Last week was the best in the stock market since 2003, and we did far better than the market itself. