Frequently Asked Questions

This section will be composed of two
parts.  Part 1 will answer the most commonly asked reader/blogger
questions about the book’s strategy.  This section is critical to your
understanding of how to invest using the Stock Market Dashboard,

Part 2 focuses on an interview with me
regarding the focus and content of the book.

Part 1.  Commonly Asked Questions

Q.  What changes were made to the BDH ETF
Universe on July 13, 2018?

After reviewing the universe of 52 ETFs, I removed those that have not offered much value over the past few years, and added those that appear to be more in line with the developing changes in technology. There are now 44 ETFs being used. I removed 15 ETFs from the ETF universe and added 7. The following ETFs were removed: UGA, UUP, PHO, AGG, PID, SLV, GDX, EPI, IWB, MOO, EWT, EWA ,PBW, RWX, and IBB.

The following ETFs were added:

VB    Vanguard Small Cap

CWB    SPDR Barclay’s Capital
Convertible Bond

ARKK    ARK Innovation

SKYY     First Trust ISE
Cloud Computing Index ETF

ARK W   ARK Web

XBI SPDR Biotech ETF

FDN     First Trust DJ
Internet

The current ETF universe contains 44 ETFs that
are tracked at www.etfscreen.com/buydonthold/ and www.dark-liquidity/

Q.  Why did you request visitors to this
site to support the website with a $20 annual payment in March 2018?

I  prepared a memo to all users regarding
the future of this website and my $20 subscription offer.  Some of the critical
information provided free on this website will migrate to the subscription
service, but this website will still be free for
some of the current content. Hopefully, many of you that have not yet
positively responded will reconsider the value of this service which excels in
down markets by keeping the portfolio in cash.

I want to thank those of you who have sent in
the funds  for their subscriptions.  Interim updates will be provided
to subscribers as market conditions change and signals occur during the week,
as well as providing ETF purchases or sales during the week.  The
free  siet will be updated only on weekends.  Please click on
the following link for the details of the subscription:  BDH Request for Support March 23, 2018

Q.  Why did you change the 
indicator logic for the BDH Decision Page ETFs on 
October 25, 2017?

The “pass” criteria was changed from requiring
that all  three conditions (Initial Tests) in the table be met to
requiring that any 2 of the 3 conditions be met. This will
make it quicker to purchase ETFs after a BDH Dashboard BUY signal is
given.  In the past although a BUY signal was given many ETFs in the top
20 did not have pass ratings so they could not be bought at that time. 
This delayed the purchase date and gave up some upside.

 Q. You introduced a simpler version of
the Dashboard in your blog posting of March 12, 2011.  Why did you do
that?

After a careful review of the Dashboard’s
performance and blogger comments, I decided to make the Dashboard more senstive
to market conditions while retaining four of the eight indicators.  The
report that I wrote and analysis performed are inlcuded in the the link below:

Dashboard V2

Table A Version 2 Dashboard Final

Table B Original Dashboard Backtest Final

Table C Weekly Dashboard Readings and Signals
Compared Final

Table D Dashboard Comparisons with Buy and Hold
Final

Q.  A revised list of 52 ETFs was posted
to the blog (Part II) on April 21, 2012.  This has replaced the original
listing on pages 89 through 92 and page 171 (Appendix 6.1).  The link for
that list is as follows:

ETF Revised for Dashboard V2 April 17, 2012

Q. Do you have a chart of the V2 signals
since inception?  Yes, here is the link:

http://stockcharts.com/h-sc/ui?s=$COMPQ&p=D&yr=2&mn=0&dy=0&id=p50034199149&a=250074893

Q.  You introduced a Decision Page on
www.etfscreen.com/buydonthold on November 24, 2012.  Where can I find that
page?

https://www.etfscreen.com/buydonthold/

There is also a full description of the
rationale and details of the changes in this descriptive memo:

BDH Decision Page Description 11 24 2012

Q.  I bought the Kindle or Nook version
of your book, but the charts and exhibits appear hard to read.  Do you
have any suggestions?

