I'm listening...

Exactly right and what I am doing with a real money strategy the past two years and back-tested to 2003.  I won't go into specifics, but am happy, excited even, to talk about general strategies and observations.

I find the trick to being successful is two-fold:  being able to identify blatant stupidity and having a disciplined strategy for getting in and out of these investments.  Because even blatant stupidity can persist for a while, I find a disciplined approach to buy and sell decisions works better than gut instinct alone.  The strategy works well over the long haul, but is not a 100% fool-proof strategy that's sure to yield obvious short-term benefits.

What has actually surprised me is that my strategy's relative performance has actually been better in up than down markets.  I thought it would be the reverse and am a little puzzled as to why.  My only theory is that investor psyche since the dot-com bubble burst has been so fragile that when sell-offs happen the good gets tossed with the bad.  When rallies happen, investors are a little more disciminating.

Right now I am only employing long strategies and results are 3% per annum better than the S&P 500 in all-equity (primarily ETF) portfolios.  International and small stock exposure explains some of the benefit, but not most.  I keep portfolios in a S&P index fund by default, but will sell out of that and buy into sectors that appear to be oversold/undervalued.  Avoiding overheated sectors, therefore, is also a key to these results.  If I expanded to bonds and commodities, as well as employed options/shorts, I think the results would be even better, but being cautious, I haven't wanted to put a lot of money at risk until I am convinced of the strategy's merit.

I do NOT market this strategy aggressively to clients for the same reason (and also because I am fairly new to this biz after following the market for 20+ years), but rather take an approach of "if you're interested in a more aggressive approach with a portion of your equity portfolio, here are some ideas I have...".  I have one client who has sworn off equity markets altogether (and really shouldn't because he is far from set), but I have him interested in this approach as well.  So I am hoping to use this as a selling point to people who are jaded by equities.

What do you do, generally?  What do you think of the above?

Long post but makes some sense. One thing I would say would be for you to take a good look at CEFs in place of some ETFs. Watch for them to trade at a discount to NAV but do your research on the managers, strategies and underlying positions.

[quote=loneMADman]

Exactly right and what I am doing with a real money strategy the past two years and back-tested to 2003.  I won't go into specifics, but am happy, excited even, to talk about general strategies and observations.

I find the trick to being successful is two-fold:  being able to identify blatant stupidity and having a disciplined strategy for getting in and out of these investments.  Because even blatant stupidity can persist for a while, I find a disciplined approach to buy and sell decisions works better than gut instinct alone.  The strategy works well over the long haul, but is not a 100% fool-proof strategy that's sure to yield obvious short-term benefits.

What has actually surprised me is that my strategy's relative performance has actually been better in up than down markets.  I thought it would be the reverse and am a little puzzled as to why.  My only theory is that investor psyche since the dot-com bubble burst has been so fragile that when sell-offs happen the good gets tossed with the bad.  When rallies happen, investors are a little more disciminating.

Right now I am only employing long strategies and results are 3% per annum better than the S&P 500 in all-equity (primarily ETF) portfolios.  International and small stock exposure explains some of the benefit, but not most.  I keep portfolios in a S&P index fund by default, but will sell out of that and buy into sectors that appear to be oversold/undervalued.  Avoiding overheated sectors, therefore, is also a key to these results.  If I expanded to bonds and commodities, as well as employed options/shorts, I think the results would be even better, but being cautious, I haven't wanted to put a lot of money at risk until I am convinced of the strategy's merit.

I do NOT market this strategy aggressively to clients for the same reason (and also because I am fairly new to this biz after following the market for 20+ years), but rather take an approach of "if you're interested in a more aggressive approach with a portion of your equity portfolio, here are some ideas I have...".  I have one client who has sworn off equity markets altogether (and really shouldn't because he is far from set), but I have him interested in this approach as well.  So I am hoping to use this as a selling point to people who are jaded by equities.

What do you do, generally?  What do you think of the above?

[/quote]

I am amazed at the garbage I am able to consistently sell .... who would take a position that has a 97% probability. of failure?

Answer; endless armies of speculators(?) who have marginalized the funds applied to the position(?)

Even if the 3% occurs I get the highest quality equities I can find at a incredible price. It's truly a win win. If not I get paid for being wrong.

Are you just talking about selling puts? That's nothing new. Tell us more.

[quote=N.D.]

Long post but makes some sense. One thing I would say would be for you to take a good look at CEFs in place of some ETFs. Watch for them to trade at a discount to NAV but do your research on the managers, strategies and underlying positions.

[/quote]

Thanks, I will look into them.

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