I have no skin in this discussion, but low and behold, I just got an article emailed to me through my AAII membership (american association of individual investors). If I can paraphrase what I think it's saying, TA is not the holy grail for investing. It is a system of looking at past market behavior that attempts to set the probabilities of markets moving up or down in your favor. It does not predict the future. Does it work? I have know idea. Sounds like a couple of you guys have used it successfully. But as vintagefreak commented, if you use it to minimize risk, to sleep at night, to get out before big market drops, maybe that's a benefit. Problem I see (just my opinion) is there may be just as good a chance you are getting out (or in) at precisely the wrong time.
I can't link the article because you would need to be a member to view it, but below I copy/pasted one interesting section, fwiw:
"How It Works
Critics will point out that forecasting future price movement based on past price movement is akin to reading tea leaves or divining the future from the textures of chicken entrails. Many of the high priests of fundamental analysis are quick to call technical analysis the financial world’s alchemy.
Indeed, chart watchers cannot predict the future any better than your broker, your spouse or a Ouija board.
But what they can do better than most is make a decision about what to do—buy, sell or hold—based on the probabilities of the actions of others given certain conditions. In other words, if a pattern on the chart appears, a chart watcher can create a framework for what the market might do if and when prices break free from that pattern. It does not work every time, but past performance does give us an idea of what will happen so we can do something about it."

Reply to @Flack:
Hi Flack,
Thank you so much for reading and responding to my posting.
Somehow I sense that you and I do not share a common ground on the merits and shortcomings of investment Technical Analysis (TA).
There’s absolutely nothing shocking or unusual about a divergence in opinion, especially over investment matters. The marketplace only functions effectively when there is a near equality in sell/buy decisions. I certainly respect your decision to embrace some form of TA; I anticipate that you respect my decision to mostly reject that approach.
Note that I qualify my rejection with the adverb “mostly”. Although I do not deploy any TA techniques when making specific investment decisions, I do use Index-like Moving Average methods to confirm or reinforce my top-tier, global asset allocation decision.
I am a little perplexed that my use of the word “challenge” rubbed a sore spot. It was not introduced in any aggressive manner; I was simply attempting to construct a more colorful, entertaining submittal. Perhaps I should have “invited” a reply rather than laying down the gauntlet challenge. Confronting and overcoming challenges are a ubiquitous and necessary part of life. I am somewhat stunned by your sensitivities. Without challenges, life would be moribund.
If the choice of a single word represents the sum total of your objections to my piece, then I accomplished my goal. Look, if you subscribe to TA methodology and mythology that is your business and your business alone. Given that you are a seasoned and scarred investor, it would be imprudent of me to try to convince you otherwise. My posting was directed at neophyte investors who might benefit from my experiences, many of them involving fruitless TA adventures.
I have been investing and studying investing for over 55 years, the first decade almost exclusively dedicated to understanding and applying TA approaches. For the most part, those approaches failed to deliver index-like rewards. I am flexible enough to recognize that the failures could be attributed to either the methods themselves or to the defective way I implemented them, or perhaps even to the investment period itself.
You labored over the fact that I have formed biases and preferences. If an investor has not done so, he is truly lost at sea. Choices are the end game event in the decision making process. I further propose that the highest value product in decision making is the process itself, and not the actual final decision. Within the investment universe, the decision is really never final since it can be easily reversed whereas a corrupted decision process can do continuing damage to both wealth accumulation and preservation.
Investing is all about alternatives, options, biases, preferences, and choices. Luckily, they are all temporal and reversible, albeit usually with some financial penalties. At this moment, and at the highest level of investment decision making, I favor diversification over concentration, mutual funds over individual securities, active over passive fund management, long-term investing over short-term speculation, fundamental analyses over technical analyses, and home grown products over foreign entities.
These current favorites are not absolute nor are they forever permanent. Since the future is unknown and unforeseeable, I subscribe to a mixed portfolio asset allocation philosophy. To illustrate, my present portfolio contains two highly focused mutual funds, but is dominated by funds that have largely diversified holdings.
Let’s agree to lighten the tension just a little bit. Your reply reminded me of a famous World War II pilot’s saying. It goes something like this: If you don’t take any Flack, then you are off-target. Since you provided the solicited commentary, I presume I was on-target. I apologize for the WW II reference; it is just my poor attempt to inject some humor into this exchange. This is not a serious matter that warrants misbehavior. We merely disagree on an investment approach. Among the investment cohort, what’s new about that? Nothing.
I’m puzzled and pleased by your interest in my annual market return forecast. I am surprised and flattered that you saved it. I do not. On a yearly schedule, I complete a rather superficial analysis to either affirm my present asset allocations or to inform of the need for an incremental adjustment to it. In performing the calculation, I employ a generic formulation recommended by John Bogle in his commonsense book.
My modified version of the Bogle method includes a fundamental component that incorporates factors like equity dividend yields, population and productivity growth estimates, corporate profit projections, and a correlation between corporate profits and GDP growth rate. A second element in the calculation involves a speculative component that is evaluated using P/E ratio change guesstimates and sentiment signal forecasts. It is fun to assess likely market returns, but it is definitely not a precision tool. The procedure is unsophisticated from an economist’s perspective and demands only about one hour of attention.
The procedure almost always yields a positive market prediction so it is directionally biased and consequently is historically correct only about 70 % of the time. I fully recognize the deficiencies of the overall method, and I documented it accordingly. I freely admit that the forecast has a lot of guesswork embedded in it. Perhaps I did not emphasize the shortcomings of the forecast clear enough when I posted it. Sorry about that. I do not claim soothsayer capabilities.
If I felt the need to update my overall market forecast today, as you requested, I would likely lower my equity market projection somewhat. The various government efforts to revitalize the economy have disappointed. I fear full economic recovery is still a ways off. The Federal Reserve continuously addresses this dire situation. The current issue of the Business Outlook Survey by the Philadelphia Fed supports my assertion.
Here is the Link to that referenced study:
http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2011/bos0811.pdf
Best wishes for your continuing investment success.

