Why didn't we buy…this or that?

Getting calls from some folks who are asking questions like:

"Why didn't we buy GE at $7?"

"Why didn't we buy Citibank at practically zero?"

"Why didn't we…blah blah blah…"

Many of these same folks were screaming "Make it stop!  Make it STOP!" only a few months (and in some cases, just a few WEEKS) before.

Human behavior is a great source for comedy routines.

Look, many people in my line of work want to over-complicate this stuff.  They want to talk over your head and use jargon to confuse you, and perpetuate their existence.  I know, they send "fan mail" to me all time.

Basics.  Just basics.  Look at pictures.  I would like to acknowledge the use of these charts from Stockcharts.com.  You can check them out here.

Would you buy anything that had a pattern like this?

You know this company.  They "bring good things to light…"

The only time I would think about buying a pattern like this would be if it were incorporating writing (selling) covered calls against the stock.  Otherwise, yecchhh…

That's just way too much risk for me.  Do me a favor.  Read the next line carefully:

The definition of RISK, as a verb, is "to act in spite of the possibility of injury or loss."

I don't know about you, but that first chart looks like risk to me.  Take a look at the next chart.

The picture is heading in a completely different direction than the first picture.  Yes, it is heading up!

OK.  But you say…

"I don't buy stocks.  I only invest in mutual funds."

Or,

"I only have 12 different mutual funds to choose from in my 401k plan at work."

Charts are charts.  Doesn't matter if we are looking at a chart of a mutual fund, a stock, or the price of gasoline.

I look at the charts in your 401k plan on a continuous basis.  If none of the charts are going up, here is our plan: we stay on the sidelines.  Pretty simple.  No need to be a hero.  This is money you will have to LIVE on some day.  (You're not counting on social security, are you?)

Today's Lesson: Buy things that are going up.

That's an important lesson, and a lesson MOST people overlook, or forget.

So, good job.  Now take the rest of the day off.

Former NASDAQ chairman Bernard Madoff disclosed this week that the investment advisory firm he has run (aside from his market making business) was, in fact a fraud.  It's unknown exactly how much money has been lost, but it appears to be somewhere between $17 billion and $50 billion.

By comparison, think about the money being considered for bailing out the auto makers: $14 billion.

Part of the reason why the entire scam was uncovered was because Madoff posted returns that were quite different from everyone else.

For many years, Madoff reported gains in the vicinity of 1% per month.  In hot markets, sometimes 2% per month.  He rarely (if ever) showed losses.  These numbers (in many years) were "good enough" to attract very wealthy investors.  They weren't the highest returns, they were not the lowest returns either.  Madoff stated that he managed $17 billion in assets, with somewhere between 11 and 25 clients.  These are some very wealthy clients.

One of the clients happens to be Sterling Equities — a partnership between Saul Katz and Fred Wilpon, who own the New York Mets, along with commercial real estate in the greater NYC area.

Two related events exposed Madoff:

First, the general nervousness regarding the stock market in recent weeks led to requests from his clients for redemptions (they wanted their money back).  A Ponzi scheme tends to fall apart when more than a few people want their money back at the same time.  Madoff received requests to return $7 billion in capital, money which he just didn't have.

The second event was his own doing: he posted nearly flat returns during recent months, while claiming to be invested in large cap stocks.  By comparison, his peers posted returns in October of -16%.

Something just didn't add up. As more and more questions were being asked, it became increasingly clear that something was awry.

As the owner of an investment advisory business, I believe it's important to have a "see-through" business: Mullooly Asset Management does not maintain custody of our clients assets.  Our clients assets are always sitting in an account in your name at a discount brokerage firm — or in your own retirement plan at work.  And regular statements are issued only from the brokerage firm or the retirement plan — not from our firm.

If an investment adviser has custody of the assets (which is what Madoff was doing), it's really hard to tell where the assets actually are, and how the money is invested.  All you have to rely on are the periodic statements from the advisor.  That's an enormous amount of trust to place in a single person or firm.  And that is a liability I'd just rather not get involved in — from my perspective, it's not worth it.

If you're not familiar with a Ponzi scheme, here's how it works: you raise money from an initial group of investors, promising to invest the money for them.  You continue to raise money from new investors.  When one of the original investors wants their money back, you take the money from the newest investor and simply "pay back" the original investor…with the newest investor's money.

The original investor sings your praises — after all, you "invested" his money, grew the money, and then returned the money as promised to the original investor.

