Wednesday, March 18, 2009

Ask the MA

When to go Long Stocks/Commodities/Bonds?

This is a question investors ask themselves everyday and they seem to be inundated by an avalanche of opinions and 'news' items as a result they act like manic depressive patients with chronic zinc deficiency. I'm going to present a very simply method that can save you HUGE amounts of money when there is a nasty bear market(like this one) and guaranteed you that you will NEVER miss a bull market in any financial asset. Its called the 200 day moving average, you sell everytime a long-term chart of the asset falls bellow that and buy everytime it goes above it

And this is not some technical analysis mumjo jumbo, its empirically tested. I highly recommend the following research report(they use the 300 day on the paper but results should be similar)

The paper shows that the 300 moving average system reaches the same kind of returns buy and hold does with less volatility. Furthermore it works in non-US stock markets and other asset classes as well.

This simple method can easly save investors huge amounts yet people rather pay attention to an neverending stream of news and opinions.

Right now I'm mostly short a number of stocks(JPM,GS,CAL,C, others) own puts in others(have a large put position in a company which I can't name), cautiously long a few names and I considering increasing my corporate bond exposure, I will however not take any meaninful risk while doing that, why? LQD/JNK(corporate/junk bond ETFs) are both bellow their 200/300 day MA. So I'm sticking to the safest credits I can find(Citigroup bonds, too big to fail and I'm hedged through the stock short, International Lease Finance Corp, profitable company that can be bailed by AIG if it runs into trouble, plus it got $43b in airplane assets against $30b in debt so its quite solvent in a bankruptcy) and I will remain in a defensive stance till they break their MAs.

I will surely miss the bottom(so what everybody does) but I will also dodge a complete collapse in financial markets/global economy in a protectionist hell which IS possible at this point

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