The markets have certainly been frightening over the past couple weeks.  As such, I have been receiving many “thank you” emails and phone calls from clients for selling before the market sell-off last Thursday.  Several of you have spoken of friends and relatives who are anxious about their current advisors strategy (and likely for good reason), but many people are skeptical of how I was able to “get out” and avoid the steep losses everyone else saw.  I like to say, “Friends don’t let friends Buy and Hold,” and I would like to share my rationale and thought process with all of you.  We’re entering a new era of investing and the 13% that the S&P 500 lost over the past week will be difficult to recover with the old-fashioned “wait and see” strategies that many advisors and large firms still subscribe to. 

Chladek Wealth Management 8/3/11 Selling Rationale

The Chladek Wealth Management Investment Strategy, which is time-tested and research-based, analyzes the 200-day EMA (Exponential Moving Average) for each fund to make decisions regarding when to sell, buy, or hold.  Each morning, I download the data from the previous day and analyze each of my client’s holdings.  At that point, I make a decision regarding how to proceed, and what trades to make that day.  As stocks started to slide on Wednesday, 8/3/11, the 200-day EMA of my client’s holdings began to show “sell” indicators.  I moved my clients into cash, but am still holding precious metals and two other funds that continue to perform above their 200-day EMAs (all of which I continue to monitor closely).  It is a firm commitment of mine to continue to provide my clients with a daily analysis of their portfolio to try and avoid the steep losses the markets have seen.  This is a time-intensive approach, but it provides tremendous value over other investment firms, and is how we differentiate ourselves from the “other guys.”  At this point, the S&P is sitting at -10.88% YTD, while my recommended portfolios have YTD gains that range from 0.39% to 3.76% depending on the risk tolerance level.  I continue to seek excellent buying opportunities within the markets, and will buy back in as soon as such an event presents itself.  My buy “signal” for each fund will be when the price rises back above the 200-day EMA, as long as the 50-day EMA is higher than the 200-day EMA (known as the “Golden Cross”).

Ask yourself: Why didn’t my advisor sell if it’s that simple to do so? 

While I can never promise gains, I can tell you a couple things about what other advisors are doing that make their strategies obsolete:

  • They still subscribe to ‘Buy and Hold.’  Many investment companies, both large and small, have a few “stock” portfolios that they put all their clients in based on their risk tolerance.  They have a set strategy, regardless of the client and their specific needs.  This makes it easy to manage large numbers of clients without having to hire more advisors, because they generally don’t do anything except “watch” the portfolios.  It is not uncommon for an advisor at a large firm to have over 500 clients.  Do you really think one person can effectively manage the investments of that many clients?  If the clients lose money, the advisor will send out the performance report at the end of the quarter, and when they receive phone calls regarding the losses, they simply give a “canned” response and promise that the markets will bounce back eventually.  Not enough people are aware that there is a better way to invest, and they choose to stay with their current advisor and “ride out the markets” with them. 
  • They do not have the experience or ability within the hierarchy of the company to make such large decisions.  Many financial advisors are trained solely in the philosophy of the company they work for, or only understand the markets as much as the firm requires.    If you’ve called or emailed your advisor regarding the events of the past week, you’ve likely been given an answer that sounds great.  It’s also likely one that I could de-bunk fairly simply based on the research I’ve done and my experience investing in the markets.

What action can you take now?

You need to have your portfolio analyzed by an independent, fee-only investment advisor who understands the market and has a strategy that works to eliminate steep losses and capitalize on the market when it is performing.   ‘Buy and Hold’ is dangerous and old-fashioned given the global economic climate.  If you’d like for me to analyze your portfolio, please give me a call at 913.693.7918. 

Do you have an investment strategy that seeks to protect your portfolio against volatile economic conditions?  Call me to schedule a free review of your current investment portfolio – 913.693.7918.

John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals.  For more information, visit https://www.chladekwealth.com.

All written content on this site is for information purposes only.  Opinions expressed herein are solely those of John P. Chladek, MBA, CFP®, President, Chladek Wealth Management, LLC.  Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness.  All information and ideas should be discussed in detail with your individual advisor prior to implementation.  Investment Advisory services are offered by Chladek Wealth Management, LLC, a registered investment advisory firm in the State of Kansas.  The presence of this web site on the Internet shall in no direct or indirect way be construed or interpreted as a solicitation to sell or offer to sell investment advisory services to any residents of any state other than the State of Kansas or where otherwise legally permitted.