Going forward, the word begins to spread about your success.  And, as new investors line up, old investors are paid back and the cycle continues.  Eventually, the cycle ends (typically when too many investors want their money back all at once) and the whole scam is uncovered.  Everyone left in the scam (at the end), winds up losing everything.

You can click here to read an interview from 2001 with this fraud.

(Warning: math ahead!)

Covered call writing is when you own a stock (or buy a stock today)

…and also sell (or write) a call option against that position.

The main thing people forget about covered call writing is this: anytime you sell something, you are bringing money into your account.
Just remember that as we walk through the example.

Would you rather listen to this post?
Click the audio bar at the top of this blog post

Say we're going to buy XYZ at $32/share.  1000 shares will cost us $32,000
It's December, so let's look at the April $35 call options.

The April 35 Call options are now trading at $2.40/contract.
We sell 10 of them and bring $2400 (not including commissions) into the account.

Your net cost to buy 1000 XYZ is essentially $29600 ($32,000 less the $2400).

Or, said another way, instead of paying $32, you bought the stock for $29.60/share.

Now what?

Well, there are three basic outcomes whenever you own a stock:

Bad news first…what happens if the stock goes UP?
Between now and April…four months…if the stock moves beyond $35, your stock will get "called" away.

If the company were to be taken over…or cure cancer…or announce some event that would cause the stock to skyrocket, this can backfire.
That's why it's not a good idea to write calls on volatile stocks.  This strategy works better on plodders.
See, when you sold ("wrote") the call option, you agreed to sell the stock if it exceeded $35 between today and the day it expires in April.
So if the stock goes up to $36, or $66, …or even $106…well, your shares are sold away from you at $35.  You only get $35.

But look at it another way: If the stock moves beyond $35, OK, the MOST you can get is $35.  But your net cost was $29.60, and it was sold at $35.
A net profit of 18% within four months.

Oh, and one more thing. If the stock gets called away from you at $35…

Yes, you make 18% inside four months.  That's true.  But you also get $35,000 cash (because the stock was sold) deposited into your account.  To invest again.
Nice.

OK, so…what if the stock does nothing?
Between now and April...four months…if the stock does not exceed $35, the option (which you sold) will simply expire worthless, and you simply keep the money.

Remember, you sold it way back in December at $2.60.  Keep the money in your pocket.  And you still own the stock.  Pretty good!  You put money in your pocket while the stock did nothing!  Now you can do it again!

Yeah, but what if the stock goes down?

Between now and April...four months…if the stock moves below what you paid for it, stop and think for a second…no one will exercise an option to buy the stock at $35. Because they can buy it in the market at the current price.  Remember, you sold that call option way back in December at $2.60.  Keep the money in your pocket.  And you still own the stock — at a net price of $29.60 — so your loss is probably less than someone who bought it at $32 the same day you bought.  Good for you!  You put money in your pocket while the stock actually went down!  Now you can do it again!

By the way, these are not made up numbers.

This is a REAL company that YOU are familiar with — and probably use their product every day.  I do.
It's a stock that virtually everyone in the United States is familiar with and trades on the New York Stock Exchange.

By the way, at $32, this stock carries a current yield of 5.70%, a lot more than money markets.
For more additional information, including the name of the stock, call the office at 732-223-9000.

.

Like crossing the equator on a ship — should buy and hold investors get some kind of recognition (or have some celebration) for crossing the line?  The S&P 500 crossed 1100 in 1998 (twice), 2001 (3X!), 2002, 2004 and 2008.  Look, when I drive around the same block twice, even I ask for directions!  Oh, and today the S&P 500 is at 940.  Ready for 9 passes in ten years?

So, "Buy and Hold" investors have passed the same intersection now 8 times in the last ten years.  Ten YEARS!  Essentially, if you've followed "buy & hold" you have not made money this decade.  And don't forget: Warren Buffet has been stockpiling mountains of cash for the better part of the last ten years.  Think he's been riding the S&P 500 merry-go-round?  Buffet has a 20 to 30 year-plus time horizon.  Do you?

See. we Americans examine our self-worth every month at the mailbox. And Buffet's strategy isn't really "buy and hold," it's "own the business."    We don't have the capital to do that.   But I think his letter to the NY Times last week was right.

Don't misunderstand, we are facing one the single BEST buying opportunities right here.  But "right here" doesn't mean "this week" — or maybe even "this month."  This "opportunity" may be here for several months.

If we learn anything from history of bad markets, the next few months will NOT be easy.  There will be great opportunities, but there will also be stress.  Without knowing — with certainty — that "this is the bottom" it's imperative that all investments come with an "exit strategy."

What this means is anything that is purchased at this point in time needs to have the exit points clearly marked, in case of trouble.

Recently, oil and commodities dropped 20 to 25% in four very fast weeks, catching nearly everyone off guard. But as fast as the drop took place, we start to see signs of a reversal back up. These sharp violent corrections often take place in long sustained bullish advances.

What do you do if you are still holding commodities like oil, natural gas, heating oil, grains and agriculture? I'd encourage you to read on. If you don't have a longer-term view, then simply understand this: everything reverts to the mean.

Let me ask you a question…have you ever seen a bell curve?

Here's an example of a bell curve: suppose there are 20 students in a class.
When test-time rolls around, here were the scores in the class:

1 student scored 100
3 students scored in the 90s
12 students scored between 75 and 85.
3 students scored in the low 70s
1 student scored 60


Roughly 60% of the class scored between 75 and 85.
One student of the 20 (5%) scored extremely well (she got 100%).
One student of the 20 (5%) scored very poorly (she got 60%).

Statistically, there's a very good chance that the one student who scored extremely well may not get 100% the next time around. Additionally, the one student who scored very poorly stands a good chance of improving her score in the future. This brings these two extreme results back to the middle of the pack.

The reason why I went through this exercise was to show you that frequently results "gravitate toward the mean." In this case, the mean test score was somewhere between 75 and 85. In fact, 60% of the class fell in that range.

Let's apply this towards your investments.

Two thirds of the time (67%), investments will hang around the midpoint of the range — the middle of the 10 week moving average.

There will be times when your investment scores in the top 5% — this is a situation where your investment is clearly "over-bought." There are also times when your investment will score in the bottom 5%. This is when we say your investment is "over-sold."

The reason why I frequently mention the term "weekly momentum" is because you will see (in a chart) certain times when your investment may get extremely over-bought, or extremely over-sold. This period is usually followed by a time where your investment will revert to the mean.

Knowing these types of patterns and behaviors exist, prevent us from panicking and getting out at the bottom — and likewise, making a rash decision and buying something at the very top. It doesn't always work perfectly, but we do our best to "stack the odds" in our favor.

Maybe it's me, but it just seemed like a funny coincidence that as soon as the media started to talk about oil going to $100 per barrel, we saw a bounce (in two days) from $111 a barrel…up to $122 a barrel.

OK, no names are used in this post! But holy cow!

In the midst of the sell off this week, Bloomberg Radio interviewed a money manager about the current condition of the market. The money manager went on and on making predictions about the market. How would he know anyway?

Now, everyone is entitled to their opinion, and I've been wrong plenty of times. But at the end of the interview, the manager was asked, "what would you recommend an investor look to buy here?"

His recommendations were to buy: General Electric (GE) and Microsoft (MSFT).

Now, this manager probably has some wonderful reasons why he would suggest buying those names now. But when it comes to point and figure, I'm about as far away from those stocks as possible.

Look, we're approaching mid-year. Both the Dow and the S&P are down around nine percent.

Over time, one of the things I've learned is when the markets are rising, relative performance matters. You know…"OK, the yardstick returned 10%, how did you compare to the yardstick…did you beat the yardstick?"

But — when markets are falling, it's not relative performance that matters…it's ABSOLUTE performance. For example…"OK, the yardstick lost 10% this year." What everyone wants to know is "but did we MAKE money?"

People don't like losing money. And there is little consolation in hearing your broker or adviser tell you, "well, Mr. Jones, the market dropped 20% this year, but we only lost 15%."

There is ALWAYS the possiblity we can lose money. We want to minimize the truly lousy investments.

The period we're in now is not necessarily a "bull market" or a "bear market" but more like a structurally "fair market." I didn't make that up on my own — Tom Dorsey, from Dorsey Wright and Associates in Richmond coined that term. I think that makes a lot of sense. From 1982 up through 1999 we were in a structural bull market. And everyone became conditioned to buying the market any time it pulled back.

But since late 1999 — 2000, conditions have changed. Anyone who has bought on the dips has not been rewarded. The easiest yardstick to use to measure this structural "fair market" is the S&P 500. In May, 1999, the S&P 500 reached 1375 for the first time.

Remember that number — 1375.

In May of 2000, the S&P 500 was again 1375.

In January 2001 the S&P 500 was at 1375.

