(By Michael Kahn) I run a daily chart-oriented newsletter and as I was preparing for this morning's missive the Dow was of triple digits in the pre-market. I thought back to a customer who called to cancel his subscription just yesterday. His comments were not that unusual as he said (paraphrased) I like the service but it is a bit short-term for me.
Now, I do not run a day trading service but the average recommendation is probably on the order of three weeks. It's not intentional but with the absence of a secular bull market you have to take profits when you can and cut losses a lot sooner than you might do otherwise. It leads to plenty of whipsaws.
On my screen was a chart of the "market" and I thought to myself, "How can any investment advisor be in this business now when the average stock is trading where it was a month ago, six months ago, 18 months ago and four years ago? How about six years ago?
This is the NYSE composite.
We've all read about the lost decade for stocks and now here we are a few years later than that and the S&P 500 is still no better than it was in 2000. It managed to climb back in 2007 before falling to and even lower low than it saw in 2002. And today in 2012, even without today rout, the index is below both of those previous peaks.
For professionals and astute active individuals, there were some monster money-making trends to follow over the years. When I say money-making, I mean in spades. But you have to be willing to sell when things look great and buy when things look terrible. And you have to know when the minor trend is changing to sidestep problems or be sure to buy even more at the right time.
Buy and hold may be dead (for now) but advisors cannot risk calls from clients when the market moves down 10% with them in it or moves up 10% with them not in it. Traders had plenty of opportunity. Investors were left out in the cold.
I do not get how airlines make money and I do not get how portfolio managers with long-term views make money (other than gathering assets to make their management fee).
OK, here it comes. Managers will come back to me to say they made plenty.
Well, good for you. How did you do it?
We saw the valuations in 2009 and bought.
Great! How is your 10-year track record?
Umm. We beat the S&P 500.
You did? Bully for you. So did drinking beer and collecting the deposits on the cans and bottles.
Sorry to be snarky but unless someone trounced the market they only outperformed a mediocre asset class. If you were up a few percent and the market was flat then your are a relative hero. Does the client have enough money to retire after 15 years of investing?
I do not mean to put down portfolio managers but to really take advantage of things you had to be a market timer of sorts over the past decade. No, you did not have to buy and sell daily or even weekly. But cyclical moves must be timed, not matter what valuations say.
My opinion. What's yours?