May 2009 - May 2012...3 year look back...What strategies have worked for you?

bee

As mentioned in other threads it this feels like we are in the third year of the movie Groundhog Day.

I took some time tonight to look at my holdings over the last three years. As a rule, I try to take profits in any fund I own when it reaches a level 10% above the value I paid for the investment. Over the last three years I have been able to do this with some of my holdings...not all. Its the Groundhog Day funds that worry me...the ones that have performed poorly, recovered, only to perform poorly again. They are holdings I believe to be long term holds but, in this Groundhog Day market (that seems to have repeated itself for the third time) I seem to need a different strategy.

I like Skeeter's strategy of selling at an overbought level (52 week high) and buying at an oversold level (52 week low). I will incorporate that strategy going forward.

I recently have been trying an additional strategy for my Groundhog Day funds. I am trying to employ a "risk on/risk off" switching strategy.

Using Morningstar's chart tool (set to 3 years) I chart a fund I consider my "slow and steady"... for this, I use PONDX (Pimco Income). I compare all of my other holdings against this fund. I switch out of (risk on) PONDX when my other fund is trending above PONDX and I switch into (risk off) PONDX when the other fund is trending below PONDX. Over this last three years PONDX would have grown a $10K investment into almost $16K with very little volatility. You probably have a similar fund. Here's PONDX charted:


Now by taking PONDX, or your favorite "risk off" fund, compare it to your more volatile fund. I will use a Gas Utility fund holding of mine, GASFX. To protect against downside risk my strategy would switch out of GASFX when in crosses below PONDX and switch back into GASFX when it crosses above PONDX. Here's the two funds charted together with the switches highlighted with arrows.


What do you use to avoid another Groundhog Day?

Old_Skeet

Hi bee,

Here is another strategy for your consideration.

I learned of this strategy in my study of noteworthy funds. This one is in the Columbia Family of funds and its ticker symbol for it’s A shares is CTFAX, Columbia Thermostat Fund.

Basically as the market rises they cut the allocation to equities and increase the allocation to bonds and visa versa I have incorporated some of its features into the growth area of my own portfolio to help assist me in trimming back or increasing my equity allocation.

I have linked its fact card and commentary along with its Moringstar report. It's variable asset allocation is described in detail on page two of the fact sheet. Perhaps, it might be worth a look see.

https://performance.columbiamanagement.com/content/columbia/pdf/LIT_DOC_3C97987F.PDF

https://performance.columbiamanagement.com/content/columbia/pdf/LIT_DOC_218D023A.PDF

http://quote.morningstar.com/fund/f.aspx?Country=USA&Symbol=CTFAX

Good Investing,
Skeeter

MikeM

Hi Bee. Am I missing something? Just using the example you show, how do you make more money with this system than just being in PONDX over time if you keep buying and selling at the cross point? Seems like a more volatile way of getting to the same point.

bee

Reply to @MikeM:

Hi Mike,

I think of a fund like PONDX as the "tight rope" that keeps me out of the canyon.


An agressive buy/sell approach would be 100% in PONDX when any other fund in your portfolio underperforms relative to PONDX. Lets use VTSMX (Vanguard Total Stock Market Index) as a proxy for an equity fund. When VTSMX starts to under perform relative to PONDX I sell all shares of VTSMX and "walk the tight rope" invested only in PONDX. I continue this until VTSMX shows signs of outperforming PONDX. When VTSMX moves above PONDX I buy into that trend. Using a 3 month indicator chart helps to Identify the bottom of an under performing investment.


Selling incrementally out of a negative trend...

For example, If I have PONDX and USAGX (a very strong recent under performer) for each 5% drop in USAGX relative to PONDX I would reallocate (a sell) 20% of USAGX into PONDX. So if USAGX was worth $10,000 when it crossed below PONDX I would reallocate $2,000 (20% of $10,00) USAGX into PONDX for each 5% drop of USAGX. This would have me completely out of USAGX if it dropped 20% relative to PONDX. Since I sold it incrementally I effectively lost 13% or $1300 instead of $2000 but stayed in the market for a 20% move. If I want to later parachute down some rope (money) from PONDX to that underperforming investment as it shows signs of bottoming or trending upward I will have effectively bought low.


Buying Incrementally...

When you identify a positive upward trend relative to another holding (in my case PONDX) allocate 25% for each 5% move. Again you are dollar cost averaging in. Taking profits along the way. I use 10% as a profit taking trigger. PONDX receives these profits.

