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Investing For Serious Individuals … Reasons and Specifics for Using Some Global Macro Tactics & Strategies


If you thought 2010 was an interesting and challenging year in the global financial markets, there will
be new challenges emerging for 2011 and beyond. I read an article in the New York Times Magazine recently that included a wonderful S & P500 Historical Stock Matrix. The matrix itself, as well as the sources and related information are shown at the bottom of this post.
The stock market matrix provided by CRESTMONT RESEARCH and the NY Times article discuss the concept of how  ‘ market timing ‘  over many years ( even decades ) has effected investor returns in the S & P 500  stock index. The big take away message that I induced from this article is that simple “ buy and hold strategies “ , although very relevant and helpful, are generally not sufficient in today’s volatile Global Economy. The future trend (s) for serious individual investors consists of a variety of tactics and strategies for a risk – averse, balanced and diversified portfolio.
Heeeerre we go !! First of all, the traditional idea of concentrating an 80 / 20 mix of equities in US / Foreign equities is usually a mistake ( much of the time, but not always; depending on global financial market conditions ) , as many individuals and professional are starting to realize. Granted, the financial markets in the United States do TEND to act as a leading indicator for global financial markets. However, US equities currently make up about 40 % of the total global equity market. This 40 % will likely be trending lower in the future. It can be argued that market ( systemic ) risk generally accounts for 50% of overall equity risk. I believe in this age of increased systemic ( market risk ), it is prudent to plan on rebalancing 4 times a year.  KEY POINT –  As a result, any investment made should be looked from AT LEAST 3 month time period … at the minimum !! Otherwise, you are day-trading in my opinion. I am not promoting nor castigating ‘ day trading ‘ or suggesting that you completely overhauling your portfolio every 3 months. Maybe there is nothing that needs to be changed.
A limited amount of tactical, focused ‘ risk taking ‘ is not a bad idea. It could include using SMALL amounts of the following: leverage, options and futures as well as other tactics and strategies. You may be wondering ( … maybe not ) how using limited, tactical and focused risk can help achieve a more risk – averse portfolio. Here is an example of an investing – baseball analogy to hopefully better clarify and illustrate my point. Any baseball fans reading this ?? One of the most prolific hitters for batting average in the history of baseball was Ted Williams. He had a “ sweet spot “ of 3 – 5 very specific points over the plate, that generated a great majority of his hits. TAKE AWAY … Find your investing knowledge sweet spots or sweet spots in the international equity markets to act as a component of your overall plan to improve your portfolio performance ( otherwise hire a professional / company you trust .) Buy and hold strategies are still relevant, but are not sufficient for a well – balanced, risk – averse, diversified portfolio for serious individual investors.
Stock market matrix and all information below is directly from and by CRESTMONT RESEARCH; via THE NEW YORK TIMES
Metrics
Average real annual return

Includes dividends, average taxes and fees. Adjusted for inflation.

This chart at right shows annualized returns for the S.& P. 500 for every starting year and every ending year since 1920 — nearly 4,000 combinations in all. READ ACROSS THE CHART to see how money invested in a given year performed, depending on when it was withdrawn.

Stock market matrix provided by CRESTMONT RESEARCH; THE NEW YORK TIMES

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About Neven's Blog

My blog focuses on FINANCIAL MARKET ANALYSIS & INSIGHT from a macro as well as a micro - level point of view. The information is straight forward, honest, simplifies complex matters, questions some oversimplified matters, all while being as easy as possible for readers to understand. I primarily focus on capital and currency markets by combining insights, analysis & ideas from the fields of finance, economics and geopolitics.

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