Supernatural Investing
A Background and Introduction to Bear Market ShiftingTM The Apparent “Supernatural” Phenomenon Associated With Our Newest Quantitative AnalyticsTM Approach to Portfolio Management.
Supernatural Investing Means No More Bear Markets!
Before:
Bear Market ShiftingTM is the supernatural outcome of Cornering The MarketsTM. Tactical and Adaptive Portfolio Management Strategies TM based on the proprietary Quantitative Analytics TM approaches of HIS Financial Network. The Figures to the right both cover the same 11 year period from 01/2000 through 12/2010. The top graphic illustrates the actual performance of the Dow Jones Industrial Average (DJIA) without any intervention, while the bottom graphic illustrates the effects of recommended by Cornering The MarketsTM . The effect seems to have shifted a bear market into a bull market.
After:
HIS Financial Network: Corner The Markets l Financial Market Insights
HIS Financial Network
Norfolk, Virginia 23504-3823 Telephone: 757-744-9647
Supernatural Investing
Background and Introduction to Bear Market ShiftingTM
Info@NewDominionMedia.com www.HisFinancialNetwork.com
Financial Insights
By the Numbers Bear Market Returns: • 02/1906-06/1924: 18 years with a cumulative return of -4.29%. • 09/1929-11/1954: 25 years with a cumulative return of 1.69%. • 02/1966-10/1982: 17 years with a cumulative return of 0.83%. • 01/2000-12/2010: 11 years with a cumulative return of 0.70%.
This material should be considered as helpful hints only. Each person’s situation is different. You should consult with your investment professional or other relevant professional before making any decisions.
By Charles C. Christie, Jr. Many people struggle with their emotions when making important financial decisions. This is especially so when it comes to their investment decision making. Whether is relates to how much money they should have invested in the stock market or the bond market at any particular time, or when they should buy or sell something, emotions have often proven to be a very poor gauge in making these determinations profitably. How should one proceed with respect to such important financial issues? Stock brokers, financial advisors, market strategists, and many other types of financial professionals have tried to answer these types of questions as long as there have been people with various forms of wealth seeking advice and counsel from various forms of advisors. Their goals have always been the same, how to grow and protect their wealth. The Dilemma The difficulties many have encountered
stem from the seemingly simple ideas of growing and protecting assets. The financial industry has framed these two goals as being basically juxtaposed to one another. For example: asset growth is more risky, and asset protection is more conservative (or risk averse). Another example which is more industry specific is insurance. Insurance has been sold to us for years as a provision for various forms of protection. Automobile,
Key Points •
These systematic methods can bring Hope to all investors who have been traumatized by challenging market cycles and difficult times by providing timely recommendations and confirmations.
•
The Cornering The MarketsTM Tactical and Adaptive Portfolio Management Strategy produces Bear Market ShiftingTM which protects your bottom line while letting the Bull Markets run on their own accord.
•
The process allows you to detach your investment process from news cycles which may not portray your best interests, but may capture your imagination with suppositions, half-truths, or innuendos; therefore it can return Peace to your portfolio decision making.
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 3 of 20
Financial Insights
homeowners, and life insurance provide obvious protection for those assets. Some have also proffered notions that various types of insurance products ought to be used as investment vehicles, as a means to achieve both growth and protection, or both income and protection. While these notions are accurate, they do not always deliver the common sense results which many folks expect.
What to Expect From this Article This initial publication is not filled with a long and detailed exposition of this process. But rather, it serves as a general introduction to its development, its effects, and its associated terminology. Based upon the nature of the interest it garners, I will be prepared to take the next most appropriate steps in order to provide more of those details. I am convinced it would be inappropriate not to attempt to share these insights with the broader investment community as I am now certain that it provides tremendous value. However, I don’t feel obligated to ensure that all investors engage with us to enjoy the benefits of this strategy. I remain hopeful this information will be promulgated widely enough so those who might have an interest can find this information and have the opportunity to use it. As I begin to unveil these methods to you I will be asking several questions in an attempt to draw you into my thought process. I hope to elicit reasoning and thought provoking responses. My intent is not to engage you in any sort of religious indoctrination or philosophical discourse, but it is my intent to explain my experiences throughout the development of these ideas with Truth and without apology. My beliefs will most certainly be evident in my explanations but I do not hold myself out as being any better than anyone else because of them. The Truth is … it is not about my beliefs but what they represent that matters.
