KNOW WHEN TO HOLD ’EM
Financial writer Eric Gemelli reviews the high stakes theory of holding in an interview with Childrey Investment Partners, LLC
Two grab-your-backside-with-both-hands recessions in 10 years has professional investors rethinking the “buy & hold” mantra preached for the past 40 years. Joseph Childrey, managing partner at Childrey Investment Partners, LLC, is one of those investment professionals.
Childrey sites a 60-year study published in the Stock Trader’s Almanac as reason to stay out of the market 35% of the time. This historical analysis shows there are times when the Dow Jones performs significantly better than others. The study tracks the performance of $10,000 invested in the Dow in 1950 under three scenarios: buy and hold, invest only during the Dow’s worst six months and, third, invest only during the Dow’s best six months. The last two scenarios have their performance tweaked using a standard moving average, called MACD, available to even novice traders.
The buy and hold approach turned $10,000 into a respectable $428,616; investing May through October, the worst six months of the Dow, actually lost money! Sixty years later you had less money than you invested. The super star is the third scenario: investing from November through April. In this case $10,000 grew to $1,546,081. The exact calculation can be seen at http://www.stocktradersalmanac.com/sta/research_tool_MACDEntryExitDOW.jsp
Childrey Investment Partners offers a variety of services to companies for their 401k and high net worth families and individuals. Childrey says they can help you manage your risk. To accomplish this they offer 10 portfolio models based on a clients aversion to risk.
Even though Childrey’s fees are as much as half of other asset managers, their performance based on this strategy is significantly ahead of the wider markets. At the time this interview was conducted, the Dow was down 20 % over the past two years. Childrey’s Probabilities Fund gained 27% during the same time period.
Childrey keeps investment costs low by utilizing Exchange Traded Funds, also known as ETFs. In 2009 there were over 1500 ETFs available. Early ETFs were an efficient way to invest in market indexes. One of the first and biggest was tied to the S&P 500, trading u nder the symbol “SPY.” It was developed as the Standard & Poor’s Depository Receipts and is known as SPDRs and referred to as Spiders. The Dow has a corresponding ETF that trades under the symbol “DIA” and is called “Diamonds.”
Investors are attracted to ETFs because of ease of diversification, their low expense ratios, and the tax efficiency of index funds, while still maintaining all the features of ordinary stock. Because ETFs can be purchased inexpensively and are easily disposed of, some investors prefer to invest in ETF shares as a long-term investment. Bank Investment Advisor reported global ETF assets crossed $1 trillion in December 2009.
ETFs are similar in concept to a mutual fund, except, until recently, have not been managed. ETFs are now used in conjunction with commodities, currencies and bonds. They often have a tax favored status in that there usually aren’t capital gains until the purchaser sells their shares, assuming a gain.
ETFs are criticized as not being diversified enough. Childrey uses a seasonal rotation and mix of international and domestic ETFs to overcome the criticism. More information about Childrey Investment Partners, llc is available at http://ch-ip.com.
Author Eric Gemelli founded Cornerstone Financial Services LLC in 1997 and as the managing member has worked in mortgages, life and health insurance, raised venture capital, and trading commodities averaging 30% a month doing so. He offers market forecasting services, and is “sure enough of [his] ability that 80% of [his] fee is based on performance.”
