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.

I completely disagree - these are no longer markets, but theater to some degree, with indirect (and I'll debate that there is a PPT) intervention from TPTB, who view market rises as adding to a "wealth effect" (which is rendered ineffective to some degree by the fact that the purchasing power of the currency continues to be eroded.) Given all manner of recent operations (POMO, etc) acting as if the government is not actively trying to intervene in markets both indirectly (and I'll say directly) is something I'll completely disagree with. There are some people who continue to believe, it seems, that this is the same market as a couple of decades ago - whatever allows one to sleep at night.
"Buy and Hold" investing is really - in my opinion - only for someone truly comfortable with holding something for 5-10 years - literally putting something away that you believe has that strong of a fundamental case (and this is primarily for specific stocks). Otherwise, how anyone can discuss buy and hold in a market where 70% of the market is computer-generated trading that takes place over a time-frame that is frequently less than a minute, I don't know.
I'm not selling at the moment because I do continue to believe that we face the possibility of significant inflation over the next decade and am in names that I believe could do well in that environment. However,we have serious problems and I'll be the one to say that we might not fix them or we might not fix them for years. I'll also note that we're at the point where I think any more significant policy errors could cause massive, large-scale problems.
Any which way, we've spent trillions in various stimulus programs and we're where? What did we get for that money - and now we're talking QE3? I'm baffled by any discussion about how we can recover smartly when we just had a remarkably embarrassing couple of weeks where it became quite apparent that we have a government who can't begin to work together until the 11th hour and even then we got an agreement that no one was happy with (but we're going to go further into debt.) I think to some degree the selloff this week is due to a market that is starting to wake up to the fact that the current government is incapable of handling the problems that we face and really even working together in any positive fashion.
This sort of soothsaying and excuses that we'll get out of this because we always do lets those who have to guide and provide leadership for this economy completely off the hook. We don't have to get out of this, and all of this "Europe is worse than we are" is more BS that directs attention away from our own shortcomings - but whatever makes us feel better over the short-term, right? Spending smartly would have been spending a fortune to upgrade this country's crumbling infrastructure (maybe PPP's, like they have overseas? - Public/Private Partnerships) rather than dumping into banks that should have gone under (and do not appear in great shape today even after all the money that has been thrown at the problem.)
"Failing infrastructure will cost the United States billions of dollars in lost productivity, income and trade in coming decades, according to a civil engineering report released on Wednesday that said the impact on gross domestic product could reach $2.7 trillion." http://www.reuters.com/article/2011/07/27/usa-economy-infrastructure-idUSN1E76Q0J120110727
This country was incredibly foolish for not spending on infrastructure in 2008.
"Foreigners have already recognized our relative stability and are investing in government bonds."
Those who manage to believe that the fundamentals of owning US government bonds are in any way positive are welcome to invest.
This is not against MJG, but just a general upset about the soothsaying ("Oh, it'll be okay. Why? Because it always is and always has been.") and pointing fingers and fascinated by anyone who believes that the government in its current, broken form, can provide solid and sustained leadership to solve any of the problems that we face. Additionally, the "we'll get out of this because we always have" and the pointing fingers that "such and such country is worse" makes us feel a little better in the short-term, but fixes absolutely nothing.