Reply to @Flack: Because I'm too tired to go into detail:
1. MJG is an old-fashioned investor. Buy and hold, yadda yadda.
2. MJG is an optimist in the "We've been through bad things before, the USA is so great that we'll get through this and all these problems aren't worth worrying a moment about" (to paraphrase) style. Hope and optimism are not investing strategies or a solid foundation for investing strategies. One can hope for the best as long as they don't completely ignore the idea to also plan for the worst just because they'd really like for things to be happy and wonderful. Because we got out of messes before does not make us getting out of this one assured. Anyone who believes our politicians are not capable of screwing things up much further is delusional (or under the belief that it's all "the other party"'s fault, which sounds a lot like what members of both parties are saying rather than trying to work together.)
Overall blanket negativity (remember Bill?) is not a strategy either. However, to use an example, people acting like Bank of America (which is now heading lower again this morning) and Citigroup trading at fractions of their book value is not an issue because of blanket statements from financial media like "our banks are strong" (which, oddly, is sort of what the bank CEOs said a variation of right before 2008, wasn't it?) is, to put it lightly, actively choosing to look at the world through rose-colored glasses. Good luck with that, and I'm sure if there actually is a serious issue with either of these institutions (Bank of America at this point is either a tremendous value that everyone should be buying hand-over-fist or in serious trouble - I completely agree with this: http://market-ticker.org/akcs-www?post=192745) and/or another financial crisis, there will be people who will go (again), "We could have never have seen this coming!". I argued on fundalarm over a year ago that these financial companies weren't values and hadn't changed since 2008 and people acted like I was nuts and screamed at me about how they were "value stocks!". BAC now down 50%YTD (add another 6% drop this morning as of this point and almost trading with a 5 handle), C down 44%YTD, the XLF down 25% YTD, AIG down half YTD, etc.
This is indicating that these entities are all "strong" and "in great shape", right? Riiiiigghttt.
Europe isn't in great shape either, but pointing out their problems does not do anything to solve ours (and we cannot blame all of our problems on them, although many would like to.)
3. I don't know how TA works consistently in this environment when you can have sudden (reactionary or otherwise) policy shifts, aggressive rumors (wasn't there a European leader a couple of months back who flat-out admitted that he lied about the status of an important meeting because he didn't want to upset the market?), HFT and more. It's (fill in the blank) chart pattern until some rumor comes out and cancels it. I completely and wholly believe that if things get worse, sudden/reactionary rumors and policy shifts (from here or overseas) could be seen with greater frequency as leaders again scramble to solve longer-term issues within days (and then ignore them once everything has calmed down.) And holy crap, I don't want to put anymore time into thinking about investments than I already do; I don't want to sit and figure out if something is x% under the 200 day MA, and therefore, XYZ. However, I give respect to the people who do want to sit and do that and can. Theoretically, I don't get how TA can be consistently successful in this environment, but people pull it off and I give them credit for that.
4. I own a TA-related fund (GTAA ETF), but it isn't a huge portion of my portfolio - however, it acts as a portfolio-within-a-portfolio. I don't want to try to carry out this strategy on my own (and especially on that epic a level) and this does. There are no manager decisions within this fund (aside from the ability to slightly hedge in periods of severe volatility; I believe it's used S & P puts on one or two occasions), it is purely technical and can be 100% invested or, if the situation calls for it, 0% invested. The managers of this fund have written extensively on the subject and their papers are available online or at the manager's blog, World Beta (anyone who doesn't believe in TA can read their case.) I don't think this strategy is foolproof (anyone who thinks any strategy is foolproof is insane), but I do think that there will be times when this strategy works well and times where it won't. I don't believe it will be a goldmine, but do expect to provide reasonable/conservative returns over a longer period and they have the infrastructure to potentially pull off their stated strategy (as well as expand it - the fund has taken on sector ETFs now.)
5. This gets to the point of this bickering over which strategy works. I completely don't agree with the old-fashioned buy-and-hold strategy as one's only tactic in this market environment (or beyond that, this day and age). However, if you make it work, good for you.I don't get how TA can consistently work in this environment of policy changes, headline risk, HFT, etc - but if someone can pull it off, great.
I'm a very large believer in that there is not one correct answer to investing, but people hang on to their beliefs in TA or buy-and-hold or whatever to the level of religion.
There's not one right answer, and in this environment, *a blend of different strategies* (I think) may be very helpful (and I've talked about trying to look at one's portfolio as a series of different buckets within the overall bigger picture), but this acting like something is "the one true strategy" is silly (to use a lighter word.) Trying to pull together a greater variety of tools is - I think - an excellent way to handle this environment. People never stop learning at this and as time passes (rise of technology in investing, etc) things change. I absolutely will be the first to admit that I continue to learn, but I do know that this debate over which "investing religion" you subscribe to and how x strategy is great/terrible is absurd.
"In some ways TA is religion-like. True Believers believe because they want to believe."
Give me a break - many strategies (including the "buy and holders") treat their particular strategy as "the one true strategy". You could very well be described as a "true believer" in the various investment theories you've written so extensively about. It's ridiculous, and people have had success using countless different strategies over the years.

