No. of Recommendations: 1
Perhaps I need to clarify.

In this post I was speaking generally, in order to get a better notion of how better to refine my investment strategy, which I was not speaking of in detail because it is irrelevant and boring and the posters here have already developed their own strategies that suit them well, as I have.

However, I have not always spoken generally. I have twice made stock calls on this board. I have speculated that JWF was a fine investment at 16.6 in September.
It closed today at 21.4, a rise of 29%.

On 12/30 I speculated that PGF made good sense, and explained why, at its then-price of 12.4.
It closed today 14.7, a rise of over 18% in less than a week.

That's one way of making good money safely. We all have strategies that would benefit from a clearer notion of where the market may be headed, or some discussion on what we all intend to do in case of this or that outcome.

I'm considering S&P 700 -- throwing that out for discussion is not the same as "price-fixation" -- because, as mungofitch noted in the post I linked to, the kind of slide we're in the midst of has a history of breaking to new lows -- lower than November. And that would mean the best opportunities are still to come.

I am speculating that he's right, that this is the case, and I'm shaping my strategy to fit accordingly.

Yes, sometimes stocks move all by themselves, because of news inherent in the stock, but stocks also move broadly with the market, and sometimes get carried away with it. We just went through a period were 99+% of all stocks went the same way -- down. We just went though the worst cycle of volatility destroying wealth since records have been kept. We just went through the worst year since 1930, maybe worse depending on your take. Many, many quality names went two, three or more standard deviations below their 20 and 35 year histories, providing excellent entry points. And if history is any guide, and our view of economic conditions isn't entirely off-base, we're probably see things get worse. And I'd like to profit either way. We all would.

If you simply held the S&P long last year, you're down -- way down. Selling to get to the quality names you'd like as a stock-picker now means robbing your portfolio, so there's little advantage. As I've noted before, I sold and watched the carnage. In November and December, primarily, I sold puts and did very well. I don't talk about specific returns because I feel it is rude. My point is that not being long doesn't mean not making money or having no strategy, and for my success I recognize that am indebted to other posters:

I hope to be indebted to more such posters in the future, and to contribute in some small way to a meaningful discussion.

By "general investment strategy" I mean stuff like, I'm wondering when I should stop selling puts and start buying high-quality, dividend paying stocks? Or when do I tweak my put strategy to one in which I'm more likely to get assigned? Or when do I play it safer and stay mostly in cash? These are worthwhile questions. Thinking carefully about these questions is why I'm ahead in 2008, and I'm sharing my concerns with the board because other people here think about them, too. In fact, it's because of the feedback I've received, and just plain reading this board, that my general strategy became informed the way it did. I made 111 trades in 2008, but the most important one by far was going to cash early in the year.

The importance of moving to a more cash-heavy portfolio in bear markets is only too clear by now. But the math never looks right, at least to my eye. Let me give you a series of annual returns:

Port 1 Port 2 Port 3 Port 4
+20% +10% +10% -4%
-20% -1% -15% +5%
+30% +10% +30% +3%
-30% -1% -15% -3%
-20% +10% -30% -6%
+40% -1% +35% +8%

Take your time and look at those numbers. In the end, who did best?
Although I just made them up, they may look familiar. Port 1 might look like a savvy, fast-moving aggressive growth fund. At least the best year is better than any of the bad years, something many aggressive funds can’t say over six years. Port 2 looks comparatively boring, perhaps a deep value fund or some other yawner. Port 3 looks more familiar again, not quite as risky or as exciting as Port 1, but definitely growing, perhaps more safely. Port 4 looks like a typical bond fund, making gains maddeningly slowly, and even worse, actually having down years? What? I thought this was a bond fund! Yet many bond funds would be lucky to have such a smooth track record.

It is interesting to note that it doesn’t matter in which order the gains and losses occur -- in any of the Ports above you can change the order of the numbers however you like, and the final outcome is identical. Does that change how you view the numbers?

Of course we all know that a loss must be met with an even larger gain merely to break even: A loss of 33% must be met by a gain of 50% to get one back to square one. The conclusion is inescapable: Not losing, or at least not losing too much, is a great key to winning. But how great?

Here’s their final total gains and losses after six years:

Port 1 Port 2 Port 3 Port 4
+20% +10% +10% -4%
-20% -1% -15% +5%
+30% +10% +30% +3%
-30% -1% -15% -3%
-20% +10% -30% -6%
+40% -1% +35% +8%
-2.2% +29.1% -2.4% +2.2%

You knew this was going to be tricky, but did you really come up with which portfolio was best, and by how much?

Every move counts -- forever. People who got hurt in 2008 have a long way to go.

A small loss doesn’t really matter too much. But as we can see looking at Ports 1 and 3, big losses cannot be easily made up for, even by bigger gains. And Port 4 might look safe, but its returns aren’t any better than a money market Port 2: Slow and steady wins. By a mile.

But at this time I don't see much opportunity for slow and steady. I don't really want to sell puts, because I'm expecting a decline. For the same reason I'm hardly tempted to go long. So I'm in cash. And open to other ideas.

Regarding this other idea that METAR was needlessly skeptical in late 2002: Do you think no one here made any money whatsoever during that time? I don't think so. I think many people here made good money in those years. I did. And yet 6 years later, in late 2008, the S&P was trading for 100 points less than it was in late 2002. I'm not sure I understand the point. As an article of criticism, it doesn't hold up.

So, once again: What do folks here think about the macro environment? An, if you'd like to volunteer it, where are you keeping your investment capital? What will you do with it, and under what conditions?

I can't really ask those questions without volunteering some answers of my own, but I'll save that for another post. This one is already too long.

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