A.  Yes.   Assuming your
purchased the Kindle edition on Amazon, you can obtain the free PC software
from the Amazon website and download a free e-copy of the book to your PC. You
can view the entire book including all charts and tables in much larger format.

Q.  In reading your blog, I noticed that
there have been a number of changes made to the Dashboard, and in particular to
a few indicator critical value’s, since the book’s publication. Have you put
all the changes in one place where I can easily reference them?

A.  Yes, they are provided in this FAQ
further down.  I suggest that you print out those changes so that you have
them handy and can easily reference them.  All these and any other changes
will be included in future reprints of the book, and will be uploaded to the
Kindle edition as well as early as possible.

Q.  Can you please explain how to
interpret the Dashboard posted on the blog?

A.  The original Stock Market
Dashboard was developed to provide investors with either a “buy” or a “sell”
signal for the stock market.  It was composed of eight indicators;
each assigned an equal value of +1 if it on a buy signal or -1 if it is on a
sell signal, as explained in detail in the book.  All the indicators are
evaluated each week and their values are aggregated.  When there is a
composite reading of +3 that is a “buy” signal, and a reading of -3 is a “sell”
signal.

I originally posted a summary  of the
Dashboard indicators that on the blog in both WORD and EXCEL format. Bob
Leitner, one of the contributors to the blog, came up with the format so I
decided to use it and name it after him.  I enhanced it by adding a notes
section at the bottom which indicates each indicator’s current reading so that
everyone can determine if they have the same readings so that we are all on the
same page.

At the top of the Dashboard were the numbers 1
through 8 that correspond to the indicator numbers on the revised Table 5.2
(see June 13 blog part 2 and print it out for future reference).  I didn’t
place the descriptive name of each indicator, as I wanted to keep that
information restricted for readers of the blog rather than the general public.

Under each indicator in the next row is its
current value that is +1, -1 or “0”.  The next row indicates the date of
the latest signal.  And the last row indicates a “Future Date” for
indicators #3, #4 and #6.   This date refers to the date on which
this indicator’s value will change to “0” from its current reading, if the
signal does not change to the opposite value over that six-month period. 
If it hasn’t changed for this period then I consider it neutral. Note
that only those three indicators have a “0” value.  
Of
course, if the indicator has an additional signal in the same direction it
currently is valued at, then the six-month future date will be extended six
months from that confirmation signal date.

When I revised the Dashboard on March 12,
2011, I renamed it Version 2 (V2).  
And now it contains only four
indicators.  I post my blog with the V2 Dashboard on weekends. 
The scoring system has also been changed from the original methodology. 
Now a +3 or +4  reading is a “buy” signal and a +1 or 0 reading is a sell
signal.  A reading of +2 requires no action.  The full explanation of
this revised V2 Dashboard and backtesting results are provided in
the March 12, 2011 blog.

Q. The numbering of the original eight
indicators in the text is different than that on Table 5.2 on page 132 of the
book.  Which numbering scheme are you using in the blog?

A.  Table 5.2 indicator numbers are to be
used,  NOT those in the text.  Also, since the publication of the
book, a number of the Critical High/Low Values in Table 5.2 have been adjusted. 
The revised Table 5.2 new table can be found in the blog mentioned above as
well as at the following URL:

Buy DON’T Hold Table 5.2 Dashboard Revised

Please make a hard copy of this table and
refer to it when viewing the posting of the Dashboard.  This is the only
source to be used for the indicators and their critical values.

Q.  How often and when will you be
posting the Dashboard results?

A.  The current schedule is to update the
Dashboard readings weekly on weekends.  If there is a Dashboard
signal change in direction during the week, then I will post on that day
after the market close.

Q.  How can be informed if there is a
blog posting midweek or at any other time?

On all the pages, except the blog page, there
is a small yellow “RSS” button on the right side of the page.  Sign
up for the automatic feed and you will receive an email when a posting is made.