A Thesis in the Form of a Question Do you suppose God could devise a mechanism though which some people might prosper during a moment in history in which others had languished? And if so, could he then provide some insight of this mechanism to willing parties, for the purpose of Blessing His people with it? The biblical character Joseph was able to supernaturally prepare for famine by storing up grain for seven years (Savings), and Moses supernaturally played the part of an oracle having pronounced plagues at God’s direction, which occurred throughout all of Egypt, but had the result of harming only the Egyptians while at the same time sparing Israel (a people group living in Egypt at the time). History would seem to indicate people have indeed played key roles in helping Bless others. Why would this not happen again … and why not now? And why couldn’t it happen within the financial markets? And, if it could happen again, why use me? But then - why not use me? My answer - Here I am!
Progressive Revelation This strategy was a progressive revelation to me, individually, and possibly due to my profession as a financial advisor. I believe this strategy could benefit many. Just as rain is caused to fall upon the just and the unjust, similarly this approach to portfolio management could bless all of God’s people as well (both the just and the unjust). I prefer to leave it up to Him to determine just who is who (and when). Through this work, I hope, people of all walks of life will learn to believe in “Supernatural Solutions to Complex Problems,” a quote I borrowed from author & speaker - Shawn Bolz - which was spoken during a recent conference I attended. Additionally, I hope this belief will lead to a decrease in fear with a corresponding increase in Faith as His solutions are made apparent.
What is Bear Market ShiftingTM? An excellent question. And, by the way, I made it up! Actually, giving credit where credit is due, the name came to me while I was seeking help to determine a descriptive name which would explain the results I had seen. When I use the word – Supernatural (or one of its derivatives) in this publication – it is a direct reference to the mystery surrounding this HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 4 of 20
Financial Insights
program’s development. Since I am convinced the progressive nature with which this process was created was not due solely to my own efforts, I use the words as a credit. They are indeed appropriate as well as accurate. The term Bear Market ShiftingTM is a supernatural outcome of Cornering The MarketsTM - Tactical and Adaptive Portfolio Management Strategies based on the proprietary Quantitative AnalyticsTM Approaches of HIS Financial Network SM. Its inception began in 2009 in response to the 2008 financial crisis. In succeeding years, as development continued and difficulties arose, they were progressively solved and the Source of my inspiration became evident. As a historical example, the Founding Fathers of the United States of America, while trying to explain the processes of designing and drafting the Nation’s founding documents amidst tremendous discord, referred to Divine Providence as the Source which brought them together into one accord and allowed them to finish the task which just days before seemed impossible. Maybe you have heard the old adage – God works in mysterious ways. This too, may be a way in which people have attempted to explain away the unexplainable. To me, this is representative of a fundamental Truth. And as I see it, the Truth ought to be pursued. As I pursue it, a groundswell of insight, clarity and order often manifest during key moments - producing missing components to complex problems. Wisdom and Discipline together, during these times, have aided me in discovering this golden opportunity.
Bear Market ShiftingTM – The Effect In a moment, I will provide some images which will show you what Bear Market ShiftingTM looks like, but for now I’ll just define it: The effect alters the experience of living through a Bear Market by creating market returns which are more similar to Bull Market characteristics. The first time I took the “Prove it to yourself” challenge, the results surprised me. I thought I had made calculation, or methodology, errors. Upon further examination ... I had made a few minor errors … and once the adjustments were made - the results were better. Now … my surprise had turned to astonishment. Simply put, during 2000 through 2010 (11 years), a long term bearish cycle where the Dow Jones Industrial Average had only returned 0.70% (an average of 0.06% per year), the Cornering The MarketsTM Tactical Method recommended 11 trades in 11 years, and the results returned 88.0% during the same 11 year period (an average of 5.60% per year). During the same 11 year time frame, the S&P was down (14.40%), the NASDAQ was down (34.81%), and the 30 year Treasury Bond Yield was down (32.72%). When you see the figures which are presented in the following sections, I hope you will see that the 2000 – 2010 bear market, after our employed strategy, no longer looks like any of the other bear markets. In fact, it more closely resembles the properties of an average bull market (Figure 9). So … is the concept of “Bear Market ShiftingTM” beginning to sink in? Is it starting to make sense? Do you want to know more?
