Why I Still Do Not Include Equities in my Safe Investing Strategy.
My Safe Investing Strategy is long-term in nature but not as long-term as traditional views of investing. To me, Safe Investing is about protection of principal first and gain and income second. In typical Asset Allocation strategies one is fully invested in a “diversified” basket of funds, some equity, some bonds. The idea is that “over the long run” the returns on this type of portfolio will be superior to other types of strategies. I consider this type of strategy to be very long-term in nature and potentially unwise. It is possible to experience portfolio losses that could take decades to recover from. For instance, those that have followed this type of allocation strategy but started in 1998 (S&P500 around 927) have found their 50/50 portfolio (50 percent stocks and 50 percent bonds) to have been outperformed by the ultra conservative 100% bond portfolio. Those with more aggressive 80/20 portfolios are even more behind.
My alternative to Asset Allocation is to still allocate but to exit any security type that I believe is in a down trend. Yes, I invest with the trend or “market time”. Am I successful. I believe so, especially from a “heartburn” perspective. I have avoided every single sharp downward movement since and including the 1987 “crash”. Have I missed some gains? Yes I have…possibly…the problem is one never really knows. For instance, I have been out of equities since the January 8, 2008 when the S & P opened below its 11/26/2007 low of around 1407 (I actually trade the E-Mini so the exact level is different). Since then I have been safely in short-term bonds, collecting interest while avoiding the heartburn. Will I get back into the market? Absolutely, but not until the price trend looks promising. This means the S & P moving above key Fibonacci resistance and doing so in a convincing price pattern. This means the S & P closing above around 1240 and doing so with good breadth, volume and price pattern confirmation. To me, we are far from that. Until then I am out of the market and “safe” in short-maturity bonds and bond funds.