Q.  For risk management purposes you
advise diversifying with asset allocation models.  In your book, you
indicated that an investor should sell ALL holdings when the Dashboard
composite signals a downturn in the stock market.  Does this also include
selling all bond positions?

A. The Dashboard Composite “buy” or “sell”
signal only refers to the equity positions not to bond
positions. I did not make that clear in my book and I apologize. In
a long-term declining market, the bond ETFs will usually rise to the top
portion of the relative strength screen.   Bond ETFs can be
bought as a core position
 based on your risk tolerance and
diversification needs, and kept in the portfolio permanently.  Also
consider using a tight stop limit order to protect your
principal for each bond ETF.   Another approach is to  sell
any bond ETF if it crosses below it 20 day moving average.

Q.  What are the back-tested results of
the Dashboard using the ETF strategy that you proposed with the top-ranked
six-month relative strength?

A.  The back-tested report and tables
were provided in the June 7, 2010 blog. The test was conducted on the entire
ETF universe provided in the book, rather than the individual categories of
style, sector, international and fixed income. The results are composed of five
separate PDF files — a full report of the methodology and findings and then
four separate data tables. Adobe Reader is needed to open each file. 
There was a mathematical error in the original Table 2 in the June 7 blog that
has been corrected in Table 2 below (The original report has also been revised
to take into account that change.

Buy DON’T Hold Stock Market Dashboard Back Test
Results Revised

Dashboard ETF Back Test Table 1 PDF

Dashboard Back-Test of Non-Invested Periods
Table 2 Revised PDF

Dashboard S&P 500 Back Test Table 3 PDF

Dashboard NASDAQ Back-Test Table 4 PDF

With the change to the V2Dashboard, I provided
backtest results and a report in the March 12 blog posting
.

Q.  How has the
original Dashboard performed since its first live signal on April
27, 2010 ?

The original  Dashboard outperformed
buy-and-hold by  2.23  percentage points since April 27, 2010,
while being out of the market 75% of the time.  Here is the link to the
data:

Dashboard 2010 Performance

Q.  What was the Dashboard V2 performance
in 2011?

The 2011 results are provided in this WORD
link:

Dashboard V2 Review for 2011 With Table 1l

Q.  Is there a way to view each of the
original indicators on stockcharts.com in just a few minutes, instead of
the more detailed approach shown on pages 126-131 of the book?

A.  Yes.  I provide them below, but you only need the four indicators that I presently review in my blog with all the links provided.

When using www.stockcharts.com, one does not need to key in each indicator every time the site is accessed. Just type in $ into the quote box and the ticker symbol for each indicator.  Next time you open the site all the previously keyed in ticker symbols will come up. Highlight the one you want.  You can use the following changes to obtain each indicator:
1. $NYA50R; hit “update” Les note: This site replaces the www.indexindicators.comsource in the book.)
2. $COMPQ; overlays: Simple Moving Average 100; hit “update”
3. $NYHL; “update”  (Les note:  Still need to go to Barron’s site to obtain % of stocks making new highs. See next Q&A for the link)
4. $BPNYA. Create new chart: P&F chart; GO
5. $COMPQ; indicators: MACD; hit “update”
6. (Les note: go to http://www.aaii.com/sentimentsurvey/
7. (Les note:  type in $SPX ; hit “update”): MACD comes up automatically
8. $NASI; overlays: Look for Exponential Moving Average instead of simple moving average and use 5 days; indicators: MACD; hit “update”

 Another blogger, Drew provides his
www.stockcharts.com approach:

Here’s another trick that can save even more
time on stockcharts.com. Once you get a chart set up for an indicator, click on
the “linkable version” link under the chart. The chart then refreshes with a
URL you can permanently bookmark or hyperlink.

