Jack and Jill

Jack and Jill went up the hill to fetch a
bucket of …money. Money? They are continuing
to fill their bucket with stocks without any
consideration to the value of these equities.
They are not worried at all as they are buying
“safe” mutual funds.

Everyone knows mutual funds are safe. Jack
and Jill know they don’t know how to pick good
stocks so they leave that to the fund manager.
He is an expert.

When you look at the long term record of 99%
of the mutual funds you will see that expertise has
been sadly lacking. I hate to remind you of the
2000 to 2003 period, but I must. In fact I must
tell you it is going to happen again. Now you
want to know when….and so do I.

And that is the problem with almost every
fund manager. As long as the market is going up they
can’t do much damage to your account, but when
it rolls over and heads down they have no idea
how to invest when a bear market is in progress.
Not a single one of them will acknowledge that
cash is a position.

Cash is a position? They are in shock. Of
course they are. If brokerage customers put
their money in a money market account while the
market is falling it means they do not make any
commission at all and if they recommend this to
their customers the brokerage manager will fire
them because he won’t make any money either.
“Keep your customers fully invested or I’ll show
you the door” is the manager’s comment.

You must learn when to sell. Any fool can
buy, but it is the wise man who knows when to sell.
To see the condition of the overall market one
of the best indicators is the SP500 Index. Your
broker compares everything he does with the
SP500 because it is a broad base of 500 stocks
that are widely traded.

The finest indicator is the SP500 Index.
Draw a 40-week chart of the closing prices. If you
don’t know how ask your broker. He will tell
you. Write it down and save it. It is very
simple. Have him set up a 40-week Simple Moving
Average to appear on that chart. Look at 5 years
worth of prices. Immediately you will see that
if you are in the market while the 40-week MA is
going up you are making money and if you are out
of all your positions while the index average is
going down you will not lose money. It doesn’t
get any easier that that.

Jack and Jill can fill their pail as the
market is going up and need not spill their
accumulation while they walk confidently down
the hill holding their bucket full of cash not
equities.