Reply to @bee:
No, I haven't seen data in this form, but I've read about it's use. In fact, I read an excellent financial book while on vacation this summer that mentions it, "A Random Walk Down Wall Street" by Burton Malkiel. When I saw it in the book, it was like, "hey, I do that". Kind of reassuring. I recommend the read as have many others who post here.
To take this data a step farther, once you have the low and high probability #'s for each fund, you can multiply each number by the percentage of that holding in your portfolio. Add all those values together and you get an idea of how your portfolio as a whole will "probably" perform. Basically you can say "I'm 90% confident yearly returns for this portfolio will fall between the high and low values in any given year".
Example, if your portfolio consists of 4 funds:
PRPFX has a return range of -8 to +31 x.25 = a range of -2 and +7.8
OAKBX has a return range of -18 to +21 x.25 = a range of -4.5 and +5.3
MAPIX has a return range of -18 to +43 x .25 = a range of -4.5 and +10.8
TGBAX has a return range of 0 to +26 x .25 = a range of 0 and +6.5
(notice the risk return comparison for PRPFX compared to say OAKBX. more potential gain -> reward, less potential loss -> risk)
add the low and high values and you can say "I can be 90% confident this 4 fund portfolio will give returns of between -11% and +30.4% annual returns". If you wanted to be more accurate on the range, say 95% probability, you would use 2x the standard deviation. The range would be larger. 99% probability would be 3x the std. Using 1x std would be 68% probability. If you are able to build spreadsheets in Excel, this is very easy to set up.
Hope that helps. Just another tool to analyze risk/return in a portfolio.

Mindy, what does it say about gold that your plumber is buying it? Here's a rather famous story about the crash of 1929:
"The story of how Joe Kennedy avoided ruin in the 1929 stock market crash is a Wall Street legend. While getting his shoes shined, Kennedy’s shoeshine boy started giving him advice on what stocks to buy. At that very moment Kennedy claims he had an epiphany, realizing that it must be time to sell. After tipping the bootblack, Kennedy reportedly hurried away and sold all of his stock holdings just in time to avoid the carnage of the 1929 stock market crash.
Similarly, Bernard Baruch, the legendary Wall Street trader, famously wrote of the zeitgeist as it manifested in the common man at the height of the 1929 bubble:
“Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day’s financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me tips and, I suppose, spent the money I and others gave him in the market. My cook had a brokerage account and followed the ticker closely. Her paper profits were quickly blown away in the gale of 1929.”
Shoeshine boys (taxi drivers, waiters, etc.) giving stock market advice has become a Wall Street metaphor for prototypical behavior at the top of financial markets bubbles."
I would include plumbers in the group with shoeshine boys.

Hi Guys,
Technical Analysis sings a Siren’s song.
I have noticed an uptick from MFOers who are now defecting to technical analysis to inform their mutual fund investment decisions. That decision is likely prompted by a roiling marketplace that has destroyed investment returns.
Unfortunately, expected Technical Analysis (TA) results are more an illusion than a reality; TA methods are mostly a set of ad hoc rules that have no scientific foundation, little, if any, verifiable returns, and a paucity of documented performance studies. Its limited success is mostly asserted by the countless books and seminars that create wealth for their authors and lecturers, but not for their clients. The Internet offers a zillion technical analyses methods and unsupported claims.
The reason for its popularity is obvious; it promises reward without risk; it promises wealth by next Friday; it promises a mechanical system that requires no anxious decision making. These are false promises that are not reliably deliverable. Random successes occur.
I personally know several investors and have been exposed to a host of financial advisors who champion TA; some are True Believers, but others are slippery charlatans. I actually admire the principle-motivated True Believers, but they will learn over time of the discipline’s shortcomings. I did.
I started investing in the mid-1950s. My initial decision making tool was TA-based. My decisions were rooted in the methods proposed by Robert Edwards and John Magee in their classic book “Technical Analysis of Stock Trends”. I applied their methods using arduous, hand-drawn graphs. I still occasionally consult my tattered copy of their tome. My general conclusion is that pattern investing is a wasteful and profitless investment procedure, although graphs are a useful way to summarize huge data sets and it does yield some very generic trend guidelines.
TA proponents like to equate their methods with those of scientific, natural laws. I suspect that ephemeral comparison is made to foster credibility in the mind of investors; numbers have a powerful influence given uncertain outcomes. But investment outcomes are not governed by inviolable physical laws. Natural physical laws are static and do not change with circumstance or time; investment outcomes are dynamic phenomena that are event and people-driven happenings.
Physical laws are controlled by atoms and electrons on a sub-particle level, and by material properties and interactive forces on a macroscopic level. Equivalent investment laws do not exist because the agents (people, institutions, and events) and the characteristics that generate the interactions change constantly to reflect circumstances and human emotions.
Behavioral research has established that humans are pattern seekers. We like to identify and connect the dots. Technical analysis purveyors trade on this predisposition. And these TA purveyors and their techniques have proliferated. There are hundreds of TA procedures readily available for application. But, do they work as advertised?
What all these TA procedures have in common is the lack of a performance track record. This MIA (Missing In Action military jargon) evidence is shouting a loud message. If the success of the methodology is well established, its purveyor would jump at the opportunity to publish those results. He would be instantly famous. He can’t because it does not exist.
Most often, a recommended TA system is endorsed because of a successful back-tested comparison. Of course it was successful; that’s the primary reason that it is being endorsed. All the other procedures that failed in the search for a fruitful correlation have been summarily rejected and tossed into the wastebasket.
The challenge is if the recommended method will produce consistently superior returns in the future. That is the acid test. Be assured that they all have failed that test somewhere along the road. Otherwise, that surviving TA methodology would be the toast of the investment world. It would quickly and universally be adopted by all of us seeking financial security. It is an unfulfilled dream.
I do not know of any billionaire TA wizards. Even starting with a small kiddy, if these TA systems were so superior, they would create a billionaire in a short timeframe. Historically, equity markets annually return 10 % on average, bond markets about half that return. Warren Buffett manages an annual return in the low 20 % range, as does a rare group of other financial wizards. All these wizards fall into the conservative, fundamentally driven class of investors. Does any billionaire advocate a TA approach as the basis for his wealth? If so, has he documented the approach? My answer to both questions is a firm No.
I have discussed TA with John Murphy at the MoneyShow conferences several times. He is a humble, honest, and dedicated TA True Believer. I own several of his numerous books on the subject. But he can not document his methods with hard performance data. He is an emperor without cloths. He works very hard at conferences selling his books; I suspect he makes far more from giving investment advice than from actual investment success.
In almost all forms, TA is simply a momentum strategy, either based on price movement or trading volume dynamics. In the mutual fund world, the FundX family of funds have practiced that discipline for an extended period. Their flagship product is FundX Upgrader, FUNDX. Janet Brown is the president of the DAL Investment Company that assembles and managers the growing FundX family. She is a compelling advocate for their brand of the generic TA approach. It is a pure momentum play that has enjoyed some successes, as well as some recent disappointments.
The issue here is that the deployed methodology is not constant over the reporting timeframe. It is slowly maturing so the record is distorted by that evolutionary process. In its early embodiment, the FundX holdings were more heavily committed to a small number of hot-hands, and diversification was sacrificed. Methodology adjustments have been made.
I subscribe to the WSJ. I wonder why, on a daily basis, the Journal graphically displays a 65-day Index Moving Average, and each Monday, it presents both the 65-day and the 200-day Moving Averages. These are rather arbitrary standards. Why not a 100-day criteria? The perturbations are endless.
Most other TA techniques are similarly vague about their selected data collection logic and criteria timeframes. They seem purely arbitrary, and most likely represent a rule set derived for a specific stock analyzed for a specific time. The operational rule extracted from this restricted study was extrapolated to become a universal rule. That rule has almost zero likelihood of being precisely applicable for the broad array of equities that populate the global marketplace. Its application to a group of ever-changing holdings that compose a mutual fund is even more suspect. Good luck on that extrapolation.
Can anyone explain the rationale or logic that dictated the various data gathering periods that are incorporated into the MACD (Moving Average Convergence/Divergence) statistic developed by Gerald Appel? A 12-day minus a 26-day accumulation period coupled with a 9-day crossing signal indicator seems unduly arbitrary. This unlikely specificity smacks of a data mining operation.
And MACD is just one of scores and scores of TA Indicators that are proposed for investment decision making. If that’s not enough, the TA protagonist also endorses combinations of this infinite array of dubious tools. An equation, or a theory, or a procedure that does not rest on a rock-solid fundamental understanding is literally a crapshoot. Do you want to risk a secure retirement on a dice throw?
In some ways TA is religion-like. True Believers believe because they want to believe.
Let me close by offering a challenge. If you are a TA True Believer and apply that approach to all or a segment of your personal portfolio (not someone else’s unverifiable claims made on the Internet), please submit a posting to this forum. Share your success stories and wisdom with us. I am still searching for a TA practitioner who has achieved market rewards that are a few percentage points above a realistic benchmark for his portfolio. To paraphrase a song, a good TA system is hard to find.
I’m patently waiting. I am always prepared to learn. We humans are hard wired for pattern recognition and are unduly susceptible to false patterns. Anyone for Robert Prechter and his form of the Elliot Wave Theory? How about some Oscillators or some Head and Shoulders necklines? Or a Fibonacci number or two? God, I hope not. All this is glittering junk science.
Best Regards.