In March 2007 the S&P 500 was at 1375.

In April 2008 the S&P 500 was at 1375.

In a structural "fair market" there could be several periods where the market can run up 20% and several periods where the market can drop 20%. And when the dust settles — you're usually right back where you started. And that's essentially what's been happening since 1999. The point I try to drive home is if you've been a "buy and hold investor" you've made no money — no progress — in nine years.

No progress! But you are nine years closer to the day you'll NEED the money. This is why the average Joe can't make money in the market.

Oh — something else — there have been studies showing these phases of the market can last between 15 and 20 years.

It is so important to know when the market is on offense or defense. We have a specific tool, the bullish percent index, which tells us specifically when the risk in the market is high and when the risk in the market is low. We use this tool to determine when to put money into the market, and when to take money off the table. Simply using the "set it and forget it" approach is a bad business plan.

The reason for going through this piece is because nearly 70% of all money — all money — in mutual funds sits in the same 500 stocks — the S&P 500. The S&P 500 is primarily a large cap mutual fund. If you look at the top 25 holdings in most large-cap mutual funds, you will see the same stocks — over and over and over.

From my side of the desk, I chuckle when somebody tells me "they're really diversified" and then show me a handful of large-cap mutual funds. They may own six or seven different mutual funds, but those funds hold the same stocks. That is not diversifying your money.

Also, if you look at the menu of choices in your deferred comp plan, your retirement annuity or 401(k) plan at work, you'll notice that (often times) more than two thirds of your choices are large-cap mutual funds.

Look, Average Joe has the odds stacked against him — but you don't!

All these firms hold the same investments.
There is STILL considerable risk in the group.

Why did this happen to just Bear Stearns?

One of the first things I learned about investments was when it comes to bonds, think chocolate and vanilla, super simple: when interest rates rise, bond prices (values) go down.

And when interest rates drop, the price of your bond (the value of your existing bond) goes up. It’s called an inverse relationship…think of a seesaw in the playground. When one side goes up (rates), the other side goes down (prices).

It always works.Well, it always works, until it doesn’t work.

Ask Bear Stearns. And Goldman Sachs. And Lehman Brothers.

(and Merrill Lynch, Citibank, Morgan Stanley, UBS, JP Morgan, and many more)

See, while the Federal Reserve has been busy lowering rates lately, the bonds held by these brokerage firms were also dropping (apparently dropping by the hour!) in price.

Bond prices going down — while rates are going down? That never happens, right?

Stay with me on this, ok?
According to the Wall Street Journal and Dorsey Wright, firms like Bear Stearns and Goldman Sachs have been leveraging (borrowing against the assets they hold, using margin) by a factor of 25 to 1. Wow!

I scratch my head wondering why they would leverage their balance sheet by a factor of 25. Imagine you and me only needing to put up 4 cents to invest $1.00. Or another way of looking at it, your $1 can buy you $25 worth of securities. Pretty good, eh?

Still with me? Ok, now go another step: Goldman Sachs reported earnings this week. Their return on equity (what they earned on their own capital) for the past 12 months has been 29.5%. If the math is right, they’re really earning about 1.1% on their capital, but then “goosing” the numbers (through 25 to 1 margin) to get to 29.5%.

That doesn’t sound so good, does it?

Let's talk about MARGIN

Now how can they borrow so much money? When you borrow (margin) against stocks, you can start by borrowing 50% of the current value. Since stocks go up and down, you are permitted to see that “equity percentage” drop to 30% before running into danger of a margin call (where you either need to add money, to increase your equity percentage closer to 50%, or start selling).

So if you had $50,000 in a margin account, you could actually withdraw $25,000 in cash (borrow against the stock). Or, instead, you could not take any cash out, but buy $100,000 worth of stock, putting up just the $50,000. And the net value can drop to near $30,000 before you face a margin call.

But when you borrow against bonds, you can borrow significantly more. Unlike stocks, where you can initially borrow 50%, with bonds you can borrow 80% and sometimes 90%. That’s a lot more leverage!

And when the Fed starts lowering rates (like they are now), well, we already discussed how prices of bonds rise. Right?

What happened to Bear Stearns, and every other brokerage firm (and lots of banks) is the values of the bonds they hold have been dropping. They hold a lot of these sub-prime mortgages and loans…which have been very toxic. Additionally, every firm apparently has bushels and bushels of these cancerous bonds on their hands. They can’t sell to anyone, since everyone they deal with has the same toxic stuff on their books.

