Monthly Archives: March 2013

I wanted to put out some commentary on the “Buy and Hold” investing strategy.   Like Elvis, it has a lot of fans, some who strongly defend their position and argue in favor of it.   However like, Elvis, it is dead.   Here is why.

In today’s markets, which I loosely define as year 2000 until present,  market volatility has reached levels never before seen, due to a variety of things, to include computerized and automated trading, financial problems worldwide, debt and currency issues worldwide, and other things.

Our goal, as a TSP investor, is to make (and keep) money.  So our goal, is to locate and identify trends and ideal entry points, and protect what we have (our balance) and what we have made.  Nothing more.   Our goal is not to get wrapped around the axle about why something goes up (or down), or P/E ratios, or similar matters.  I do recommend a “big picture” understanding of the fundamental economic picture, but not much more past that.  Again, our goal is to identify trends, the top performing funds/stocks, and get on the train.  Nothing more.   Lets take a look at Microsoft (MSFT) stock, one of the most widely held stocks amongst large mutual funds, such as those sold by USAA, Fidelity, etc.   MSFT has been labeled as a well run company, with sound financials, and a near monopoly (up until recently) in the world computer market.   Sounds like the ingredients for huge returns ?

MSFT has basically gone nowhere in ten years.  Nowhere folks.   So I bought it in 2002, and for ten years, have held it.   Still, nowhere.  Nowhere.  Flat line.

Lets take a look at Amazon (AMZN) stock.   For a large portion of this chart, AMZN was making profits but was viewed by skeptics as being a questionable business model.

Smart investors dismissed the “Wall Street experts” criticism of AMZN and observed that a new powerful trend was underway in 2002-2003.   Again, the goal is to make money. 

Put another way:   Jim the trend follower and Larry the Buy and Holder/Fundamentalist are out fishing and Jim sees some lightning and thunder.   Their goal is to not get rained on.

Jim:  Larry, dark clouds and lighting out there.  Lets head in.

Larry: Well, I don’t know Jim.  Yes I see it, but I just can’t wrap my mind around what is causing that lighting and thunder.   I watched the TV news and the weather experts didn’t mention this.   Jim, I don’t know.   Lets standby

(thunder getting stronger)

Jim:  Well Larry, that stuff is getting closer, and look at that rain shaft over there.  I don’t want to discuss rain science on the lake too much longer, we need to take action and respond to what is happening. 

Larry:  Jim, I am not convinced.  I saw no mention of rain in the forecast for today, nor for tomorrow.  And this is a strange time of the year for rain, kinda early in the season.   You go ahead Larry, I am gonna hang back.  I just don’t think its gonna rain.

Jim heads in to safety and stays dry.  Larry subsequently gets hit by a lighting bolt and sinks with his bass boat to the bottom of the lake.

Lesson:  Don’t be Larry.

Please listen to the following audio file (one hour-long) for additional discussion on Buy and Hold and trend following.  Audio file courtesy of Michael Covel.

http://ec.libsyn.com/p/c/a/6/ca63145cd93bc479/TrendFollowingManifesto010313.mp3?d13a76d516d9dec20c3d276ce028ed5089ab1ce3dae902ea1d01ce8330d4c15efe48&c_id=5285247

http://www.forbes.com/sites/jakezamansky/2012/07/05/the-death-of-the-buy-and-hold-investor/

http://www.marketwatch.com/story/buy-and-hold-is-still-dead-2013-03-28

Thanks for reading

– Bill Pritchard

Hello everyone…

I wanted to provide an update and some insight into the recent market action.   As many of you know, the country of Cyprus, an island smaller than the state of Massachusetts, and with less than 2M people, has undergone some financial difficulties.  On March 15, the country’s banks were closed and the SP 500 Index closed down on very high volume in response to this.  The next two trading days it also went lower.   See chart below

Now, I don’t wish a financial crisis on anyone, so when I saw this in the news my first thought was “how will this affect the US markets.”  Sometimes being a skeptic is a good thing, and for whatever reason, all headlines that the Cyprus crisis was “just the beginning of something bigger” (and it might be, but…) just were not ringing true with me.  I mean, I just don’t know what Cyprus manufactures for the world markets or brings to the table.  I don’t believe the US banks and financial institutions have much invested in Cyprus.  Politically, we don’t have much to do with Cyprus, it’s not like we will count on them to bring their military horsepower to the table or need their political position to de-escalate tensions world hotspots.

So long story short, I don’t think Cyprus is a factor for the US markets.   If the health of an important financial / military / political partner deteriorates, yes, that’s a problem.  But in my opinion Cyprus is none of the above.

As discussed in previous posts, the “All Time High” (ATH) for the SP 500 was 1576, back in October 2007.   The ATH is the highest point, it has reached, if even for a second.  The highest close (the level it ended at prior to the close of the markets for the trading day) was 1565, on October 9 2007.  Some financial press is starting to talk about this (I mentioned it here two weeks ago…).   Both numbers are important, but the 1576 level is what I am personally watching.    I think we will see this happen in 30-60 days.    Please note, that any close above 1565 is still very significant.   So when you have cable news on during the morning, we are looking for SP 500 1565 or higher.   Not so much attention should be paid to the Dow Jones Index or NASDAQ.  The SP 500 is a better overall snapshot of the market health.