A Picture is Worth 1000 Words If a picture is indeed worth 1000 words, the following illustrations should provide the much needed clarification to assist your further understanding. It has taken me several years to first “see” and then to understand these relationships. Since I’ve been there, it won’t take me as long to show you how to get there. But since it is a process, please bear with me and take a few moments to become familiar with these “pictures” because there’s gold in them there hills.
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 5 of 20
Financial Insights
An Introduction to A Stock Market Histogram - Figure 1 The following graphic (Figure 1) is called a histogram. It is an easy way to display the standard distribution of stock market returns over time. There are 143 years of annual stock market returns represented in this histogram. Each annual return is sorted into its appropriate column based on the range of results listed at the bottom of the chart. Each of the years are subsequently stacked on top of each other in their respective columns in chronological order, therefore forming a bar chart which I have chosen to color code. At the risk of overstating the obvious, the positive years are blue and the negative years are red. This process makes it quite clear that there are more blue years than red years which may lead one to conclude that the odds favor the long term investor. And that would be especially true for this chart if you had been an investor for 143 consecutive years.
Figure 1 Please note that 72% of these historical observations had positive results. And of the 40 negative years (28%), 53% of those were between 0% and -10%, only slightly negative. These smaller negative returns, while not desirable, are easier to recover from emotionally, and financially, than their larger and less desirable cousins. It is during these larger loss scenarios which are represented by the negative years, to the left of the green box*, where the major portfolio damage occurs. Can anything be done to systematically reduce this risk? If it could, the positive impact of these returns on a particular portfolio would be tremendous. The rest of this publication will be dealing with just such a systematic approach. (* The Green Box depicted in Figure 1 represents the “Goldilocks Zone”. Where the returns are not too hot, and not too cold, they are just right.)
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 6 of 20
Financial Insights
Historical Trends - Figure 2 But for now it is time to introduce another type of chart before we return to the histograms. This next chart is produced by a third party, Guggenheim Investments, they purchased Rydex Funds a few years ago who, as far as I have been able to determine, were the original purveyors of this presentation. in contrast to the previous chart, this data only represents 117 years of stock market history dating back to 1897. There are nine separate shaded areas which occur in Figure 2. The shaded areas each indicate long-term multi-cyclical (or secular) stock market trends. The gray areas are Long-Term Secular Bull Markets, and the purple areas are Long-Term Secular Bear Markets. I will be exploring only four sections in more detail and my intent is to familiarize you with both an average bull market and an average bear market as well as two specific bear markets. I hope you take notice that I am particularly focused on bear market periods. The main reason is I believe we can learn more from bear markets than we can from bull markets.
#1
#2
#3
#4
Figure 2 Soon I will be taking you back to the histogram charts, but before we go there I want to spend a few more moments addressing the areas in Figure 2 which I will be highlighting for the remainder of this publication. The first purple section (1906 - 1924) is an example of an average secular bear market, and the second purple section (1929 - 1954) is the most famous bear market. The next area of interest is the third gray section (1954 - 1966) which is a reflection of an average bull market. And on the last segment of Figure 2, where I will be devoting the most attention, is the fourth purple segment (2000 - 2010) which depicts our most recent bear market experience. Using the histogram of this recent bear market, I will show you what Bear Market ShiftingTM looks like, but first I want to show you the other histograms for each of the other market segments so you will have the necessary experience to make that comparison. So when I ask you, “Do You See What I See”, I hope you will be able to answer in the affirmative.