A few various notes/theories:
1. Many people are stunned by the difference in returns from gold vs. gold stocks. You are looking at an instance where irrationality is pretty remarkable in terms of gold stock valuations. It just depends how long the irrationality takes to reverse (or if it does?)
2. There were a number of discussions earlier this year about hedge funds shorting gold stocks and going long gold.
3. The Jim Rogers theory: if you want a commodity (whether it be gold or whatever), invest directly in it - stocks (moreso these days) are too carried around by whatever the market is doing and it's too difficult to pick the right play to take the best advantage of a particular commodity.
4. People just wanted the physical, they did not want a miner who could be subject to bad weather, technical problems, higher costs, bad hedging/management, yadda yadda yadda. This is why I continue to recommend Toqueville Gold (TGLDX); certainly voaltile, but John Hathaway is the best manager in the sector.
5. There seemed to be a point where gold started to look like it was taking on a monetary vector a month or two ago (which goes back to the line from JP Morgan: "Gold is money and nothing else."), and that may have added to gains. People who don't want to be in the dollar, but the world can't pile into the Swiss Franc and other currencies have problems, too - so...? This can also be filed under loss of confidence (in the system, currencies, governments ability to handle economies, etc.)
6. Maybe declining production? (I don't know, I haven't really looked at that - all I know is supply is gaining a bit over 1% a year, last I heard.)
7. Something worse than anyone is publicly aware of is brewing under the surface. (see: http://www.zerohedge.com/news/bank-america-cds-hits-escape-velocity)?
Again, I stress diversification in terms of investing in commodity, commodity-related or "real asset"s. The precious metals are fine, but agriculture is also something I'd highly recommend looking at.
Additionally, the Midas fund you have appears both leveraged and aggressive; if things are going well for the sector, it has the potential to outperform. In a situation like this, it can end up at the back of the pack - it was at the bottom of the category in 2008 and was near the top in 2009. Again, I'd recommend the Toqueville fund for a smoother (by comparison) holding.
Also, to add: the article portion of this summarizes my thoughts pretty well (although I don't think this ends with deflation):
http://finance.yahoo.com/blogs/daily-ticker/gold-rallies-money-flees-leveraged-financial-system-dempsey-182933547.html

