The Long and The Short of It

“The way to win is to never lose.”  -Gen. George Patton  With all of the unique strategies that are now readily available to investors, it amazes me how many advisors continue to only enage in traditional investment management.  They seem content to be average and rely exclusively on the direction of the broad stock and bond markets.  If the markets decline, they can tell their clients that their portfolios are down because the market was down.  They can say things like, “nothing did well.”  Or, “We are all in the same boat.”  Sound familiar?  My question to you and your advisor is this:  Is that an acceptable answer?  If everyone else is jumping off of the bridge, should you also?

Here is one of several strategies that we utilize in our managed accounts.  We use a tactical model that essentially tells us when to be in the Rydex Inverse S&P 500 Fund (this does well when the S&P 500 drops) and when to be in the Rydex All Cap Opportunity Fund.  When our model is negative, we engage the Rydex Inverse Index Fund.  When our model indicates market strength, we utilize the Rydex All Cap Opportunity Fund.  We do not seek perfection from either one.  We seek to capture intermediate trends.  We have built in parameters to minimize “head fakes” or “whip-saws” if you will.  Meaning, we get a buy signal for one or the other (or sell signal) and then it reverses the next day.  So for example our tactical model turned negative on Jan 31, 2008.  If one was following our model, this would have mean’t to sell the Rydex All Cap Opportunity Fund and buy the Rydex Inverse S&P 500 Fund on Jan 31, 2008.  As of this writing, May 1, 2009, out Tactical model stills remains negative.  When combined with other, dynamic strategies, using a long-short model like the above offers terrific diversification and truly allows you to use the stock market’s momentum to your benefit.

You may want to ask your advisor if a strategy such as the one described in this blog may be appropriate for you.  Or visit www.richinvest.com for more information on how you can pursue some of these unique strategies.

Best returns,

Matt