2. When foray loses more than 7% during first week 3. When subsequent decline exceeds 5% of initial investment Re-evaluate entire market environment and VIX and SPXA50R to decide

27 Exit When Drops Below MA20 to Preserve Cash for Bottom Fishing

28 Recap Key Elements in Bottom Fishing Strategy 1. Identify “juicy” low points in market 2. Determine when bottoming is over 3. Find “strongest midgets in the room” 4. Enter positions cautiously, with a tailwind 5. Exit before the party is over 6. Enter momentum strategy for more gain 7. Exit momentum to assure cash for fishing 8. Wait patiently for the next “fat pitch”

29 Any Questions?


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