We like enhanced indexing as the cornerstone for portfolios and our evolving genetic algorithm for sector trading. But we are not oblivious to other, once successful, market timing strategies that we are capable of dusting off and putting to work for you. These strategies, or combination of strategies, makes or made logical sense at some point of time goneby. Unfortunately, with the recent bear market, most, if not all of these approaches, lost money after decades of success.
1. Classic Seasonality
2. Dog Sector Investing — With or Without Gold and Oil
3. Follow the Leader Investing — With or Without Gold and Oil
4. Tech as a Leadership Group Investing
5. Almanac Investing
6. The Benkovich Oversold Bounce (B.O.B.)
7. America’s Best Timers Program
8. Just Buy the Benchmark Index and Enjoy the Ride or Twice the Ride — Long
9. Just Buy and Hold My Favorite Sector / Index
10. B & A’s Stop Loss Override
11. Asset Allocation Strategy
12. Individually Crafted Timing Strategies
13. Put My Money Where Bob is Putting His Money
1. Classic Seasonality
Classic seasonality started with the discovery by Norman Fosback many decades ago that stock prices tend to go up on the last day of each month and in the first four trading days of the new month. Others have noted that the day before and after certain U.S. holidays, the market tends to have a slight upward bias. Seasonality was the greatest discovery since sliced bread for decades before it entered into a ten year flat performance period from the mid-eighties to the mid-nineties.
Then the discovery came that it was necessary to get in two days before the end of the month to make seasonality work as a system. We set up our program to get in two days before the end of the month and stay for the first four trading days of the new month. We have added holiday plays for the day before and after New Year’s Day, President’s Day, Memorial Day, the 4th of July, Labor Day, Thanksgiving Day and Christmas Day. The post holiday play for the day after these U.S. holidays is on unless they occur on the third Monday of the month — a statistical down day so one we don’t get in the market on. At all other times of the year, you are in money market, drawing a modest, steady rate of return.
2. Dog Sector Investing — With or Without Gold and Oil
Leave it to someone to discover that buying the “dogs of the Dow” each year produced a higher than average return than just buying the Dow Jones Industrial Average. The underlying assumption is that all of the Dow stocks are solid companies that have already been prescreened and qualify for entry into your portfolio. We take that same attitude towards the sectors. We assume that all of the sectors are biased to the upside and underperformance compared to the entire group of sectors is just a buying opportunity in your next time frame. Before the close of business on the first trading day of the new time frame, you get into the worst performing sector over the prior period in anticipation of a bounce or some kind of movement towards the mean. We also offer the Dog Sector Investing strategy without considering the gold and oil sectors. These two sectors are commodity based and the futures market many times sets the daily return on the associated stocks. Frustration occurs when stocks go one way and the underlying commodity prices go another. To make this a pure “stock” play, we can eliminate the precious metals, energy and energy services sector from consideration. Before the close of business on the first trading day of the new time frame, you get into the worst performing sector not considering precious metals, energy or energy services over the prior period in anticipation of a bounce or some kind of movement towards the sector group mean.
3. Follow the Leader Investing — With or Without Gold and Oil
Nothing succeeds like success. The best performing sector over the prior time frame is identified and you play that sector to continue running to the upside. There is also an inherent assumption that prices will flatten out before they reverse to the downside giving you ample time to get into the next leading sector in the next time frame before you give back too much of the gain. Before the close of business on the first trading day of the new time frame, you get into the best sector and play that sector to continue running to the upside for the next time frame. You get out of a particular sector only when another sector comes on the scene and outperforms your sector, at which time you follow the new leader. The same strategy can also be played without considering the precious metals and energy sectors because of their underlying commodity underpinnings. Before the close of business on the first trading day of the new time frame, you get into the best sector and play that sector to continue running to the upside for the next time frame. You get out of a particular sector only when another sector comes on the scene and outperforms your sector at which time you follow the new leader — just not considering precious metals, energy or energy services.
