I escaped 2008 with a small loss in my account (-5%). Not bad, compared to how the indexes did (down 35-40%), but not great, given that I did trade some short positions (with puts) during the year. On December 24, IBD published a table listing the performance of the best growth mutual funds since April, 1994. The top fund was up +382% since 1994. My IRA account remains up a little more than 1200% (13x) since late 1994, so I do not feel that bad about my performance this year. The key to my success is that I made money during the strong market rises and kept it, by being mainly out of the market during the major declines. I might add that while I traded in my IRA during the huge declines in 2000-2002 and 2008, I avoided major losses in my university pension plan by transferring from mutual funds into a money market fund during these declines. So, I have learned the painful lesson over my 40+ years of trading that the key to success is conservation of capital during the inevitable market down-trends. These declines can be detected long before they reach the panic phase when they become evident to everyone. I have developed rules for identifying the market’s trend early, that I post each market day in this blog, in the form of the GMI and GMI-R…..
I am very distressed that most of my fellow boomers have had their accounts massacred during the 2000-2002 and 2008 declines. Our society did nothing to prepare us for declining markets. To the contrary, financial advisers and media pundits continually preached “buy and hold” and told us how the market indexes averaged gains of 11% over time, but neglected to tell us that these indexes overestimated market performance because throughout history, underperforming stocks were dropped from the index and stronger stocks substituted for them. It may be too late for the boomers to learn the truth and to fully repair their retirement accounts. It is not too late for their children.
However, as a university professor, I am acutely aware of how badly we prepare present day college students to manage their finances after they graduate. At my state university of 35,000 students I have heard of only one class, in family studies, that teaches students about budgeting and other practical financial topics. Such practical topics are often frowned upon as nonacademic by professors in the ivory tower. Business and economic classes teach esoteric investment theory. But how many business professors have successful investment track records? We send college graduates out into the employment world with next to no knowledge about how to confront the complex retirement and savings options that confront them almost immediately. That is why I teach an oversubscribed and highly rated honors class on the stock market and technical analysis for undergraduates. At least when they leave my class, all 20 students in my seminar know they should immediately open a Roth IRA, participate in their employer’s retirement plan, and through a 10 week virtual trading exercise, how to manage and contain their losses if they buy or short stocks. Boomer parents who shell out $100 K or more to educate their children should demand that these institutions offer practical courses in the stock market and family finance. Write a letter to your college or university president….
As for the current market, the GMI is at 2 (of 6), still below where I like it to be to go long.
However, the GMI-R is at 6 (of 10), reflecting the rising short term indicators I added to this revised index. The QQQQ completed its 17th day of a short term up-trend on Friday. A lot of my technical indicators are showing a lot of strength, with the Worden T2108 now at 83%, not far from peak levels, above 90%. The QQQQ has now closed above its 10 week average for the first time since August. My best profits trading growth stocks have come when the QQQQ is rising above this average.
My long term university pension will remain in a money market fund until my longer term indicators turn up. But in my trading IRA, I continue to sell cash-secured puts on strong stocks, and to nibble at IBD100 stocks at new highs. While the IBD 100 stocks on my monthly lists over the past year represent just 17% of my universe of 4,000 stocks, IBD100 stocks accounted for 50% of the 20 stocks in my stock universe that hit a new high on Friday. In other words, IBD100 stocks were very about 3 times overreprepresented among stocks at new highs. So, this market seems to be launching IBD100 growth stocks to new highs. The 10 IBD100 stocks hitting new highs on Friday were: SJI,GTIV, LPHI, AVAV,SXCI,THOR,NCIT,SHEN,EBS, and CWT. I have small positions in some of these. I also own a little of QLD, the ultra long QQQQ ETF. Since I identified the beginning of the short term up-trend in the QQQQ on December 9, the QQQQ has risen +3.4%, while the QLD has risen +6.3%. The QLD strives to rise (or fall) twice as much as the QQQQ, but does not always achieve this goal exactly. I will hold QLD until the short term up-trend ends. (But I still remain mainly in cash.) The key is to ride the trend until it ends and to not get caught up in trying to predict how long it will last. As I wrote last post, market prediction is a fool’s addiction–no one can do it consistently. I wish all my readers a Happy New Year, filled with good health and trading profits. (Please send me your comments.)