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September 01, 2011


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I maximized my long range returns by practicing Fund Selection.

(1) Use ranking software to find the best funds available that are in low volatility uptrends.

(2) Buy the best 4 or 5 diversified mutual funds.

(3) Watch them carefully, once one of my funds starts to decline and especially if its Welles Wilder Relative Strength Index (RSI) value drops below 50 sell it immediately and go back to (1) to find a replacement.

I have been doing this since 1993, have never had a losing year, and have an APR of 17.69% over nearly 19 years, including the period since 11/2007 when for three reasons I shifted entirely into CDs, taxable bonds and muni bonds yielding close to 5%.
The three reasons were
(1) I was 73 and wanted to move into the slow lane of investing.
(2) My strength indicators for the NYSE and NASDAQ showed an ominous pattern of lower lows and lower highs.
(3) Even in the slow lane my portfolio produces an income 5 times what it was when I retired and by holding my bond investments (purchased below par) to maturity I minimize the risk of losing money.

It all comes down to having a long term plan and working the plan without panicking when all the media are screeching doom and gloom. Even my financial planner doesn't seem to be immune to lemming-like behavior. He called me a couple of weeks ago to see if I wanted to shift more of my portfolio to bonds - when the Dow was at its lowest! I've got at least fifteen years to go before retirement, why would I abandon my strategy right in the middle?

When you are at least 15 years away from retirement you cannot be anywhere near as conservative as a person like myself that has been retired for 19 years, was able to increase his portfolio tenfold during a few good years of the Internet bubble, and is now more than happy to settle for a steady tax optimized total return of 5% with minimal capital gains and minimal risk of losses.

You have to play the cards you are dealt, and the cards right now are pretty awful. Today I was listening to one of the most knowledgeable financial correspondents on TV, Christine Romans of CNN. She was saying that she now has a baby in diapers, and that her baby will be in school by the time this economy is hopefully on the road to recovery. With the dismal unemployment, jobs, and housing situation coupled with the 3rd. US solar panel manufacturer to go belly up during August as China captures that market by subsidizing its own companies very heavily, and fewer workers in manufacturing than we had in 1941, where's the light at the end of the tunnel? This recession is unlike any that this country has faced and in addition we now have to deal with the exploding National Debt and gigantic unfunded liabilities for Medicare, Medicaid, and Social Security. I wouldn't know where to put my money at this time if I needed to make a steady, reliable return that was in the high single digits. I am just thankful that I was fortunate enough to have had a long career as an aerospace engineer during a period of very high defense spending that lasted from the end of WWII to the end of the Cold War and the breakup of the USSR, and to be able to retire with SS, a nice pension, and a much larger portfolio than I ever thought possible. My generation is mostly in good shape, my children's generation will inherit quite a lot from their parents, but it's my grandchildren's generation that I worry about.

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