I have tried mapping out a "risk shift" strategy rather than a "sell" strategy with respect to the holdings in my portfolio. Would welcome comments.
This "de-risking" has required me to first assign a risk tolerance (that I am comfortable with) to all of my holdings. The categories of risk tolerance are as follows:
cash/cash equivalent...0% -3% downside risk due to currency devaluation and inflation (we'll ignore institutional financial strength...staying solvent)...I am presently using PONDX as my cash position and try to maintain 10-20% allocation with respect to my overall portfolio. This is where I look for cash when I look to buy "things on sale". I also have a small amount (5%) of Gold/Silver using CEF. Just an insurance policy on fat tail risk.
Low...3% - 10% downside risk...I place funds like PRPFX = Permanent Portfolio and TGBAX = Templeton Global Bond Fund as well as a whole host of Total Return / Income Funds like PTTDX, TGMNX, or USAIX. These are the anchors. They are added to when I look at my overall allocation. I try to maintain a 30-50% allocation in these funds
Moderate...10% - 20% downside risk...Many of my balanced/dividend/defensive funds fall into this category...MAPIX = Mathews Income, PRWCX=T Rowe Price Capital Appreciation, and OAKBX = Oakmark Fund. Also, PRHSX, VGHCX, GASFX, and CSRSX are some others I also include in this category. I consider these part of my core holdings that I add to when I have profits. In a downward trending market I try to de-risk my higher risk investments into these moderate risk funds. This keeps me somewhat in the market eliminating some of the market timing issues. I am never very good at spotting the exact bottom or top. So (risk shifting) into these moderate risk investments seems helpful when the market goes against me. This collection of funds could represent 20-40% of my portfolio.
High... 20% - 33% downside risk...These are primarily equity funds that I own to follow a trend, and add some alpha. I have owned CAMAX, HRVIX, MFCFX, USAGX, PRMSX, VWO, VDE, VIT, VHCOX, PRMTX, MATFX, MSMLX, WAEMX, etc. This is the set of investments that I am monitoring and trying to upgrade...improve upon. When they hit the negative 20% level or move upward a positive 10% they become candidates to "de-risk". Some in this category are doing very well such as USAGX and I may consider taking profits some are not and I may reduce my exposure to them temporarily. Cash elsewhere in my portfolio allows me the ability to add to these funds when they are trending upward. When these funds are out of favor they could stay out of favor for sometime. I look to shift some or all of these holdings into a Moderate or low risk investment. I am willing to monitor them from a de-risked position. This category of funds could make up 5-20% of my overall portfolio.
Extreme... 33%- or more downside risk... I have very small speculative position in RIMM (Research in Motion)...I have lost 55% so far this year with RIMM. I own FAIRX and have suffered a 29% loss in value with this fund. I planned on holding both of these 3-5 years but I will continue to monitor them closely and make regular "gut checks". In good times I would like to see 20% plus gains here before I de-risk some profits. These holdings could be represent 0 - 15% of my overall investments. They are small positions that I am willing to be patient with. I also find them to be my biggest learning experiences.
As I said earlier, I am not very good at timing the market at the tops or bottoms so periodic de-risking an investment that is trending above or below your tolerance threshold might be worth considering.
Comments welcome...
bee

http://www.onwallstreet.com/news/fund-managers-prefer-cash-to-stocks-2674653-1.html?ET=onwallstreet:e3721:2131761a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=OWS_Weekend__081911
smart mf that smokes the market
http://www.forbes.com/sites/lawrencelight/2011/08/19/active-funds-that-smoke-the-market-raspberry-to-yales-guru/
are we headed for another recession
http://moneywatch.bnet.com/economic-news/blog/financial-decoder/are-we-headed-for-another-recession/4892/
us stocks get no rest
http://www.marketwatch.com/story/us-stocks-to-get-no-rest-remain-volatile-2011-08-20
Stock Analysts Dig in Heels When They're Wrong: Study
http://www.onwallstreet.com/news/analysts-opinions-ratings-psychology-of-investing-2674624-1.html?ET=onwallstreet:e3721:2131761a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=OWS_Weekend__081911
It's Time to Buy emerging market - google article title @ barrons
also - what's the smart money up to
http://online.barrons.com/article/SB50001424052702303822904576516842506060226.html?mod=BOL_mp_viewed_week
The Silver Lining for Markets and the U.S. Economy
http://www.usfunds.com/investor-resources/investor-alert/
bulls hangin by a thread ahead of monday bernanke's speech
http://www.schaeffersresearch.com/commentary/content/monday+morning+outlook+bulls+hanging+by+a+thread+ahead+of+bernanke+speech/observations.aspx?click=home&ID=107657
time to sell gold?? [and buy equities] - traders' article - sorry if this is junk but Rono or Scott may love this article
http://www.worldofwallstreet.us/2011/08/trading-gold-thru-the-summer-part-16-time-to-take-profits.html
WHERE'S THE DECOUPLIN?
http://www.investors.com/NewsAndAnalysis/Article/582069/201108191647/India-China-Declines-Are-Piling-Up-Quickly.htm
ot - global depression? [sorry if this is a junk article from 3rd world country but worth a look]
http://www.thedailystar.net/newDesign/news-details.php?nid=199461
kissin or kickin' butt
http://news.yahoo.com/biden-says-united-states-not-default-assures-china-032508353.html
muni still a safe haven
http://online.wsj.com/article/SB10001424053111903639404576520960723088654.html?mod=googlenews_wsj