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 7 of 20
Financial Insights
An Average Bear Market - Figure 3 Beginning with Figure 3, you will see significantly less yearly data represented in each of these histograms. I have only included the yearly data for the current section being discussed. Figure 3 is representing the first purple zone (of Figure 2) which include the 18 years from 1906 through 1924. The cumulative return for the entire 18 year period was -4.29% and demonstrates for you what an average bear market looks like using this histogram approach. Remember this is an average bear market, but look closely at the yearly return data. 12 of the 18 years (66.7%) were positive, and only 6 of the 18 years (33.3%) were negative. For effect, I would like to make that point again:
Figure 3 In this average bear market two-thirds of the returns were positive and only one-third of the returns were negative! Probing a little further, you can also see 7 of the12 positive years (58%) were greater than, or equal to 10%, and 3 of the 6 negative years (50%) were less than or equal to -10%. Given the basic facts presented here, would it be premature to suggest there might be opportunities within bear markets which, if recognized and exploited, might improve investing results? I suggest we examine the next bear market zone to learn more.
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 8 of 20
Financial Insights
The Most Infamous Bear Market - Figure 4 This section also represents a bear market period, and this bear market made its mark on an entire generation of people throughout the world. It remains the most infamous bear market in stock market history mainly because it contains the world’s worst stock market crash, and it ushered in the years of The Great Depression. It was also remarkable that its annual returns covered the breadth of the entire scale at the bottom of this chart. This bear market has earned a historical reputation of having had a devastatingly negative impact in the world’s financial annals. While it is true that it brought hardships to countless people, it also brought fortunes to many who’s vision endured. Many millionaires were created and family dynasties were formed or solidified during this period. Why? Are there opportunities in bear markets which some can see and others cannot? If so, then who saw it? What did they do? And when, where, and how did they do it? And wouldn’t you want a pair of those rose colored glasses?
Figure 4 Now, referring to Figure 4 directly, please take note, in this most difficult bear market, there were 14 positive years in 25 (or 56%). A majority (barely) of the years were positive in the worst financial period in history. Isn’t that remarkable? Maybe we should re-think, or re-frame, our opinions of bear markets. Maybe we should find a pair of those rose colored glasses and put them on. Regardless, we should start to watch, and learn to “see” opportunities as they are forming. Perhaps you will continue reading this series and you may find these answers for yourself. I have no doubt that some will “see” the Truth this time around. Unfortunately, I am just as confident many will not “see” it yet.
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 9 of 20
Financial Insights
An Average Bull Market (finally) - Figure 5 Figure 5 represents a histogram of an average bull market (1954 through 1966). As you can see in the figure below, this period enjoyed a cumulative return of over 154% while more than 80% of the year were positive. There is not much room here for improvement. Perhaps the returns might be improved upon incrementally if opportunities ( corrections) present themselves. But this would be a minor objective. The major objective here is to realize, as soon as possible, that a shift from a bear market to a bull market has taken place. When that realization sets in, even though the Cornering The MarketsTM Tactical Process should make appropriate recommendations, a shift should also take place in your frame of reference. In bear markets your major objective should be preservation of capital, whereas in bull markets your major objective should be the accumulation of capital.
Figure 5 I want to restate this one more time just to be clear. The major objective in a bull market is the accumulation of capital and the way that is accomplished is by just trying to stay invested and let them run their course. I will talk more about the anatomy of bull markets and bear markets in another publication since that is beyond the scope of this introduction to Bear Market ShiftingTM and its counterpart the Cornering The MarketsTM Tactical and Adaptive Strategies. Since we have now covered all of the background material it is now time to take a peak at our final market period.