So if you try to sell, and there is no demand, what happens to the price?

You already know – if there is no demand for you what you’re selling, prices start dropping – drastically.

So, the next question is — how can you borrow — when no one wants your stuff? The real problem became trying to accurately value what all these toxic bonds were worth. That was difficult, because no one was willing to buy.

Here’s another way of looking at it: what happens when there are no sales of homes on your street — for a year? Have home prices really dropped? Maybe. But the price of your home will drop like a rock the minute your neighbor sells for a lot less than you expect. Every home on the street just got marked down, right?

What happened at Bear Stearns can happen at Goldman Sachs, Lehman Brothers and lots of banks conducting the same business in bonds. And since all these firms consistently trade securities among each other all the time, they may sometimes feel compelled to extend an offer to buy some toxic bond. But they will offer prices so far below the current market no one would ever accept.

But then the offer is accepted! And the whole neighborhood gets "marked down."

And that marks down the price of every other bond just like it. It’s a negative downward spiral. Think of it as playing musical chairs on the Titanic. All the players in the game are muttering: "Pretty soon the music will stop, I hope I have a chair, but the end result is we’re all in trouble."

Most Wall Street recommendations to buy are based on projected future revenues and/or projected future earnings. Projected. Or you could say, "predicted".

Ever notice that a stock will begin to drop (many times without any news), and people will begin to ask "why is XYZ dropping?" Then rumors begin to swirl that something might be wrong, and the stock drops even further. In fact, it slides quite a bit until the actual news is released.

And by then, it's often TOO late to sell the stock.

This makes some folks jumpy…and with good reason. I'm sure you know someone who makes a point or two in a stock and then flips it. Why is it that some folks just seem so thirsty for a profit? Probably because they rarely make money in stocks. And yet, these same folks will ride XYZ down 50% because "it's not a loss until you sell it."

Yeah, right! People in my line of work always preach cutting your losses short and let the winners run. The problem is most folks don't know whether to sell — or hold on, and they wind up making a mistake.

Look, this is where the charts can give you guidance. They don't predict the future, they just tell you if a mutual or a stock is fund is going down because of the market or because there is something actually wrong.

If a fund or stock is in a strong sector, has good relative strength compared to it's peers and the market overall, and is on a buy signal…then stick it out. If a mutual fund or your stock is giving multiple sell signals, breaks the support line, is on a relative strength sell signal, then it's a loser, and it's time to go.

Point and figure lets you know if the move today in your stock was just a wiggle with the rest of the market, or a change in trend. And trends REALLY matter. And the charts don't care if there was a big seller of shares, or if someone has inside information about the company.

When enough sellers show up to change the trend of the stock (from a stock in demand to a stock that everyone is selling — supply), we will see that very plainly on the chart. Plain as the nose on your face. These point and figure charts are unbiased – they do not care if you have owned XYZ for 44 days or 44 years – when it's time to go, it is time to GO.

The charts are very clear. There's no ambiguity. Buy, sell, or hold on. Simple.

Most Wall Street recommendations to buy are based on projected future revenues and/or projected future earnings. Projected. Or you could say, "predicted".

Ever notice that a stock will begin to drop (many times without any news), and people will begin to ask "why is XYZ dropping?" Then rumors begin to swirl that something might be wrong, and the stock drops even further. In fact, it slides quite a bit until the actual news is released.

And by then, it's often TOO late to sell the stock.

This makes some folks jumpy…and with good reason. I'm sure you know someone who makes a point or two in a stock and then flips it. Why is it that some folks just seem so thirsty for a profit? Probably because they rarely make money in stocks. And yet, these same folks will ride XYZ down 50% because "it's not a loss until you sell it."

Yeah, right! People in my line of work always preach cutting your losses short and let the winners run. The problem is most folks don't know whether to sell — or hold on, and they wind up making a mistake.

Look, this is where the charts can give you guidance. They don't predict the future, they just tell you if a mutual or a stock is fund is going down because of the market or because there is something actually wrong.

If a fund or stock is in a strong sector, has good relative strength compared to it's peers and the market overall, and is on a buy signal…then stick it out. If a mutual fund or your stock is giving multiple sell signals, breaks the support line, is on a relative strength sell signal, then it's a loser, and it's time to go.

Point and figure lets you know if the move today in your stock was just a wiggle with the rest of the market, or a change in trend. And trends REALLY matter. And the charts don't care if there was a big seller of shares, or if someone has inside information about the company.

