The Investment Holy Grail

Hello Everyone. Following is this week's chart (Click Image To Enlarge). As you can see the green arrow still remains and has been in effect since March, 2009. This week the S&P Index closed at 1210.08, which is higher than the March month end close. While the weekly updates are important the most important analysis is done at the end of each month. This is when a determination is made as to whether the long term trend of the market is up (green arrow) or down (red arrow). As you may know the last trading day of April 30. So next Saturday's post will be the monthly update for April.












FOR YOUR EDUCATION: In the last two week's articles I made a case for the importance of consulting a reliable "timing model" to help guide you in determining as to when you should be fully invested in mutual funds and when you should have your money safely in a money market fund. This week I am going to share with you what many investment professionals know to be the "holy grail" of investing. No, it is not having a great market timing system although that is an important component. Below is a table that I put together which displays several scenarios (Click Image To Enlarge). As you can see column 1 assumes a $10,000 account for each scenario. Column 2 assumes that your account suffers losses ranging from 10% to 100%. The most important thing to focus on is column 5. This is the column which tells you how much percentage gain you must make on your account just to recover what you've lost. Take time to carefully examine this table. If you lose 10% of your account you need only earn an 11% return to get back to break even. However, if you lose 50% you must earn an incredible 100% return just to break even! It should become clear to you by now that if you just left your money in mutual funds through the entire 11/07 - 3/09 market decline your account likely suffered a loss approximating 46%. This means that just to get your account balance back to it's 11/07 levels you would have to earn close to 100%. Since March, 2009 the market has moved 52%...very impressive but you're still far short. Kinda depressing isn't it? There is a very important lesson to be learned here. Knowing when to cut your losses is THE MOST CRITICAL element to your investment success.

Which Scenario Do You Prefer?

Greetings everyone. If this is your first visit PLEASE take the time to read through my first two posts. These lay the groundwork for everything I'm trying to accomplish here. You'll gain maximum benefit if you do. Just a few enhancements I want to inform you about before I get into the weekly update. First...as you know I'll be updating the blog before 5pm each Saturday. But it's also important for you to know that I will be updating the blog the day after the last day of each month. Don't worry. I'll remind you in my weekly update of the day I'll be doing the monthly update. Second...in addition to the weekly/monthly updates from time to time I will include an educational article. When I do include an educational article the post will be segmented into "WEEKLY UPDATE" and "FOR YOUR EDUCATION". The subject of any article will be reflected in the title of my post.

WEEKLY UPDATE: Below is an updated chart of the S&P Index (please click on image to enlarge). As you can see the green arrow is still in effect. This market continues to amaze me. There are really very few fundamental reasons why this market should continue to rise but that doesn't matter. All that matters is the market has been rising and my analysis currently supports staying in mutual funds.












FOR YOUR EDUCATION: The subject of today's article is really an extension of the title of last week's post "Why Market Timing Is Important". Today I'm going to show you three different scenarios....

Scenario 1 assumes that in April, 2003 you opened a $10,000 account fully invested in index mutual funds. If you followed the advice of most brokers/plan advisers they would have you simply hold your position. If you had done so then today your account would be worth approximately $13,000 which equates to a 30% increase over a 7 year period. This translates to an average annual return of 4%. Mmmm, a little better than sticking your money in a bank but barely keeping ahead of inflation.

Scenario 2 assumes that you in November, 2007 you opened a $10,000 account fully invested in index mutual funds. Again, if you followed the advice of most brokers/advisers you would have held your position through one of the most precipitous market declines in history. Today your account would be worth approximately $5,387 which equates to a 46% decrease over a time period of about 1.5 years. This translates to an average annual decrease of 18%. OUCH!

Scenario 3 assumes that instead of taking the advice of the so called experts you had decided to go fully into mutual funds on the green arrows and parked your money in a safe money market fund on the red arrows. If you had opened a $10,000 account in April, 2003 your account today would be worth approximately $24,135 which equates to a 141% increase over a 7 year period. This translates to an average annual return of 20%. Ahhh...that's more like it.