For instance, here is the chart I use for
Indicator #1:

http://stockcharts.com/h-sc/ui?s=$NYA50R&p=D&yr=1&mn=0&dy=0&id=p61290405479

Q.  Where can I find the AAII Sentiment
survey data for Indicator #6?

A.  This data is updated weekly by AAII
on Thursday mornings.  You can go directly to their website at www.aaii.com and look for the sentiment data. 
The other choice is to go directly to the spreadsheet that they provide at:

https://www.aaii.com/sentimentsurvey/

Another source is Barron’s: http://online.barrons.com/public/page/9_0210-investorsentimentreadings.html

Q.  Are there any other discount
brokerage firms that you can recommend, in addition to those on page 93 in
Appendix 4.1

A.  Harry, one of the contributors to the
blog recommended that another one be considered. It is OptionsHouse.com where
stock trades cost only $2.95/trade. I am not familiar with this firm, so you
should check it out compared to the others in the appendix.

Also Vanguard, Scottrade, TD Ameritrade,
Charles Schwab and Fidelity offer free trades on a certain universe
of ETFs with certain limitations
. Check it out on their websites.

Q.  Which site do you recommend for
determining the ETF relative strength rankings?

A. I recommend www.etfscreen.com/buydonthold/ .  This site provides a breakdown of all the ETF
portfolios I recommend.  Just go to the left side of the page and click on
the portfolio you are interested in.  This site is updated daily as well
as intraday.

Q.  You introduced slightly different
criteria for getting back into the market after a Dashboard SELL signal in
October 2015.  Please explain what you said.

A. When the market corrects and then a
Dashboard BUY signal is given, the Top 5 ETFs (not fixed income, currency or
inverse ETFs) will be bought if they have a “pass” rating. Additionally, if
five ETFs do not meet that criteria, but they have a positive MACD reading then
they will be bought as well until five ETFs have been selected. The logic is that
after a correction some of the Top ranked ETFs may still be below their 100-dma
and their one month return may still be negative. Waiting for them to attain
those targets may take too long to get a good entry point. Buying early is the
most logical approach in that circumstance.

Part 2. Interview with Leslie N. Masonson

Q. Can you define the
buy-and-hold strategy?

A. Buy-and-hold is a long-term investing strategy put forth by the
mutual fund industry, brokerage firms, financial advisors and many well-known
investment professionals such as John Bogle, the founder of Vanguard
Funds.  The strategy is simple.  Its main tenet is to buy a
diversified group of stocks, mutual funds or ETFs, rebalance the portfolio
typically once a year, and not sell during market downturns. Many proponents
also recommend continual dollar-cost averaging monthly or quarterly with new
money, especially with retirement accounts. That’s it in a nutshell.

Q.  Please explain your book’s title and
why you believe buy-and hold is a failed strategy?

A. The title is the exact opposite of buy-and-hold.  In my
view based on my 50 years of analyzing, researching, trading and investing in
the stock market, buy-and-hold is not the way for savvy investors to build and
retain wealth.  If you never sell, then you never sell your winners, then
you never book your profits.  Successful investing requires not only taking
periodic profits, but also and stepping aside into cash when the market reaches
outlandish valuations or extreme peaks based on what reality would
suggest.  Although the stock market rises about 70% of the time, by
default it falls 30% of the time.  Why would you stay invested as the
market is falling?  That is an irrational decision.

Wall Street firms and many advisors firmly
believe that there is no way to know or predict when the market will rise or
fall.  Therefore, they promote the buy-and-hold approach as the only
viable way to make money over the long-term.  Unfortunately, as investors
have found out the hard way, buy-and-hold is a dangerous and antiquated
strategy that is not appropriate in today’s complex global financial
marketplace. Moreover, as this book explains in detail there is a way to
determine market tops and bottoms with a high degree of accuracy that can be
used to the investor’s advantage.

As an example of the futility of using
buy-and-hold, just look at the last decade where most investors did not make
any money, and many are behind where they started because of two devastating
market crashes.  In 2000, if your investment advisor had told you that you
would obtain a better total return by purchasing municipal bonds or bond funds
and holding for 10 years than investing in the volatile S&P 500 index fund,
you would probably have thought he was crazy and out of touch with
reality.  Guess what, the munibonds did better on a total return basis
than the S&P 500 with much less risk.  Of course, no one can predict
which asset class will do well in the future, but there are ways to determine
where you money should be invested using relative strength analysis with
exchange-traded funds, as explained in the book.

