Keep it simple, keep it cheap and keep at it.

Momentum investors need to have a regulated approach to following sector trends in the stock market. It is not difficult when using hindsight to see what was a trend to follow, and what was not, but getting it right at the time, that is the difficult bit. Some would say the function of forecasting is to make astrology look respectable. However following the numbers is not forecasting, and catching and identifying a rising sector correctly can lead to riches. That is why at Saltydog Investor we make our decisions based on a weekly analysis of the unit trust fund performance numbers broken down into their asset sectors. These are then reviewed on a four, twelve and twenty six week basis. Not for us decision making based on twelve month performance numbers. Keep it simple, and build a portfolio of unit trusts using a fund supermarket platform to keep your trading cheap.

To be a successful active investor you must have access to continuous up-to-date accurate information. Your decisions should not be based on rumour, speculation and hearsay. An example of the importance of this goes back to the days of sail. Clipper ships returning from the Far East before proceeding up the English Channel to London, would call in at the port of Falmouth at the western end of England. From here they would send coded messages by horsemen to the ship`s owners in London, this being the fastest method of communication at the time. These messages not only gave details of the ship`s cargo of spices, teas and exotic goods, but also as important if not more so, international news. The traders with this information then had a head start on their competitors and would be making their decisions and fortunes based on facts.

One of the most important things when looking at your investment portfolio, is to believe that tomorrow will be better than today. Try not to get disheartened when as undoubtedly will happen, you make mistakes and have failures. You must keep at it and treat these occurrences as “opportunities” to learn. There is a way to minimise the effect of any setbacks and protect your portfolio. That is to create your own risk pie-chart. Only then will you avoid the temptation (or innocent default) of ending up with too large a percentage of your portfolio invested in funds which lie in the higher reaches of volatility and risk. The more volatile your selection, the greater the risk of losing your gains when the trend you are following reverses direction. Of course you would hope to be alert to this change and take the necessary action. Better however to conduct these investing acrobats with a small part of your portfolio whilst the bulk trundles along in a safer environment. Investing should be enjoyable and not a do or die situation. You will then feel more inclined to keep at it and enjoy the benefits of time and compound interest.

The Saltydog Tugboat portfolio maintains a cautious approach by ensuring that at least 70% of the portfolio is in what we call ‘Slow Ahead’ funds. This has meant that in less than 5 years our portfolio has not only gone up over 50%, but we have successfully avoided all the market corrections.

Risk Pie Chart

Tugboat 151017

The Market is never wrong, it is what it is.

I cannot understand the so called professional financial pundits who say you cannot better the market, so do not try. I recently read a report from one of our major Banks. It said as follows “If you are investing in equities, which historically produce higher returns, your money needs to be invested for a minimum of five years to ride out short –term fluctuations. This timescale is a minimum: ideally, you should be looking at an investment period of 10 to 15 years. That way, any big falls are likely to be balanced out by the gains. Perhaps those gains will be greater than the falls”

This sort of statement makes my blood boil. “Perhaps the gain may be greater than the fall!” If it is not, then you lose, but of course the Bank with its charges wins whichever way the cookie crumbles. It is also blindingly obvious that the more years you spend building your pension fund, then the longer dividends and the power of compound interest has time to contribute. You are making profit on your profits.

It is not surprising that Fund Managers will advocate that you should stick with their funds through the thick and thin of stock market fluctuations. Naturally, they do not want to see the volume of money in their funds falling as it will affect their remuneration and also gives them problems in keeping their portfolio`s balanced. In times of market volatility, different sectors are affected differently. Some may even go up whilst others are falling. The manager of a fund in a failing sector is not allowed to diversify away from his own sector and has to stay invested. Under these circumstances the best manager in the world may lose you money. You, however, as an independent and informed investor can switch horses from a failing sector to a winning sector or even in extreme conditions go into cash. (Cash is a perfectly sensible sector.) The Saltydog Investor gives you all the information to make these decisions and even runs a demonstration portfolio that shows its ability to avoid the market falls and corrections.

As an investor it is important to become familiar with the arena in which you are operating. There have been more than 100 market corrections in the last 110 years – that is around one per year, and more than 30 bear markets during that time. The corrections average about a year from top to bottom and back, whereas a bear market may fall by 25% or more and last a year and a half before reaching the bottom and turning. These numbers are reflecting the performance of the American market, but are still relevant as the rest of the world generally follows their example.
If this is the investing world in which we live, I can see no logical reason for doing as the Bank suggests and just standing and taking the losses on the chin whilst going nowhere. I am going to take action as and when I deem it to be necessary. I of course will have the Saltydog numbers to assist my decision making which puts me in front of the next guy!