401k Allocation

Our 401k allocation system has two components. One is International / Emerging Markets and the other Small / Mid Cap. The chart above is a history of Fidelity Emerging Markets Fund utilizing our International/Emerging component. The line depicts the Fund by itself from October 2007 through today. It is down over 40% in this period of time. The line is red when the system told you to be in cash (money market) and green when it told you to be invested in the emerging markets fund. Had you done as it recommended your investment would have looked like the followingchart:

The flat periods depict while you were in cash and the jagged periods while you were invested in the emerging markets fund. Had you simply held onto the fund you would be down over 40% today but had you utilized this system you would be up over 50%. What a huge difference.

This system was designed in the mid '90s so the results are real. Not backtested.

If you're interested in looking further at this service goto http://www.ewatch401k.com or simply click on the rescue helicopter in the left margin.

Empower Your 401k

have you ever received your 401k statement in the mail and without even opening it put it in the file pile? Being in the investment business I speak with people all the time who have no idea how to invest their 401k. Most of them have many investment options to choose from but have no idea which ones to use or not to use.

After years of being asked "what should I be doing with my 401k?" I finally decided to create a solution. The idea for the solution came from a website that had over 5000 subscribers. The developers of the site had created a "Mechanical Investment System". This system took risk out of market in downturns without taking the opportunity for good returns in up markets. These people didn't address the 401k issue but I was highly impressed with their approach. The mechanical approach took all the emotion out of the decision to invest. This only made too much sense so I started on a journey duplicate their effort but have it focus on people's 401k plans.

This idea hit me in 2006. Learning to duplicate their effort would require my learning to write computer programs. Fortunately for me this was what I studied in college so many years ago. I had already spent the last 14 years as an investor and now I had the opportunity to learn programming all over again! What a pleasant surprise to how advanced the programming languages are today compared to then!

After at least a couple thousand hours (no kidding) of learning coding and it's relationship to stock market data I had a good idea what worked and what didn't. I realized many things along the way. Some people build mechanical investment systems that "Fit the market". This is called Curve fitting. These programs have backtest results that look astounding but don't work in whatever kind of market that is coming up next. What is next is the only thing that matters in the world of investing. Everybody gets caught up buying what did best LAST only to buy it and find it is the worst thing for what was next.

Mechanical Investment Systems that are robust (work in any kind of market) are those that were tested using many different types of markets and "Walked Forward". Whenever you build a system you want to test it on one type of market then on another and then another. You "Walk Forward" through time and different markets to see how it would have worked AFTER it was designed.

I built this exact type of system to help people manage their 401k. The site is at http://www.ewatch401k.com/. The algorithms used were actually developed back in the mid '90's. This gives plenty of time and opportunity to see how it has performed since. In fact in the last 10 years it has returned over 15% compound annual return. It was down only 5% in 2008 when the general market was down over 40%.

I will detail more about this system in future posts but it is online and ready to be used.

Status of SSG

We bought SSG at the same time as DXD and QID. The latter two have broken support and had to sell them this morning. SSG seems to be bouncing off it's support level which is promising for this position. Also, if this support level holds, it speaks poorly for the market in general. This position is short the semi-conductor sector. This sector usually goes south prior to the rest of the market. SSG bottoming at this level would say that the market is going to go south shortly.

SOLD DXD and QID

Just sold DXD this morning since it closed below it's support level last Friday.



Also sold QID this morning as it also broke it's support level on Friday (the lowest red line).

Bought GSG (Commodities Index)

GSG is the ETF representing the Goldman Sachs Commodities Index. We just purchased this at $31.59 and expect it to reach $34.00 without too much resistance. This would be about an 8% gain. It has much greater potential in the longer term. We aren't going to give it much room to go the wrong way before we would get out. I have set the stop at $30.59 which gives a two to 1 risk to reward ratio. In the worst case it should be supported by the increasing red line but I expect it to advance more in line with the yellow line.