Hi Guys,
Given the current roiling market turmoil it seemed like a good time to revisit the calm and common sense of an old friend and a steady, savvy investment advisor. I am speaking of Harry Browne’s writings.
Harry Browne was a successful financial advisor for over three decades. I had the good fortune of meeting him several times at the Las Vegas MoneyShow in the 2000s. He surely did not fit the conventional profile of the prototypical speaker at that annual conference. Whereas the bulk of presenters had a large supporting staff and impressive presentation visual aids, Harry only came armed with his accumulated financial wisdom and a lonely, single 3 X 5 index card that was completely covered (both sides) with small handwritten notes.
Harry Browne was a rail-thin gangling man who spoke softly, with authority, and with considerable common sense; Harry was forever a no nonsense whatsoever type guy. You may remember him as the founding godfather behind what is now Michael Cuggino’s Permanent Portfolio family of mutual funds. Harry Browne became a trusted financial advisor with only a high school education; he bolted college after a few weeks never to return so, to a large extent, he was self-educated.
You might also recall that he was twice a presidential candidate (1996 and again in 2000) under the Libertarian Party banner. Harry Browne passed away in 2006. I miss his quieting confidence and soothing manner.
Harry published numerous economic and financial books. I own two of them: “Why the Best-Laid Investment Plans Usually Go Wrong” issued in 1986, and “Fail-Safe Investing” published in 1999. The Fail-Safe book is a distillation of his accrued investment learning and philosophy; it is especially succinct and delivers the goods on his subtitle of “Lifetime Financial Security in 30 Minutes”. During this stressful period, I felt compelled to reread his dazzling investment summary.
Fail-Safe Investing does not contain any deep market secrets nor does it delve into complex analysis methods. It surely might disarm a reader with its simplistic approach to investing. I believe that at root, we all realize the wisdom in the rule set that Harry Browne prescribes. I think it might be helpful to re-familiarize ourselves with his, and most likely many of our favorite investment axioms during this volatile market cycle.
Here is a listing of Harry Browne’s 17 investment rules. I have parenthetically added a single sentence comment or observation to each rule. I am positive that each of you could provide many others from your own market experiences and knowledge.
Rule 1: Build your wealth on your career. (Maximize your career longevity and income.)
Rule 2: Don’t assume you can replace your wealth. (Recovery is arduous and uncertain, impossible if you withdraw, so stay in the game.)
Rule 3: Recognize the difference between investing and speculating. (Asset allocate your resources with a portion committed to market reproducing Index holdings and a speculative element committed to Alpha seeking speculative holdings.)
Rule 4: Beware of Fortune-Tellers. (Charlatans are everywhere; no one can forecast the market because no one is in control.)
Rule 5: Don’t expect anyone to make you rich. (An advisor’s primary goal is to make himself rich, and if he succeeds it is mostly due to coincidence or luck.)
Rule 6: Don’t expect a trading system to make you rich. (If it existed, all uncertainty would be removed from investing; out-of-sample testing always defeat these systems.)
Rule 7: Invest only on a cash basis. (Although leverage is a force multiplier, excessive leverage kills.)
Rule 8: Make your own decisions. (You are the best champion for your investment survival.)
Rule 9: Do only what you understand. (Never outrun your core knowledge, skill sets, and competencies.)
Rule 10: Spread the risk. (Diversify, diversify, diversify with negatively correlated holdings.)
Rule 11: Build a bulletproof portfolio for protection. (Browne’s vision was the Permanent Portfolio, PRPFX)
Rule 12: Speculate only with money you can afford to lose. (Any strategy that attempts to outdistance market like returns is a form of speculation.)
Rule 13: Keep some assets outside your own country. (International exposure is mandatory, including some minor foreign exchange component.)
Rule 14: Take advantage of tax-reduction plans. (As Milton Friedman observed: “I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.”}
Rule 15: Ask the right questions. (The questions must be sufficiently detailed to drilldown to identify real risk; superficiality destroys wealth.)
Rule 16: Enjoy yourself with a budget for pleasure. ( Happiness is essential for balance, and Economic Happiness research is developing clues in this arena.)
Rule 17: Whenever you’re in doubt, err on the side of safety. (Always invest deploying Benjamin Graham’s margin of safety concept to modulate unrealistic enthusiasm.)
These are not only fundamental rules for investing, they are also meaningful rules to guide personal worldly ambitions and goals. I suspect, Browne designed them with that objective in mind.
The opening section of Browne’s book that outlines his 17 rules is only 70 pages long. It probably can be absorbed in about 30 minutes. His writing style is easy and very linear. The second part of his book expands on the 17 rules, and in many ways is both challenging and captivating.
I have purposefully limited my commentary to encourage your participation. I welcome your insights. Please contribute.
Don’t panic; stay strong. To help you keep the faith, you might consider securing a copy of Browne’s Fail Save book. As a minimum, it offers comfort in these demanding and stressful times.
Best Regards.

Maurice,
I know I'm probably asking too much right now :)
I think I'm just feeling very frustrated when I look at my 401K and that it's only earned about 1% annually for the past decade. It's made me really want to take control of my investments and at the very least do the best I can with it, whatever returns I may get. When I started working and obtaining a 401K, and really all I had learned was, put as much as you can in your 401K, IRAs, etc. Then like I said, I literally only earned about 1% over the past 10 years. I never did much with my 401K, never really understood the investments, just knew that money came out of my paycheck every 2 weeks and that it should grow over time. But what I more recently realized is I think I'm one of probably millions of other American workers with 401Ks that don't know anything about investing. I'm part of the post labor-union era I'll call it, who also out of high-school and college, never was given real financial advice regarding retirement or investing. My parents for example both have pensions and health-care taking care of them in their retirement. I asked my father recently if he had a Roth IRA, and he said no, don't know much about those. It's also funny, I just recently picked up a Dave Ramsey book that someone had given me 5-8 years ago, and I caught this section where he talked about don't invest in bonds and investments that only earn 4-8%, and instead investing in a mutual fund (nothing specific, just said mutual fund) that you can expect to earn 12% annually over the next 30 years, like that was normal. And I just chuckled. And out of my curiosity I looked up historical returns for the S & P 500 and I was blown away by what I saw. Other than recently, only in 1974 and pre-1940 did the 10Yr. Avg Return Rate fall below 2%.
http://www.istockanalyst.com/article/viewarticle/articleid/2803347
And really the period between 1979 until 2007 long-term returns were really good, especially 1983 - 2001. So, I think for me, all of this has been a real a wake up call. That I can't just rely on the markets to earn the money I hope to have come retirement without thinking about it.
I have to say though, doing all this research the past few months I feel like has become a new hobby for me. Even though I haven't put all my money to work yet to where I want it, I've found it to be very fascinating. And just watching the markets going nuts lately is actually another lesson I'm learning to try to stay calm :). It's hard to not be distracted by it.
So yea, whether I can actually achieve the high return with low risk is something I'll just shoot for, but at the very least I'd like to keep learning about funds with really good mangers who will make much better decisions than myself could ever make. And that is really all I'm trying to do. Buying into funds with managers who if they are taking risks, know when to move money out of equities when needed and to put back into when the markets are ready to rebound. It really boils down to trust. Finding those funds that help me sleep better at night. And based on what many of you have said, it sounds like MAPIX fits that mold I'm looking for from an Emerging Markets point of view.
I just want to say to this site and to everyone that posts here, I really appreciate the input and the knowledge sharing. It's helped me immensely in trying to get a grip on my investments and I am grateful for it.
By the way, I'm curious. What kind of investors are the majority of people who post/read here and are there any others like me, who don't deal or work in finance and are currently working and just trying to make better choices for their retirement portfolio?