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 10 of 20
Financial Insights
The Most Recent Bear Market - Figure 6 This is the initial time period which I studied, and this particular period is the major focus of this publication. This histogram represents another average bear market. If you want to take a look back to Figures 3 & 6, Figure 3 is another average bear market and Figure 6 is a major bull market. The reasons I showed you all of the other histograms is so that you would have some point of reference with which to make these comparisons. Here we see an 11 year bear market with a cumulative return of only 0.70% for the entire 11 year period. Still, 7 of the 11 years were positive and only 4 years were negative. With almost two-thirds of the years positive, the 4 negative years still had a major impact on the total return of this market cycle. This time, however, I will be showing you something different. The results of the Cornering The MarketsTM Tactical Process. I wonder if you will see what I see.
Figure 6 Cornering The MarketsTM Recommended Trades - Figure 7 Figure 7 is a hybrid chart and table which denotes (graphically and textually) the 11 recommended trades during this 11 year bear market. So you can see I am not talking about day trading. If anything, I would call it position trading. As Investments occasionally go in and out of favor it may become necessary to make some changes. The Cornering The MarketsTM discipline notices these relationship and makes appropriate recommendations to add or remove positions. Please note the depicted chart represents weekly data, and that all trades were allowed only on Mondays. To make it even more difficult to “cherry-pick” prices, the buys were priced at the highs of the day, and the sells were priced at the
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 11 of 20
Financial Insights
lows of the day. The last time I checked, buying high and selling low was not an effective strategy to enhance returns. These restrictions were put in place before the trade decisions were recorded. Additionally, the trade dates were not interpolated. They were simply arrived at as follows: When the decision metrics matched my objectives, a line was drawn, red for sell, green for buy. The dates were harvested (always a Monday), and the prices were set. As previously stated, the buys were priced at the highs of the day, and sells were priced at the lows of the day. Even with these difficult restrictions, the results truly surprised me. And although this first study only involved the limited use of the Dow Jones Industrial Average as a proxy, it certainly served as a wonderful control sample. The next publication will detail my results using this same process with a portfolio of investments (in lieu of one index). I look forward to completing that presentation in the near future. Meanwhile back to the details of this project, and the returns thereof. On the next page I will show you a table which details the active returns (11 trades, if you can call that active), and the passive returns (buy and hold). Then I will show you the effects of those returns in the now infamous histograms which we have been using.
Start Here
Figure 7
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 12 of 20
Financial Insights
Shifting Returns, or as “They Say” on Home Improvement Shows - “The Big Reveal” - Figure 8 Consider this a “Portfolio Improvement Show”, and this is the Big Reveal! Without going through all of the portfolio accounting data which I have accumulated, here are the annual results between the active (do something) and the passive (do nothing) approaches. To make things even more interesting, look what happens to the histogram below as the changes are applied: 2001 moved from the (-10) column to the (+10) column; 2002 moved from the (-20) column to the (-10) column; 2003 moved from the (+30) column to the (+40) column; 2008 moved from the (-40) column to the (-10) column; and 2009 moved from the (+20) column to the (+40) column. Watch what happens next!
Figure 8
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 13 of 20
Financial Insights
Bear Market ShiftingTM Revealed? - Figure 9 When I remove all the passive return numbers, keep the active return numbers, remove all of the arrows, add the new cumulative return numbers, and update the Up Year and the Down Year percentages, Tell me! What does this look like to you? Please feel free to review some of the previous figures. Review Figures 3, 6 & 8, but take a longer look at Figure 5 (now there’s a big hint for you). While Figure 9 is not an exact duplication of Figure 5, it has more in common with Figure 5 than it does with Figure 3 or with Figure 6. Alright, enough flipping around, I’ll get to the main point! Figure 9 looks more like the average bull market (figure 5) than it does the average bear market (figure 3), and it certainly does not resemble its passive return “former” self (figure 6). How would you explain this?
Figure 9 I call it Bear Market ShiftingTM. It looks as if the bear market has shifted to a bull market! And to me ... It’s Supernatural. After all - it only took 11 timely trades recommended by the Cornering The MarketsTM Tactical Methods backed up our proprietary Quantitative AnalyticsTM processes - none of which had existed before 2008 - and having been developed by one person with no formal training with the exception of a BBA in Economics. I cannot explain it any other way. To me, my background certainly does not support another conclusion. There must be a supernatural component that defies human (or at least my own) understanding. I mean ... I understand it, but I cannot really explain how it happened.