Q. What is the core value proposition of your
book?

A. Buy – DON’T Hold provides not only the
justification for permanently abandoning the antiquated and risky buy-and-hold
approach, but more importantly provides a practical straightforward
step-by-step investing roadmap that any interested investor can use to produce
consistent returns with less risk.  Investors need to understand that
investing success requires not only a good offensive strategy during market up
trends, but also more importantly a good defensive strategy that protects
capital during down trends.

Buy and hold investors hope for the best over
the long-term, but unfortunately, every three to four years, like clockwork,
bear markets crush their portfolios. In the last decade there were two
devastating bear markets that wiped out 50% of investor portfolio values, not
once but twice.  These huge losses resulted in millions of investors
having to delay their retirement plans, postpone funding of college education
for children and grandchildren, and delay life’s many joys.

Q. How would you describe your approach to
investing?

A. I use a controlled, systematic, non-emotional, rule-based
investing approach that follows a specific written investment plan. I follow
the market trend, then invest in a basket of diverse ETFs using relative
strength analysis when the trend is up and go into cash when the trend is
down.  I also use stop limit ordersand trailing stops as a further way to
minimize any losses.

I do not invest in individual stocks or mutual
funds.  I do not listen to stock market experts or gurus or invest
emotionally.  I use a simple yet effective approach that tells me when to
be invested and when to be in cash.  That’s the way to build wealth going
forward.

Q. What are the keys for successful investing?

A. The most important decision an investor
needs to make upfront is to decide whether to manage his/her own investments as
a self-directed investor or use a financial advisor or advisory service. 
My book focuses on helping self-directed investors.

The first key for the self-directed
investor is determining his/her “true” risk tolerance
 whether it is
conservative, moderate or aggressive.  Certainly, an investor has a much
clearer idea of their risk tolerance after experiencing two bear markets in the
past decade.

The second key is determining when the
market is changing direction
 from an uptrend to a downtrend and vice
versa. This is discerned by using my unique Stock Market Dashboard —
a multiple indicator measurement tool to determine whether to invest or be in
cash on the sidelines.  As you can imagine, investing against the market
trend can be extremely hazardous to your wealth.

The third key is to use the most
practical and least expensive investment vehicles available — exchange traded
funds
. I provide a select group of exchange-traded funds to take advantage
of market conditions, whether bullish or bearish.  Finally, the
last key is to use a relative strength analysis tool
 that is provided
to pinpoint the best performing ETFs for investment.  Buy—DON’T
Hold
 provides all the critical information an investor needs to invest
successfully in turbulent markets, along with free websites to keep current on
the market’s changing conditions.

Q.  What benefits will readers gain from
your book?

A. The benefits of the book to the reader are as follows:

  • Being in complete
    control of investments of his/her investments, as a self-directed investor
  • Accurately determining
    your own risk tolerance
  • Investing with less
    risk
  • Reducing your
    portfolio risk and limiting losses
  • Avoiding the brunt of
    future bear markets
  • Taking the emotion out
    of the investing equation
  • Eliminating the need
    to seek outside investment advice
  • Spending one hour or
    less a week on monitoring investments
  • Learning how to
    effectively use ETFs
  • Not having to worry
    about the daily market fluctuations
  • Being able to invest
    both long and short (without using margin)
  • Learning how to use
    inverse ETFs in bear markets in retirement and non-retirement accounts to build
    portfolio returns
  • Knowing where to
    obtain the free websites for charting, indicators, ETF details and relative
    strength screening

Q.  What exactly do you cover in your
book?

Buy and Don’t Hold addresses the subject of self-directed active
investing from a multi-faced factual approach.  This book:

  • Provides a detailed
    look at the discredited buy-and-hold mantra comparing the risks and rewards of
    each approach.
  • Debunks the
    buy-and-hold mantra as too risky, undisciplined and very costly.
  • Mentions that stock
    fundamental analysis is unnecessary as ETFs are purchased
  • Provides a non-emotional
    tool called the “Stock Market Dashboard”, using multiple indicators, to
    determine when to be invested and when to cash in your chips
  •  Provides step-
    by-step guide to making successful investments
  • Recommends that
    investors use only selected ETFs as invest vehicles instead of individual
    securities or mutual funds
  • Provides a momentum
    investing strategy using relative strength analysis to select the highest
    probability investing vehicles
  • Provides information
    on investing software packages, useful and free Internet websites, and
    comprehensive bibliography.