When enough sellers show up to change the trend of the stock (from a stock in demand to a stock that everyone is selling — supply), we will see that very plainly on the chart. Plain as the nose on your face. These point and figure charts are unbiased – they do not care if you have owned XYZ for 44 days or 44 years – when it's time to go, it is time to GO.

The charts are very clear. There's no ambiguity. Buy, sell, or hold on. Simple.

It appears that nearly everything written or said on Wall Street has an agenda behind it.

This is just a casual observation I've made over the past few months. It seems that, in the last few months, the clients that happen to call me on an option expiration day…will often point out some "news" or "event" that the "talking heads" on TV are talking about the reason WHY the market is up or down on that particular day. But little or NO mention of option expiration!

What's up with that? Option Expiration is the third Friday each month. This past Friday, December 21, 2007, was the most recent expiration day, and the Dow was up 205 points.

So, here's my very un-scientific experiment…done (in fact), on the back of an envelope!

Expiration Friday & the Dow

January +2 points

February +2 points

March -50

April +153 points

May +80

June +86

July -149

August +234

Sept +54

October -366

November +60

December +205

The two "market" stories on Friday December 21 were earnings for RIMM and the possibility Merrill may get a bailout. Neither stocks are in the Dow…but yet, THOSE two stories are the reasons given in some corners to explain why the Dow was up yesterday. Oh, and a "Santa Claus" rally?

Is it just me? It seems like anyone watching the financial news channels should be skeptical of the information given out.

I hope our readers have a great holiday season.

The beauty of the Point & Figure chart is that the chart has no preconceived bias. A Point and Figure chart doesn't care who owns the stock, or who likes the stock…or even if somebody just predicted some stock would double in the next 12 months.

The chart only cares about the daily highs and lows of the stock price, that's all!

And over time — that alone — tells an interesting story of its own.

Which is why it is so easy to spot mutual funds, sectors and individual stocks that are about to collapse — very often, they give a LOT of clues! Red flags — like multiple sell signals, support line breaks, relative strength signals…they often come in bunches, so it's easy to tell when trouble is brewing.

And I see them all the time.

Notice I wrote that Point and Figure can be EASY. That's E-A-S-Y, meaning you don't need a PhD, or a Harvard MBA to see what's happening with your investment.

Well, if it's so easy, why don't more people use point and figure charts?

Its is true, once you get the hang of the charts, they DO become easy.

Easy, but not SIMPLE.

The biggest problem with using charts is that you have to review the changes every day, and that is something a lot of folks just cannot be bothered doing. Does it get you into some good situations too early? Yes. But does it get you OUT of some situations before a meltdown? Yes, it often can. But people want instant gratification today, not more work.

And using point and figure charts can be work.

But here is the rub: look, no system is perfect, but after twenty-plus years of doing this professionally, I have found that the point and figure charts work extremely well in helping us manage the RISK in your portfolio.

And here is why: they do not offer excuses why something things did not work, they do not blame something (or somebody) else when things go unexpectedly.

I like that.

Is it true that high net worth investors focus only on generating the highest returns? No! The ultra-wealthy focus primarily on risk management. These people are not gamblers.

The old line from Mark Twain — you should be more concerned about the return OF your money than the return ON your money — is very accurate with this group.

The 2003 World Wealth Report (a product of Cap Gemini, Ernst & Young, and Merrill Lynch) showed that during 2002, when the S&P 500 got trashed for 22%, these "high net worth individuals" on average lost only 2.1%.

So…how’s it possible that the average investor got slammed — in most cases, for a lot more than 22% — but those folks with more than $1 million in financial assets barely had their first down year — after seven good years?

It’s because they’re conservative and focus on controlling the risk, not focusing on maximizing their return.

Their view is: any advisor we work with must have a discipline that avoids substantial erosion of capital (losing money).

But the typical marketing pitch of so many brokers and investment firms is "we can pick them better than you can." Without proper risk management, there is no point to that at all.

You can be "right" seven years in a row, but one or two disastrous years can wipe out all the gains you made over that time. That’s exactly what happened to most investors between 2000 and 2002.

Look , you don't need to shoot the lights out year after year.

Getting consistent positive returns is actually more important than the size of the returns. Don’t lose money, or at the least, keep the losses small! Compounding happens faster with consistent positive returns. That’s the real secret of the millionaire.

Tom

Thomas Mullooly
Mullooly Asset Management LLC
Our Only Business Is Fee-Only Investment Advice
www.mullooly.net
support@mullooly.net