Do you see what I see? Can you believe it? And what does it mean if you do? HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 14 of 20
Conclusion
Financial Insights
Resources
I hope I have been able to help you to understand the general concepts of Bear Market ShiftingTM. Hopefully you can begin to have Faith in the financial markets again and still - notwithstanding the negative backdrop of many of the news cycles you may be viewing.
• Guggenheim Investment, Dow Jones Industrial Average Historical Trends, 2013
This process helps keep me from being a captive of those news cycles and it gives me Peace. I hope the same for you. Admittedly, this exposition is short on the details of What, When, and How these results were attained. I assure you that data does exist and will be made more available in an organized manner for those who would like to know more.
• Investment Account Manager, IAM v.2.9.8.4 was used for portfolio trade accounting, portfolio pricing for the active and passive returns, and for calculating the associated portfolio returns.
I can show you a formal presentation in person if you are local, and via Online collaboration if you are not. I am also developing a short video which may be a good fit for someone preferring video-based information.
• StockCharts.com, Dow Jones Industrial Average chart by subscription. www.stockcharts.com
• Investopedia.com, The financially related definitions used in the Glossary were taken from this website. • Crandall, Pierce & Company Research • Shawn Bolz, Author & Speaker (Kingdom Business Association Conference, October 2014).
Please let me know of your interest, and I will make the necessary arrangements. EMail: CCChristie@NewDominionMedia.com Blog:
www.CornerTheMarkets.info
Phone: 757-966-0013
Contact your financial advisor for more information, or visit HIS Financial Network.com HIS Financial Network does not provide legal, tax, or accounting advice. Any statement contained in this communication (including any attachments) concerning U.S. tax matters was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. This communication was written to support the promotion or marketing of the transaction(s) or matter(s) addressed. Clients of HIS Financial Network should obtain their own independent tax and legal advice based on their particular circumstances. HISFN-FI|WPAP-BMS.P1-v01 20141229.1
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 15 of 20
Financial Insights
Glossary Active Return (Trading) - The measured return of an investment (or portfolio) over a period of time whereby the management style of the measured investment was almost exclusively the result of a Tactical or Active strategy. Accumulation of Capital - A rise in the value of an asset based on a rise in market price. Essentially, the capital that was invested in the security has increased in value, and the capital appreciation portion of the investment includes all of the market value exceeding the original investment or cost basis. Capital appreciation is one of the two main sources of investment returns, with the other being dividend or interest income. Adaptive Portfolio Management (Adaptive Asset Allocation) - The discipline of regularly changing the priority of portfolio components and allocation to those components in an attempt to maximize total portfolio return. It is characterized by regularly re-evaluating allocations based on changing markets, optimization of portfolio outcomes, maximizing value, incorporating emerging opportunities, and the courage to change from other planned allocations. Anatomy of a Bear Market - Crandall, Pierce & Company research charts which explains visually what to expect in bear markets based on past occurrences. Two charts make this case: Anatomy of a Bear Market, and When Bull Markets End. This topic will be featured in an upcoming publication. Anatomy of a Bull Market - Crandall, Pierce & Company research charts which explains visually what to expect in bear markets based on past occurrences. Two charts make this case: Anatomy of a Bull Market, and When Bear Markets End. This topic will be featured in an upcoming publication. Bear Market - A market condition in which the prices of securities are falling and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Bear Market ShiftingTM - An effect which alters the experience of investing in a bear market by using The Cornering The MarketsTM Tactical & Adaptive Portfolio Management Strategies to create market returns which have characteristics more similar to bull markets. Bull Market - The term “bull market” is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities. Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue. A bear market should not be confused with a correction, which is a short-term trend that has a duration of less than two months. While corrections are often a great place for a value investor to find an entry point, bear markets rarely provide great entry points, as timing the bottom is very difficult to do. Buy & Hold - A passive investment strategy in which an investor buys stocks and holds them for a long period of time, regardless of fluctuations in the market. An investor who employs a buy-and-hold strategy actively selects stocks, but once in a position, is not concerned with short-term price movements and technical indicators. Conventional investing wisdom tells us that with a long time horizon, equities render a higher return than other asset classes such as bonds. There is, however, a debate over whether a buy-and-hold strategy is actually superior to an active investing strategy; both sides have valid arguments. A buy-and-hold strategy has tax benefits, however, because long-term investments tend to be taxed at a lower rate than short-term investments. Cherry Picking - The act of choosing investments that have performed well within another portfolio in anticipation that the trend will continue. In this publication, I refer to Cherry Picking not with respect to a specific investment, but with respect to the timing of the buy and sells using the perfect hind-sight which come with using past data. Cornering The MarketsTM - Generally a Quantitative AnalyticsTM approach to portfolio management which is employed exclusively by HIS Financial Network Market Research personnel. This strategy uses Tactical Asset Allocation
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 16 of 20
Financial Insights
and Adaptive Asset Allocation processes to create portfolios, and to determine the in favor, or out of favor, status of the investments which are used within those portfolio. In favor investments are bought and held while out of favor investments are sold, or not purchased until they are deemed favorable. Day Trading - A day trader is an investor who attempts to profit by making rapid trades intra-day. A day trader often closes out all trades before the market close and does not hold any open positions overnight. Some day traders use leverage to magnify the returns generated from small stock price movements. Day trading is often glamorized as an easy path to riches. However, this is rarely the case. The SEC warns, “Day traders typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status.” Day traders are handicapped by the bid-ask spread, trading commissions and expenses for real-time news feeds and financial analysis packages. These costs require day traders to earn significant trading profits just to break even. The Goldilocks Zone - is terminology which is normally used to refer to a planet’s (such as Earth) from a star which puts it in a suitable habitat for life to exist. It is not too hot and not too cold, and stems from the children book, Goldilocks and the Three Bears. I have adapted that concept when I refer to market returns which occur in the sweet spot of the standard distribution of returns. In this publication, this term is used in Figure 1 to refer to this sweet spot by drawing a Green Box around this Zone. The Great Depression - An economic recession that began on October 29, 1929, following the crash of the U.S. stock market. The Great Depression originated in the United States, but quickly spread to Europe and the rest of the world. lasting nearly a decade, the Depression caused massive levels of poverty, hunger, unemployment and political unrest. High of the Day - A security’s intra-day high trading price. The High of the Day is the highest price at which an investment traded during the course of the day. It is typically higher than the closing or opening price. More often than not this is higher than the closing price. Histogram - A graphical representation, similar to a bar chart in structure, that organizes a group of data points into user-specified ranges. The histogram condenses a data series into an easily interpreted visual by taking many data points and grouping them into logical ranges or bins. Histograms are commonly used in statistics to demonstrate how many of a certain type of variable occurs within a specific range. For example, a census focused on the demography of a country may use a histogram of how many people there are between the ages of 0 and 10, 11 and 20, 21 and 30, 31 and 40, 41 and 50 etc. Interpolated - Interpolation is a method of estimating an unknown piece of information. This is achieved by using other related known values that are located in sequence with the unknown value. Interpolation is most often used in situations where a table of values is missing data. As an example, some bond tables list net yields for bonds in a sequence of 1, 3, and 5 years. Interpolation would be used to determine the yield for the 2nd and 4th year. In effect, interpolation is a process of trial and error. Long Term Trend | Multi-Cyclical Trend (Secular Trend) - The general direction of a market or of the price of an asset over a long term time frame usually measured in numbers of years. Multi-Cyclical Trends usually involve many business cycles which may have extended periods of expansion and/or contraction, but taken together form a generally higher or lower direction (or Trend). Many refer to these generally higher, or lower long term trends as Secular Trends. Secular is an adjective used to describe a long-term time frame, usually at least 10 years. It is important for investors to identify secular trends in markets, not just short-term trends, if they want to succeed. Low of the Day - A security’s intra-day low trading price. The Low of the Day is the lowest price at which an investment trades over the course of a trading day. It is typically lower than the opening or closing price. More often than not this is lower than the closing price. Market Timing - The act of attempting to predict the future direction of the market, typically through the use of tech-
