Quote of the day: How not to book a 50% gain…

A relatively new client — one with whom we’ve yet to experience a true down market — asked me yesterday how we’d handle things when the market experiences its next big selloff. I love such questions, for two reasons. One: they affirm for me that my client understands the nature of things; i.e., that stocks will forever experience draw downs and bear markets. And two: they give me the opportunity to outline the ills of market timing for long-term investors.

I explained that we’d maintain our equity/fixed income mix which we previously determined — and confirmed yesterday — was, for him, an emotionally-palatable position. We then discussed how we meld fundamental and technical analyses to determine what we believe to be the most prudent sector and regional equity mix. As the cycle evolves and the data offer their signals (dictating whether our tilt/bias is toward cyclical vs defensive sectors), our sector allocation evolves as well.

Again, the notion that the long-term investor can or should attempt to play the price swings is a dangerous notion indeed — as I illustrated with this chart in last week’s video:   click to enlarge…

And as Chris Ciovacco stated in his weekly presentation:

It is not possible to ever book a 50% to 80% gain if we over-trade and overmanage during a strong bullish trend…

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