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October 13, 2009


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this is basically my game plan. at the moment i am in the education part- i am reading everything that i can get on my favored investments. its amazing the kind of things that you will find out about any investment when you go out looking. something that i find amusing is the way people that have absolutely no interest in investment seem to know more than you and even choose to advice you on the preferred strategies!!

Hehe, not to be a pain, but enlightenment tend to be circular. The master becomes the student once again, except is guided by wide-eyed understanding rather than wide-eyed ignorance.

I suppose then, the sixth step would be to become that successful guy that the people in step #1 are attempting to become. Except they don't yet realize that, in reality, the successful guy didn't actually pick that magic stock or hit it out the field with his first business to become who he is today.

@KenyanTykoon - Sounds like you're on the right track, and you're right, it seems like everyone has their own strategy or tip that they would like to sell you on.

@Eugene - You hit the mark, no matter how much you learn, and no matter how successful you are as an investor, there is always plenty more to learn.

One topic that seems to be taboo with individuals that make their living advising others how to invest their money is "Market Timing".

I have kept daily records of my investment performance since 12/28/1992, the first market day, shortly after I retired, and had moved my 401K and taxable account to Fidelity Investments.

From 12/28/1992 to 10/12/2009 my compounded annual rate of return was 19.24%.
During this same period the Vanguard S&P500 fund VFINX (incl. income distributions) was 7.46%.

In order to be fair I account for money removed from my portfolio for taxes, home improvements, vacations, etc. as if it was still there but has earned nothing. If I had withdrawn nothing at all, my annual rate of return would have been 20.67% rather than the 19.24% shown above.

I achieved this by being a market timer - not the short term type like a day trader but as a "Momentum" investor that rides a rising fund upwards until it stalls out and starts to head down at which time I switched into either a better fund or into the money market fund if nothing better was available.

When I retired I educated myself in the technical analysis of stock trends and with the help of a subscription to a proprietary database of mutual funds and market indexes, and using my engineering and computer expertise I starting writing my own software to perform technical analysis. I also collaborated with a large group of fairly experienced investors that exchanged imformation on a bulletin board frequented by users of the same mutual fund database. I gave these users free use of my software and they beta tested it for me and gave me a lot of good ideas gained from their greater experience as I developed it.

There is no "magic bullet" for market timing, different methods work better for different classes of investments. Losing money is the best teacher of all, and in the beginning I would perform a post mortem on each trade to see what I did right or what I did wrong, and how I should improve the next time.
While market timing is far from being perfect, as you can see from my track record, it greatly outperforms "Buy & Hold" and eliminates disastrous losses. I found that timing signals behaved poorly in real time, but that a combination of diligence, hard work, experience, interpretation of technical indicators and superior fund selection were definitely superior to Buy & Hold. This all required keeping a close eye on one's investments and the market every single market day.

In late 2007 my indicators showed me the deterioration that had taken place in many parameters of market health, plus my portfolio had reached the size where it made good sense to shift gears and become very conservative, and that's what I did. I am now wholly in income investments such as CDs, municipal bonds, and funds that invest in instruments backed by the US government and its agencies. Now I am quite happy with a tax exempt and tax deferred return of about 5%/annum and don't have to worry about anything.

Maybe I have answered my opening statement - market timing takes tools, lots of knowledge, lots of experience and is not practical for everyone.

I am in stage 5, but I still have a lot to learn. Using technical analysis of stock trends and almost can beat the market now.

I'm fairly sure I skipped over #1 because I had no money to invest in individual stocks the first place, but I had already started my retirement accounts with my first company.

But other than that, I went through most of those stages!

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