Jardine Matheson is one of a number of similar conglomerates in Asia, some of which have been around for many decades (such as Jardine.) Swire and Hutchison Whampoa are other examples. Swire is interesting (in that it owns Cathay Pacific and a Coca-Cola Bottler that covers a good portion of Asia and some of the US). Genting Berhad is also of interest, with its resort properties in Singapore and soon the US. Given its holdings though, Genting is particularly tied to the swings of local economies.
Jardine has a pretty fascinating history and (I thought) appealing mixture of businesses - there is both Jardine and Jardine Strategic, and Jardine Strategic owns a 20% stake in Rothschilds Continuation Holdings, which is the financial holding company of the Rothschilds.
"Until 2008, the only non-family interest was Jardine Matheson, a hong which holds the other 20% of Rothschild Continuation Holdings. The stake was acquired in 2005 from Royal & Sun Alliance through the Jardine Strategic subsidiary, which specializes in leveraging stakes to protect family owners.[7] Jardines acted as Rothschilds' China agent from 1838 onwards" (http://en.wikipedia.org/wiki/N_M_Rothschild_&_Sons)
longer Bloomberg article on the relationship between the two companies -
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apHai5xmbq9s
Jardine Strategic owns the majority of Jardine Matheson and Jardine Strategic is part of Jardine Matheson. As noted, "It (Strategic) in effect owns its own corporate parent, enabling the Keswick family to control the group without providing a majority of the capital. This expertise in protecting family owners was shared in 2005 when it took a 20% stake in Rothschild Continuation Holdings, a major merchant bank." (http://en.wikipedia.org/wiki/Jardine_Strategic_Holdings)
Jardine chair Sir Henry Keswick is also listed as a director of Rothschilds Continuation Holdings. Jardines is really a dynasty - I think - in the old-fashioned sense, which I found appealing.
The two biggest parts of Jardine are majority-owned subsidiary Dairy Farm (a massive group of retail operations, ranging from 7-11's to hypermarkets to restaurants to a few IKEA stores and Hong Kong Land (50% owned by Jardine). There's also Mandarin Oriental hotels, among other subsidiaries. If one digs in the reports, Strategic also holds some small investments in other companies, such as Tata Power (to use an example from last I looked, things may have changed.) Jardine Pacific is another interesting part, containing all non-listed businesses, such as various operations at Hong Kong airport.
Additionally, the whole thing rests on whether one believes in the continued rise of Asia over the next decade or two (and as I've said, I believe that, although I do believe there will be problems along the way.) If not, then something like Jardine would be of no interest.
Again, this is a stock, so it is certainly a risk and one *MUST DO THEIR OWN RESEARCH*. I wanted to own an EM stock or two for the long-term (5-10 years+) and Jardine was the most appealing that I found.
In terms of Asian-centric funds that would be comfortable holdings for the long-term, the search - I think - starts and ends w/Matthews Asian Growth/Income (MACSX) and Matthews Asia Dividend (MAPIX.) I'd recommend the great majority of people - especially more conservative investors or those nearing retirement - interested in EM stick with funds instead of specific stocks, and particularly the Matthews funds listed above.
The Pimco EM Multi-Asset fund has not released holdings yet, but my guess is that it looks like an EM-focused version of fund-of-funds (and some other stuff) Pimco Global Multi-Asset.