4. Tech As A Leadership Group Investing
Ever since the dawn of civilization, technology has led the way to innovation and progress in society. If you consider all of the bull market runs in the stock market, technology was there as a leadership group. In the last NASDAQ run up during 1998 and 1999, it was technology, electronics (the semiconductor chips) and biotechnology that lead the charge higher. Going back over the last bull run from 1982 to present, these three sectors were the leaders. One takes a stay with the leader approach in this kind of timing where every up day is “I told you so” and every down day is a buying opportunity. Since many clients are tech groupies, we have added the Benkovich maneuver as a consideration to this investment timing strategy. Our clients do get into other sectors for a day at a time under certain conditions. But essentially a discretionary decision is made as to what tech sector has the most upside promise and one becomes a perma-bull. Time frames are only things that are considered and do not trigger a switch between sectors by themselves. One relies on the adage that “history repeats itself”. And from time to time other sectors can be traded for short term promise outside of technology but one always comes back to technology, electronics and biotechnology for leadership. It is assumed that the underlying demographic upward bias until the years 2007-2008 will carry this group higher eventually as the market leader.
5. Almanac Investing
Yale Hirsch started his Stock Traders Almanac in 1967. He has noticed that since 1950, it is far better to be invested in the fall and winter and go to cash in the summer. We took some of his observations and developed two strategies: one trying to beat the S&P 500 by staying out of the S&P 500 every August and September and one trying to beat the performance of NASDAQ by being out of NASDAQ July, August, September and October each year. We have added a twist of seasonality: we stay in until the close of business on the fourth trading day of the first exit month and we get in two trading days before the beginning of our buy back in month. We are just playing the averages and are trying to get maybe 3 percent better NASDAQ buy and hold returns each year, and if we are really lucky almost a 1 percent better S&P return each year. The trouble is our expectations are based on fifty years of numbers and in any one year or series of years our returns could be up or down. But, like a baseball manager stacking his line up with right handed hitters when a lefty is pitching, we would just like that little edge with this strategy. To make it potentially worth our time we need to use the enhanced RYTNX S&P 500 2X Strategy and RYVYX NASDAQ 100 2X Strategy at Guggenheim Index funds. RYTNX and RYVYX aim at returning twice its benchmark index. And, on any given day, these two funds move around quite a bit. Five percent daily moves in RYTNX and ten percent or greater daily moves in RYVYX are not that uncommon. But this remains an interesting percentage play. Furthermore, since the RYTNX S&P 500 2X Strategy funds were just launched in the middle of 2000, one must rely on the underlying index benchmark to gauge expected returns. But this presents itself as a potentially reasonable and modest strategy, despite the daily volatility for anyone with a yearly horizon.
6. The Benkovich Oversold Bounce (B.O.B.)
Bob Benkovich, our investment advisor, was trained in graduate school as a social psychologist. Bob happened to notice that at least six times in 1999 and 2000, when declining prices were statistically oversold and a characteristic two day price behavior occurred, prices tended to bounce the next day. Furthermore, it was felt that three times out of four these prices even continued higher. So we developed a strategy, perfect for market scardy cats and cautious investors. This is a one day, high probability play. Whenever a sector or index fund’s closing price is statistically oversold and exhibits a characteristic two day price behavior, we get in for the next day’s action. This is a one day high probability play. The only caveat is that we must switch in thirty minutes before the close of action on the second day (Guggenheim rules) so we must estimate the funds return for that second day. We keep a real-time database with the top ten holdings in each sector. This is the information we use to estimate how the fund is performing as close to 12:25 Pacific Standard Time as possible before we must switch in on that second day. And keep in mind this is a one day, high probability play. Prices may and perhaps usually continue higher because they are oversold when we make this play dubbed the Benkovich Oversold Bounce.
We are trying to remain high probability and cautious with this play so market trends up and down will elude us. Most of the time you are in money market drawing a modest no risk rate of return. This is about as close to shooting fish in a barrel that you will ever get in your lifetime. For someone afraid or cautious on the market, not wishing to lose their investment money but needing to be invested in the market to achieve their financial long term goals, this strategy is high probability and perfect. We offer this as a stand alone strategy or an add on strategy.