In summary, I think the S and C-Funds should continue to do well.  A look-back at this month’s performance (and the month is still not over) via my proprietary TSP performance tracking system, reflect that the S-Fund will likely come out as the leading fund this month.  However, C-Fund is running pretty close to the S-Fund, performance wise.   I am personally 100% S-Fund but 50% S-Fund and 50% C-Fund is fine also.

Don’t get distracted by some purported experts who claim the markets have “topped out” and “will crash soon.”   Please continue to utilize this site for trustworthy information and insight into what is happening.

If I see any red flags or warning signs, I will advise everyone.   Thanks for reading, and thank you for the numerous emails complimenting this site.   I have had the fortune to speak to some of you on the telephone, and its really great to have such a great group of folks reading this site.  Thank You.

– Bill Pritchard

Hello everyone…

I wanted to update everyone as to the markets and various TSP funds. In addition, our colleague Mr. Dan Jamison, has released an updated version of The FERS Guide, an excellent product which he has authored himself for many years. I have not met anyone with more knowledge on FERS retirement, and we are lucky to have Dan on “our team.” The updated edition is hosted on The Fed Trader, everyone should take a look. Mr. Jamison can be contacted at dan@fersguide.com

As we all know, Sequestration has taken effect. I touched on this topic in my March 1, 2013 post, and expressed my opinion that the markets would not be affected. Fast forward to today, and the markets have closed higher, every trading day since March 1. In my March 1, 2013 post, I reflected how the 1995 government furloughs didn’t affect the markets, and used that to partially shape my decision to remain in the S-Fund.

My data and proprietary system indicates that S-Fund is still the place to be, and I remain 100% S-Fund. Some investors may want to be 50% S-Fund and 50% C-Fund, which is fine also. However “mid-cap” and “small-cap” stocks are performing best right now and these are best represented by the S-Fund. This can change in the future, and we need to monitor things and change gears if the situation warrants it.

The best YTD performer, using January and February performance, is the S-Fund (see table below).

The SP 500 Index is 23 points below its all-time high of 1576, which occurred on October 11, 2007 (see chart). If the index is able to reach 1576, this a milestone event, and there will be no stopping the index from climbing higher.  Right now (and not surprisingly) the “experts” in the financial press are not talking about this, but this will be headline news if and when it happens.   Expect a small sell-off if it does hit 1576, as the naysayers will be talking “the market has topped out” etc etc.  However just standby as historically, all-time-highs are precursors for even higher territory.

At the present time, I am 100% S-Fund.

If you find this site useful, please share it with your colleagues and friends.   Thank You.

– Bill Pritchard

Incoming search terms:

• fersguide
• dan jamison
• fersguide com
• dan jamison fersguide

As discussed in this article, March 1 is here and the Sequestration deadline has arrived.   I will not get into the Sequestration discussion too much here, as plenty of that is available elsewhere.   However, lets take a look at the below charts of the SP 500 futures (showing trading after today’s regular stock exchange closures) and of the SP 500 Index.

The SP 500 closed today March 1 at 1518, on slightly lower than average volume, likely indicative that some fear existed and some market participants didn’t play today.   The SP 500 futures traded after hours hitting 1516.  The “1500 level” remains a key “floor” for the SP 500 Index.  Any drops below that are not desired.  Multiple days below that is a red flag.  The farther and farther we get above that floor, the better we are.

In summary, this week’s market behavior reflected that Sequestration is “priced into” the market.  We didn’t see any panic selling with the exception of Feb-25, which made headlines as “The Worst Day of 2013”.   Lets reflect that 2013 is only 60 days old.    I posted on Feb-26 that I was not overly concerned and was remaining in S-Fund.   I discussed what happened, market-wise, in the last government shutdown, in 1995 (not much happened).   After the Feb-25 sell-off, the markets rallied with the Dow up over 100 points the following days.

Sequestration (from the market standpoint) is “here”, although the President reportedly will not “sign anything” until 11:59 PM March-1.   However the date itself has come and is almost gone, and tomorrow is March-2.

So what does this mean for the TSP participant?   Well, speaking for myself only, I am still 100% S-Fund.  I am not loosing sleep over Sequestration, from the TSP standpoint.   If the markets crash hard next week, that will be a different story.  But my indicators and proprietary system reflect that no red flags exist.  I plan to remain 100% S-Fund for now.

Official Feb TSP performance data is not posted on the TSP site yet, but you will likely see S-Fund as the top performer or possibly C-Fund but S-Fund #2.  C-Fund flashed a few isolated days of strength that may throw the data to favor the C-Fund as being the leader in February.  However big-picture wise, S-Fund is still the place to be right now.   I don’t recommend chasing performance based on just a 30 day snapshot.  I prefer to look at overall behavior and trends, not a short time frame.   Obviously if we have a few bad days, we need to seek the safety of G-Fund.   But I look at this through the lens of other factors and indicators of mine.  This is akin to your child at school, he may have a bad quiz, but overall big-picture he brings home good grades.  A bad quiz does not make a bad student.  Multiple bad report cards could indicate something else (or maybe not, but we need to dig deeper).  So I approach the markets in a similar manner.

I am 100% S-Fund for now.  

Thank you for reading

Bill Pritchard