Q.  Why do you recommend that investors
use ETFs instead of stocks and mutual funds for their portfolios?

A. First of all, stock investing is extremely risky, much more so
than investing in actively managed mutual funds.  Even with a diversified
portfolio of 10 or 20 stocks, a bad earnings report or bad news in a stock’s
industry group, or an unsubstantiated rumor can cut a stock’s price by 25% in a
matter of minutes. Even if a few stocks in the portfolio drop by a large
percentage, the overall portfolio performance will probably under perform a
suitable benchmark.

Also, an investor needs to be financially
knowledgeable about accounting and financial matters to understand a company’s
annual report (especially the footnotes and financial data.  Jim Cramer on
his Mad Money Show on CNBC and in his books recommends that investors do their
homework before buying a stock.  Does he really believe that the average
investor can interpret company financial reports and understand the
risks?  I certainly don’t believe they can do that.  Therefore, I
recommend that investors not buy individual stocks.

Any investor who scans the financial reports
of companies and expects to be a profitable investor based solely on this
fundamental analysis will be disappointed, as the volatile markets will make
mince meat of most stocks in a market downturn.

Turning to mutual funds, most managers must
remain fully invested all the time, so no matter how smart they are, they have
no place to hide in a bear market.  That is the problem with mutual funds,
in general, they can’t be defensive.  Of course, they may be able to raise
their cash positions for redemptions to 10%, but that’s about it.

Moreover, most active managers do not beat their
passive benchmark, or if they do are not able to do so consistently. 
Additionally, active stock mutual funds have annual operating expense ratios
around 1.4% which does not include their portfolio transaction fees, some of
which equate to 1% or more.  Thus total annual fees are about 2.4%. 
Compounded over many years, these fees eat into the fund’s performance. 
Index funds, on the other hand have much lower annual operating expense
rations, usually below 0.5% and their portfolio turnover is minimal.

ETFs are the investment vehicles of choice
based upon their wide choice (over 800 ETFs in all asset classes), index
format, low expense ratios and low portfolio turnover, complete transparency,
low bid-ask spreads, and instant liquidity.  As such they are much
preferred to standard mutual funds.  Moreover, ETFs are tradable during
the day like stocks and have no upfront or back-end loads or redemption fees
based upon the share class or length of time invested.

Q.  Can you explain what you mean by
relative strength analysis and why you find it useful for successful investing?

A. In 1969 Robert Levy authored a book on relative strength
analysis. I’ve been fascinated by the subject ever since.  It is a simple
concept to understand.  Let me give you an example to explain it.  If
you look at the universe of the S&P 100 stocks at the close of business on
Friday afternoon each week and rank the stocks from top to bottom based on
their price performance over the past six months, you will have a list of the best
to worst performers.  If you ranked them on a scale of 99 to 1, the
strongest stock will have a relative strength of 99, the next one 98, all the
way down to 1 for the worst performing stock.

If you buy the top 10 ranked stocks and hold
them as long as they remain above a 70 ranking for example, your performance
going forward should be better than buying the weakest 10 stocks, assuming the
market is in an uptrend.  Once any of the stocks drops below the
70-percentile ranking you sell them and buy the strongest stock to replace it.

There have been numerous studies on the value
of relative strength investing by Charles Kirkpatrick, Jr.,  Robert W.
Colby and others whom have all found it to be one of the few key variables to
selecting winning investments.  Also Investors Business Daily uses
relative strength in their rating system for determining the top stocks.