7. America’s Best Timers Program
At B & A Sector Watch, you have access to the top active portfolio managers in the country. They can be put to work for you within a single account agreement. An investment platform and database continually monitors over 450 actively managed portfolios with real money. We create your own team of managers to match your risk level, return criteria, and investment preferences. New managers can be hired or rotated with a single telephone call. This particular program is administered through another investment advisory firm with whom we are affiliated for this program only. The total fee to participate in this program is slightly higher at 2.5% of assets compared to our lower, competitive fees at B & A Sector Watch. On the plus side, you have hundreds of strategies and advisors you can cherry pick from. On the minus side, the hottest performer last quarter may have exhausted himself to get to that high ranking and could be a prime candidate for a correction when you jump in. In any event, this is another door you can walk through at B & A Sector Watch. We offer this service to our clients to reinforce our commitment to any strategy that might prove profitable.
8. Just Buy the Benchmark Index and Enjoy the Ride or Twice the Ride — Long
John Bogle has been a lifelong proponent of the random walk theory and a staunch believer in the value of indexing — buying the benchmark index like the S&P 500 or NASDAQ 100 with the belief that you will outperform over 80 percent of the pros who jump in and out of the market trying to beat what Bogle believed are just random price fluctuations. We offer you the chance to implement this strategy with a twist. With B & A Sector Watch you can track 150% of the performance of the S&P 500 Composite Stock Price Index or 100% of the performance of the NASDAQ 100 Index. The interesting twist we offer is the ability to use B & A’s Stop Loss Override to prevent significant downside or severe portfolio damage during prolonged bear markets like the one that occurred in 2000 – 2001. For more impatient and aggressive investors, we offer you the chance to get investment results that correspond to 200% of the daily performance of the S&P 500 or 200% of the daily performance of the NASDAQ 100. We also offer the ability to use B & A’s Stop Loss Override with this enhanced benchmark strategy.
9. Just Buy and Hold My Favorite Sector/Index
We also cater to the obvious strategy of just buying and holding any of the 17 sectors, U.S. indexes or enhanced indices, Large-Cap European or Large-Cap Japan funds. The rationale for this timing strategy is that we are in a demographically led bull market until the year 2007 or 2008 during which time you just want to be invested in the market at all times to catch the major move. Coupled with B & A’s Stop Loss Override (available as an option), this strategy should capitalize on
the demographic long term advantage.
10. B & A’s Stop Loss Override
After over fifty years of stock market investing through bull and bear markets, the need for a stop loss strategy to prevent significant downside or severe portfolio damage during prolonged bear markets like the ones that occurred in 1973-1974 and 2000-2003 was pointed out to us by a seasoned colleague and client. After a series of brainstorming sessions with our investment advisor, Bob Benkovich, a nearly five-year-old timing strategy was resurrected as a stop loss
override. The idea here is a simple one. We use a stop loss exit signal that overrides whatever else we are doing at B & A Sector Watch at the time except for the Benkovich Maneuver, bond positions long or short, or any outright short positions one may have. Specifically, when the price action for a group of mutual funds falls below BOTH the 50 and 200 day moving average noticeably (not just hugging the line), we exit our position and move to cash until the price action on that chart moves back above the lower of the two moving average lines. Such a strategy has the potential to avoid severe portfolio damage during prolonged downtrends. It is susceptible to whipsaws and does rely on the Post Office to get the information to us for use that particular day. But for many riding through the recent bear market, this add-on strategy is a keeper. At B & A Sector Watch we do the work for you and keep you from hurting yourself financially during those prolonged downtrends.
11. Asset Allocation Strategy
For accounts with a total value under $150,000, we offer an asset allocation strategy whereby you can allocate your funds into, or up to, five different strategies. For accounts over $150,000, we will work with you to get you to your comfort level.
12. Individually Crafted Timing Strategies
Create your own entry and exit criteria. For example, divide the gold index by the S&P 500 and compare this number to its fifty day moving average. When positive, be in the market. When negative, get out of the market. This approach did well from 1990 through 2002. Just one example. Another? We know using the same moving average line to time market entry and exit positions is not profitable. So what about using, say a 20 day moving average line to get into a position and a 5
day moving average to exit the trade? Hundreds of momentum oscillators and indicators have been devised. We stand ready to configure anything that might work to make you money.
13. Put My Money Where Bob is Putting His Money
This is a totally discretionary strategy. Trying to capture the long term performance of our investment advisor, Bob Benkovich, if the trade is good enough for Bob’s money, his retired parents, family and associates, you are there too. Investment positions can cross sectors, indexes, enhanced indexes and timing strategies. No futures, margin or options positions are ever taken with this strategy.