Stay tuned. In the weeks to come I'll be sharing more information with you which I believe may help you reach your financial goals quicker than you may have thought. Please feel free to post comments if you have any questions or suggestions for future articles. Have a blessed week!

Why Market Timing Is Important

Wait. If this is your first visit make sure you read through my April 2 post first. That posting and this one is vital if you wish to gain maximum benefit from future posts.

Well, as I promised last week below is the historical chart I promised you with all the buy (green) and sell (red) arrows going back to 2000 (click on chart to enlarge). This chart is of the S&P 500 which as you may know is a widely quoted market index which basically measures the overall health of the stock market. In simplest terms if it is going up, the stock market is healthy. If it is going down, it is not. Each black dot that you see is a plot of the closing price of the S&P index on the last day of the month. At the end of each month I look at four different factors; price action, institutional volume, momentum and market breadth. Based on my 20 years of experience I synthesize this information and make a determination as to whether the market is bullish or bearish. If it's bullish that month will be given a green arrow which will remain until a monthly bearish determination is made at which time a red arrow will show.

















Did you know that studies show that at least 70% of stocks rise when the market rises and fall when the market falls? This is why it is so important to have a market timing model you can rely on. How much more money would you have in your 401-k if you had moved all of your 401-k into money market funds on the red arrows and back into mutual funds on the green arrows?

So how might you utilize this information? Well, for me...when there's a green arrow all of my money is in mutual funds. When there is a red arrow I move all my money into a money market fund. Most 401-k plans offer several different mutual funds to the participant, including "index" funds. In my own 401-k I prefer to put all of my money into an S&P index fund when there is a green arrow. The reason is that this fund will mirror the S&P index, which is what I base all my analysis on. If you can't find an "index" fund in your plan I would suggest you consult with your plan advisor/administrator to see what he/she may suggest. Well that's it for this week. As you can see the chart still has a green arrow. I will post another update next Saturday. So stay tuned and please...submit questions.

What I'm Doing & Why?

Hello. My name is Chuck Harkes. I am a self taught investor/speculator. Back in 1990 I gave up on investment real estate and developed a passion for learning about what makes the stock market tick and how I could profit from it. For many years now I have been successfully managing my own 401-k investments based on the knowledge and experience I’ve gained. This experience was never more valuable than in the fall of 2000 when most other advisors were suggesting to be fully invested in the stock market. Meanwhile, my methodology was telling me that not only was a correction likely, but that this correction could result in a steep or protracted bear market. Two years later the bear market did end, but only after many lost 40 – 50% of their retirement wealth due to placing their faith in well meaning but misguided advisors. In March, 2003 my methodology/system told me that the probabilities favored a substantial move up. The market did indeed rise over the next 4 ½ years. In November of 2007 my methodology again indicated a high probability of a substantial decline. The market did indeed decline, in percentage terms very similar but much faster than the previous bear market. In March of 2009 my methodology indicated a high probability of a substantial rise in the market. The stock market has been rallying ever since.

So what is the purpose of this blog? Quite simply, my heart is for people who needlessly lost too much of their retirement wealth. My plan is to post my analysis of the stock market on a weekly basis along with a chart which will either have a green arrow or a red arrow. A green arrow means the market direction is up and I’m fully invested in mutual funds in my 401-k. A red arrow means the market direction is down and I’m fully in cash. I will also show you in my next post a historical chart showing you the signals that have given me timely entry and exit points since 2000. What you do with this information is up to you. You may choose to take the same actions that I do or you may choose to follow along for a time to see if I’m for real. Whatever you decide you need to understand that I am not a licensed advisor. I am not offering advice. I’m simply showing you what has worked for me. For now I am offering it for free. My wife has been twisting my arm to charge for it. But I figure too many people have been burned by so called “experts” who earn a fee whether they win or lose. Let’s let them take a free peek for a while and judge the merit of what I do. From now on my weekly posts will be completed on Saturday. So you should plan on checking in late Saturday evening or on Sunday. I look forward to this journey and hope many of you benefit from it. Happy Easter everyone!