Q.  Does using relative strength mean
that you are always invested in the stock market, since there will always be
ETFs that will be ranked at the top of the list no matter if the market is
rising or falling?

A. Definitely, not.  If the Stock Market Dashboard is
on a “sell” signal, no long ETFs should be purchased.  Of course,
aggressive investors may decide to purchase inverse ETFs which
rise when the market falls.  When the dashboard reverses to a “buy”
signal, the top ETFs can be bought and the inverse ones sold, if previously
purchased.

Q.  How do you determine the market’s
trend?  Moreover, according to the experts no one can predict where the
market is going.  So how do you know when the trend is permanently
changing and it is time to invest or go to a cash position?

A. The key to profitable investing is to invest only when the
market trend is favorable, and to exit the market when it is not.  As
Marty Zweig, a well-known investment manager, and others are noted for saying
“the trend is your friend.”

The trend can be determined in many different
ways.  I use a composite index of four technical indicators to
identify extreme readings that signal when the market is potentially overbought
and ripe for a correction or oversold or ripe for a rebound. The process is
mechanical and can be done in 5 minutes once a week.  Using one indicator
can lead to many false signals (called whipsaws) and result in extra commissions
and more trades which are to be avoided, if possible.  Therefore, the use
of multiple indicators works best.

I explain each indicator, where to obtain the
data free of charge on the Internet, and how to interpret it.  The
Dashboard is not predicting the future.  It is just indicating that the
market has reached an extreme point where it typically has changed direction in
the past.  We are trying to put the odds in our favor that the market will
move in the opposite direction once the indicators move in the same direction.

We never know in advance when the trend will
change or if the latest trend change is permanent (for many months or years) or
short-term (a few weeks or months), but at least we jump on board or jump out
if the composite signal indicates it is time to do so.

Q. Can you give me a few examples you use in
the composite indicator?

A. Certainly.  One of the simplest indicators is the moving
average.  I use a chart of  100-day simple moving average on the
NASDAQ Composite Index, since that index tends to lead the overall stock market
in both up and down markets.  When the index price crossed the moving
average line from above, that is considered a “sell” signal and vice
versa.   This indicator will not get you out at the exact top or in
at the exact bottom, but it works well.  For example, this indicator gave
a sell signal in early September 2008 and a buy signal in late March 2009,
certainly a timely signal to be out of the market and back in for the ride up.

Another indicator I use is weekly the American
Association of Individual Investors Sentiment Index.  It measures the
bullish or bearish opinions of many of its magazine subscribers.  When the
percentage of bulls reaches 50% or more and then retreats that is considered a
“sell” signal.  Likewise, when that statistic falls to 25% or below and
then rises, that is a “buy” signal.  Since both of these numbers are
extreme reading this indicator is considered a contrary indicator.

Q. Based on the devastating stock market’s
poor performance during 2008 through March 9, 2009, do you believe that the
drop in their portfolio values shocked most investors?  Do you think they
were fully aware of their risk tolerance?

A. Yes, investors were totally upset and baffled by the
market drop. Moreover, I don’t think shell-shocked investors really thought
much about their risk tolerance until the markets got crushed.  Any
investor who sold out their stocks or stock mutual funds at or near the market
lows in October/November 2008 or March 2009 needs to reassess their risk
tolerance to determine if it is appropriate.

Determining one’s investment risk is such a
critical element of successful investing that I devoted an entire chapter to it
in my book.  Most investors have not adequately spent the time necessary
to really look at risk and how their investments are structured to determine if
their investment mix meets their current risk mindset.

Investors need to first determine their
investing time horizon for their regular and retirement brokerage
accounts.  They then need to assess the amount of risk they feel
comfortable with in each type of account.  Typically, the lower the risk
level the higher the percentage of bonds should be placed in the portfolio.