In realty, this may be a whole of work for most investor. This dribble may also have a whole lots of holes in its theory but it keeps me out of the Bars as well as out from behind them.

hank

Bee, admire you, Skeeter, Flack & others who watch the charts and adhere to strict methodology. Also Catch who has clung to his bonds - nice place to be over them 3 years. They look like great systems. Ain't got time nor inclination for the scientific stuff. However, do think buying down slowly in measured increments (maybe every 5-10% drop in major indexes) can do alot to keep your portfolio outa really deep doo-doo. Course, also need to unload some of the ballast (a Skeeter term?) on the way up. What I suggest is hard to implement, so not for all - a case in point being a than prominent vocal board member who was still screaming "Sell, Sell!" as the Dow approached 6500. Now, did that make sense? I'd also say try to make lemonade out of the lemons. So, G-d forbid we see the DJI under 7000 again, consider converting some of your taxable IRA into a Roth. Your taxes will thank you down the road. Maybe what we're all saying in different ways is to think this all through ahead of time and have a plan in place so ain't frozen or panicked like a deer in the headlights. Thanks to everybody for sharing their ideas. At around 12,000 I'll begin reinvesting some of the cash raised when she topped 13,000..

00BY

I tend to stay mostly invested. However, I manage new cash in a somewhat similar way. DCA'ing into my brokerage money market and waiting for an opportunity.

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AndyJ

Bee - question on your Pondx strategy - why three years? I'm thinking I'd like to give it a trial run. I like the idea of Pimco Income as an indicator - as it has a pretty balanced approach to safe and more risky bond types.

I don't have an 'auto-pilot' sort of strategy - the few things I've tried like that (hard adherence to MAs, for instance) haven't worked all that well, imho. My 'method,' such as it is, involves an asset allocation range (in my semi-retired-with-moderately- comfortable-savings case, 15-40% stock-risk equivalent) and tweaking that number up or down in small-ish increments based on generic hypothetical ceiling & support levels (including MAs), 10y & 30y T rates, bond spreads, & value pricing of riskier funds themselves (P/E level, 52 hi/lo). The things that run through it all are trying to buy at a reasonable if not value price, selling early in a risk-off scenario, and hedging 'religiously' against large losses.

bee

Reply to @AndyJ:

Hi Andy,

I use three years charts because that time frame tends to lend itself to my long term holding decisions. Its historical data but, it helps me decide; "do I want to be in a fund long term verses some other similar fund?"

Because PONDX has been a steady fund (so far) for me I also use it for long and short duration comparisons. In fact, a 1 or 3 month chart using PONDX as a comparison fund will help Identify short term trends as well as potential tops and bottoms to some degree. Funds that are prone to "whipsawing" (when a volatile fund changes direction quickly and often) are always problematic to follow and need more monitoring.

Here's a 1 vs 3 month chart of PONDX compared to USAGX. The 1 month chart has USAGX breaking through PONDX but this has not been comfirmed by the 3 month chart. This could be a trend reversal, a whipsaw, temporary news event, or some other dynamic. Anyways, the 1 month chart is showing short term life for USAGX. If USAGX crosses over PONDX on the 3 month chart that would further confirm a continued trend.

Basically, Longer charts give additional confirmation of longer trends and long term buy and hold decisions...shorter charts give some early signs of under or over performance and are a part of what I use for both profit taking or buy and sell decisions.

Hope that is a little clearer than mud.

Old_Joe

Well, without getting all scientifical, I looked at our profits back in February, noted that our funds had , at that point, a very decent return compared to anything else out there, and figured that it would be very improbable that the remainder of the year would be on the same straight-up trajectory.

Took substantial profits and reduced the fund volatility February through April. Am now looking to selectively buy into some areas where we have no exposure. Started with a small MAPIX buy. So far so good.

ron

We are now 76+78 and stopped earning income in 2009 and I have been changing my asset allocation to more fixed income. A lttle slow in doing so but I have not used technical analysis in many years for making changes in my asset allocation. At one time, over 25 years and more ago, I was a technical nut who followed John Granville and others. I don't follow anyone but still find it interesting to read charts. As you all get older and more conservative you may find TA mostly helpful when buying rather than selling if you hold stocks and funds with the best fundamental outlook. Sorry to be wandering here. Best of luck to all.

AndyJ

Reply to @bee: Makes perfect sense, Bee. I wondered if you used other periods to confirm or not, and you explained that too! So yes, I'll test drive your method on a couple of funds over the next little while.

Thanks, and best o' luck out there --
AJ

hank

Reply to @Old_Joe: Well, seem to recall your prescient move back than - and it was the right call. May I be so bold as to suggest you made the RIGHT move - but for the WRONG reason. (they ain't started bombing Iran yet, though hear their industrial computers are running really nuts

Old_Joe

Reply to @hank: Hi there. Yeah, I had forgotten all about the Iran thing, to be honest. It was really more of a "don't get greedy" reflex, as in "remember last year- take the money and run". True, I really didn't see a lot of potential good news on the horizon, so the latest Euro debacle made my timing look pretty good for a change.

hank

Reply to @Old_Joe: Ya - seems to be a dearth of good news lately. And always prefer to err on the side of caution. A good call on your part.