INVESTORS NEED AN ACTION PLAN

  INVESTORS NEED AN ACTION PLAN
Unfortunately, some investment firms do not provide fair and balanced
information on investing. For example, I’ve come across
some incomplete information in literature from Northwestern
Mutual Financial Network, Merrill Lynch, Morgan Stanley, U.S.
Global Investors, Invesco Funds Group, Inc., and Fidelity, to name
a few. All these firms had a chart or table depicting the reduced
annual returns if an investor had missed the 10 best days compared
to buy and hold. They conveniently forgot to provide a chart or
table showing the improved performance by missing the 10 worst
days. In the latter case, the returns would be much higher if you
had been out of the market. So, you are only getting half the story
because these firms have a motive wanting you to stay invested at
all times. For one, it reduces their overhead expenses and costs of
administering the fund to have you stay put. Second, it eliminates
any liquidity problems for the fund that could be caused by a large
number of fund holders liquidating at the same time. If this happens,
it could force the fund to sustain unwanted market losses
from selling off holdings in order to meet the redemption needs of
exiting fund holders.
Your financial advisor or planner, if you have one, can help you
with estate planning, retirement planning, asset allocation, insurance
needs, and so on. In fact, almost 75 percent of investors use advisors
to provide guidance in making sense of the market moves.3 But very
few, if any, financial planners are market timers; instead, they will
counsel you on investing in a diversified group of stocks or mutual
funds and then leave you hanging in the breeze. That is fine advice,
as far it goes. But in a bear market, the stock components will drop
in value. So it is entirely up to you to protect your own portfolio.
A friend of mine attended the New York Money Show on
October 23, 2002, opening day. Nine investment experts made  introductory presentations about their market viewpoints and
what they planned to cover in their sessions over the next few
days. Guess what? The experts were almost evenly split between
bulls and bears. So, bottom line as an investor relying on these
“experts,” you were left in a quandary as to whether you should
be buying or selling. I consider such conferences as sideshows
for the uninformed. You will have to make your own investment
decisions to protect your money, since no one else will do it
for you.
To make money and be successful in the stock market, every
investor needs a plan of action based on a solid strategy that works
in bull markets and especially in bear markets. This is a daunting
task for any investor, since many studies have shown that the
majority of investors neither equal nor beat the market averages
nor do they equal the performance of the mutual funds that they’ve
purchased. They don’t because investors act emotionally, and they
swing between the fear of a market downfall and the greed for
making the most money during a market upswing. Eventually
investors tend to buy at the top and sell at the bottom, because they
invest with their stomachs instead of with their brains.
This pattern is repeated over and over, usually resulting in
underperformance—that is worse than just buying and holding.
DALBAR, Inc. (a leading financial-services research firm), studied
the performance of mutual fund investors from January 1984
through December 2000. They found that in the year 2000 the average
equity fund investor held her or his mutual funds for 2.6 years
and realized an annualized return of only 5.32 percent, compared
to a return 16.29 percent for the S&P 500 Index during the 17 year
period studied. Clearly, individual investors are not investing with
their brains.
So how should investors participate in the roller-coaster stock
market without getting heart palpitations, without losing all their
profits, or worse, their initial capital, and without getting physically
or mentally sickened by their losses? That is what this book is about.
All About Market Timing will provide you, whether you’re a beginner
or more advanced investor, with easy-to-understand, timetested
market-timing strategies that work. Timing will help you to
make more accurate buy and sell decisions. No longer will you get
out at the exact bottom or in at the exact top while limiting your risk
at the same time.