Conservative investors should consider a
fairly large position in bonds ranging between 30% -70% depending on their
age.  This would have cushioned the market’s (S&P 500) devastating
losses in 2008 (-37%), and early 2009 (-25%). Moderate or aggressive investors
would have had a much lower bond component and thus experienced heavier losses
than conservative investors.  Those investors most likely experienced
negative emotions during the market’s decline and hopefully didn’t panic and
sell at the bottom.  If they did sell, then they are now feeling just as
bad that they missed the sensational rally since the market lows.

Q.  Why do you think investors lose money
in the stock market, even  in cases when it is rising?

A. There are many reasons investors lose money including:

  • having no invest plan
    or rules
  • having no specific buy
    and sell criteria and never taking periodic profits
  • not monitoring the
    market using charts to determine any change to the market trend
  • believing that
    buy-and-hold will somehow workout to build their wealth
  • getting emotionally
    involved in making investment decisions
  • buy stocks and mutual
    funds based on so-called expert advice, tips, newsletter recommendations or
    cable TV stock market shows

Q.  There are over now 800 ETFs compared
to a handful just tens years ago.  How does an investor interested in ETFs
decide which ones to invest in?

A. There are many informative websites, newsletters and books that
explain ETFs in great detail and provide a breakdown of all the choices
available.  However, selecting the ones for investing can be a daunting
task unless the investor has some type of  accurate and timely analytical
approach.

In my book, I have filtered the universe
of  800 ETFs down to 66 which represent different segments of the market
including style, sector, country, fixed income, specialty and a few inverse
funds.  I also provide numerous websites for additional information.

Q.  Now that you’ve limited the ETF
universe how do you determine which ones to invest in and when to invest in
them?

A. That’s the easy part.  I supply two free websites that
anyone can use can rank the ETFs based on relative strength using the selected
EFT universe.  The investor can either pick the a few top ETFs in each of
the segments mentioned in the last paragraph or invest in the top 15 ETFs in
the entire universe out of the 74.  Of course, the investor would invest
only when the Stock Market Dashboard indicated a bullish
condition.

Q.  Do you advocate the use of stop limit
orders and trailing stops to minimize losses and protect profits, respectively.

A. Yes.  Think of stops as an easy way to protect your
capital.  Investors can use a fixed percentage such as 7-10% on standard
ETFs or 15-20% on more volatile ETFs, depending on their risk tolerance. 
Another approach is to use the Average True Range to determine the stop amount,
or to use candlestick patterns or other technical indicator such as support or
resistance, trend line or moving breaks, or other methods.

Q. As a financial advisor what did you learn
about your clients’ investing knowledge and performance?

A. I found that most individuals have a very limited knowledge of
how investments work, what choices they have, how risky they are, what their
risk tolerance is, and in general how to make investment decisions.  Of
course, a handful of investors were very knowledgeable and know exactly what
they are doing.  Most investors have ridden the market up and down and are
now confused and scared about the future performance of their investments and
the economy.

I wrote this book to provide investors who
wants to control their own investments with a specific action plan. 
Hopefully, investors will see the light and master the approach I recommend or
find one on their own that meets their needs and personality.

Q.  What is your investment background?

A.  I have been researching, investing and trading the stock
market for many decades.  I have written two previous books on
investing.  Also, I have a BBA in Finance and Investments, and an
MBA.  I’m also permanently Certified Cash Manager. Moreover, my most
recent experience has been as a Financial Advisor for the most recent six
years. You can refer to my complete biography in the About the Author tab.

Disclaimer:

The information offered on this site is for
educational purposes only. Investing and trading involves risk and the user is
solely responsible for any investing or trading decisions that he or she
undertakes. Historical stock market performance is no indication of future
results. Although the author has taken every precaution to present accurate
data, he assumes no liability for errors or omissions.  It is offered
without warranty of any kind. All concepts and ideas presented should be taken
as points of departure for the individual’s own research.  You are
responsible for your own investment/trading decisions. Recommendations are made
without any consideration of your personal financial sophistication, financial
situation, investing time horizon, or risk tolerance. Investments recommended
may not be appropriate for all investors.  Use of this material
constitutes your acceptance of these terms.

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