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
HIS Financial Network: Corner The Markets l Financial Market Insights Page 17 of 20
Financial Insights
nical indicators or economic data. Some investors, especially academics, believe it is impossible to time the market. Other investors, notably active traders, believe strongly in market timing. Thus, whether market timing is possible is really a matter of opinion. What we can say with certainty is that it’s very difficult to be successful at market timing continuously over the long-run. Passive Return (Buy & Hold) - The measured return of an investment (or portfolio) over a period of time whereby the management style of the measured investment was almost exclusively the result of a Strategic | Buy and Hold or Passive strategy. Preservation of Capital - An investment strategy where the primary goal is to preserve capital and prevent loss in a portfolio. This strategy would necessitate investment in the safest short-term instruments, such as Treasury bills and certificates of deposit. Also referred to as capital preservation. Position Trading - Position trading is a long term style of trading where trades are held for anywhere from several days to several months. This style of trading is the style of trading that most long term investors fit into, but many of them do not utilize position trading to its full potential. Position trading uses long time-frame charts, including daily, weekly, and monthly charts. Secular Bear Market - A market driven by forces that could be in place for many years, causing the price of a particular investment or asset class to rise or fall over a long period of time. In a Secular Bear Market, weak sentiment causes selling pressure over an extended period of time. A Secular Bear Market will have bull market periods within it, but it will not reverse the overlying trend of flat or downward asset values (see Secular Bull Market for additional information). Secular Bull Market - A market driven by forces that could be in place for many years, causing the price of a particular investment or asset class to rise or fall over a long period of time. In a Secular Bull Market, strong investor sentiment drives prices higher, as there are more net buyers than sellers. A Secular Bull Market will have bear market periods within it, but it will not reverse the overlying trend of upward asset values. For example, most economists agree that U.S. equities were in a Secular Bull Market from about 1980 to 2000, even though the stock market crash of 1987 occurred within the same time period. Short Term Trend | Cyclical Trend - The general direction of a market or of the price of an asset over a short term time frame usually measured in numbers of weeks or months. A Cyclical Trend is usually tied to one particular business cycle which could be measured in longer periods than a Short Term Trend Strategic Portfolio Management (Strategic Asset Allocation) - Strategic Asset Allocation may be linked with a “passive” investment style and calls for setting target allocations and then periodically re-balancing the portfolio back to those targets as investment returns skew the original asset allocation percentages. The concept is akin to a “buy and hold” strategy, rather than an active trading approach. Of course, the strategic asset allocation targets may change over time as the client’s goals and needs change and as the time horizon for major events such as retirement and college funding grow shorter. Tactical Portfolio Management (Tactical Asset Allocation) - Tactical Asset Allocations is linked with an “active” investment style and allows for a range of percentages in each asset class (such as Stocks = 40-50%). These are minimum and maximum acceptable percentages that permit the IA to take advantage of market conditions within these parameters. Thus, a minor form of market timing is possible, since the IA can move to the higher end of the range when stocks are expected to do better and to the lower end when the economic outlook is bleak. World’s Worst Stock Market Crash - Despite a number of serious stock market downturns and corrections, the crash of 1929 still reigns as the most dreadful market event in history. This is partially because of the severity of the event, but mostly because the entire economy buckled and then broke under the strain, starting America on the way to the Great Depression.
HIS Financial Network l Norfolk, VA 23504-3281 Telephone: 757-744-9647 l Info@NewDominionMedia.com
The Subscriber has agreed not to share this commentary without permission from HIS Financial Network
NOTES & QUESTIONS
NOTES & QUESTIONS
Norfolk, VA 23504-3281 757-744-9647 EMail: Info@NewDominionMedia.com Website: http://www.HisFinancialNetwork.com
Published By: HIS Kingdom Communications, LLC (dba New Dominion Media) ©2014 HIS Financial Network