In terms of "real assets", I added more earlier today to the Salient MLP Energy and Infra fund (SMF), a closed-end MLP fund that can actually hedge.
From the prospectus:
"HEDGING AND OTHER STRATEGIES
We currently expect to utilize hedging techniques such as interest rate swaps to mitigate potential
interest rate risk on a portion of our Financial Leverage. Such interest rate swaps would principally be
used to protect us against higher costs on our Financial Leverage resulting from increases in both shortterm and long-term interest rates. We anticipate that the majority of our interest rate hedges will be
interest rate swap contracts with financial institutions.
We also may use various hedging and other risk management strategies to seek to manage various risks
including market, credit and tail risks. Such hedging strategies would be utilized to seek to protect the
value of our portfolio, for example, against possible adverse changes in the market value of securities
held in our portfolio. We may execute our hedging and risk management strategy by engaging in a variety
of transactions, including buying or selling options or futures contracts on indexes and entering into total
return swap contracts. See “Risk Factors—Risks Related to Our Investments and Investment
Techniques—Derivatives Risk.”
We may use arbitrage and other strategies to try to generate additional return and protect the downside
risk of the portfolio. As part of such strategies, we may purchase call options or put options and enter into
total return swap contracts. A total return swap is a contract between two parties designed to replicate the
economics of directly owning or shorting a security. We may enter into total return swaps with financial
institutions related to equity investments in certain Master Limited Partnerships and Canadian Income
Trusts (as defined in the SAI).
In addition, we may engage in paired long-short trades to arbitrage pricing disparities in securities held
in our portfolio or sell securities short. Paired trading consists of taking a long position in one security
and concurrently taking a short position in another security within the same or an affiliated issuer.
With a
long position, we purchase a stock outright; whereas with a short position, we would sell a security that
we do not own and must borrow to meet our settlement obligations. We will realize a profit or incur a loss
from a short position depending on whether the value of the underlying stock decreases or increases,
respectively, between the time the stock is sold and when we replace the borrowed security. See “Risk
Factors—Risks Related to Our Investments and Investment Techniques—Short Sales Risk.” We do not
presently intend to short securities in the portfolio, and do not intend in the future, to the extent short sale
transactions occur, to have a net short position that exceeds 30% of our total assets.
To a lesser extent, we currently expect to write call options for the purpose of generating realized gains
or reducing our ownership of certain securities. We typically will only write call options on securities that
we hold in our portfolio (i.e., covered calls). A call option on a security is a contract that gives the holder
of such call option the right to buy the security underlying the call option from the writer of such call
option at a specified price at any time during the term of the option. At the time the call option is sold, the
writer of a call option receives a premium (or call premium) from the buyer of such call option. If we
write a call option on a security, we have the obligation upon exercise of such call option to deliver the
underlying security upon payment of the exercise price. When we write a call option, an amount equal to
the premium received by us will be recorded as a liability and will be subsequently adjusted to the current
fair value of the option written. Premiums received from writing options that expire unexercised are
treated by us as realized gains from investments on the expiration date. If we repurchase a written call
option prior to its exercise, the difference between the premium received and the amount paid to
repurchase the option is treated as a realized gain or realized loss. If a call option is exercised, the
premium is added to the proceeds from the sale of the underlying security in determining whether we
have realized a gain or loss. We, as the writer of the option, bear the market risk of an unfavorable change
in the price of the security underlying the written option.
4"

Hi johnN,
Thanks for posting The Mutual Fund Merry-Go-Round article. If most folks did not know ... the average investor form my perspective has been buying high and selling out low for years. They seem to buy in during the good times when things are doing well and the markets are towards its peak ... and, they trend to sell out during times of strife when the markets are in decline. This to me classifies them as fair weather investors.
To be successful, one should do the opposite by buying during strife and selling at the pinnacle. Are financial advisors to blame? From my perspective, perhaps not. It is more of an issue about the human nature of the fair weather investor.
My father, years ago, would buy a good quality stock at it's 52 week low and then sell it when it reached a 52 week high. My mother on the other hand could not understand this. Her thoughts were why sell something when it is doing so good? Go figure.
Thanks again for posting this article.
Good Investing,
Skeeter

CNBC reporting European regulators looking to possibly ban short selling in markets or specifically financial stocks. So...not like 2008 or anything.

If your mom's "financial planner" is a registered rep, then it is likely that she has "C" share class funds that have no front-end sales load, no back-end load and pay out a share of the expense ratio (12b-1 marketing expense portion of the ER) to the rep of record.
Fee-only financial planners and RIA's are usually not paid by fund companies and will normally use an administrative or institutional share class. Everyone deserves to be paid for value added. It should just be all on top of the table.

Bank of America (BAC) has problems specific to them that are not shared by similar financial institutions. Specifically, they have inherited the questionable loan portfolio from Countrywide Credit and are now being sued by AIG for fraud and deception regarding the mortgage products BAC/Countrywide sold to AIG. The suit appears to have substantial merit and, if successful, may well result in the collapse of BAC.
That said, a problem that has NOT been addressed is that all of these financial institutions still hold hundreds of billions of dollars of worthless financial products and this has been conveniently ignored. TARP and all of the other alphabet-soup rescue programs simply kicked the can down the road and have permitted these zombie institutions to blithely continue on their merry way. All the pundits that have insisted that "we are not Japan" may be whistling in the dark. This is precisely what Japan has done (or not done, I should say) and they have never permitted any of their bankrupt financial banks and institutions to go under, resulting in nearly three decades of denial and stagnation. We may well be embarking upon the same troubled path.
Dr. John Hussman has made these points repeatedly from Day One and he eloquently explains why all of these bogus programs (TARP, QE1, QE@, etc). are doomed to fail and have achieved nothing aside from increasing our debt load to dangerous levels. Until the worthless debt and financial sausage the Masters of the Universe on Wall St. still hold are restructed and their bondholders take a severe haircut instead of receiving taxpayer money to make them whole, this problem will not disappear.

They also get paid by 12b-1 fees that SEC allows fund management companies to attach to the funds.
Update: Can you give a couple of fund tickers your mom is investing in? It is easy to look up and find out what sort of fund they are. @BRBond mentioned C class shares. They look like no-load but they are actually level loaded (similar to 12b-1). Your mom's advisor is saying no-load but perhaps he got your mom into these C shares and getting his commission. How is your mom's financial planner compensated? Is your mom paying any direct fees for services rendered? (S)he should disclose this in his/her ADV part II which should be provided to your mom.

Do financial planners receive any fees or commissions from funds they recommend to clients? My mom has several no-load First Eagle funds (5-star ratings from M* so excellent long-term performers), but their expense ratios are huge -- nearly 2 percent. Or maybe it doesn't matter if these funds continue to be strong performers, though others in her portfolio with high ERs have not done so well. Thanks.

My mother's financial planner has her in several funds that M* summary says the benchmark index is the M* moderate target risk. Which index fund would mimick that category? Thanks.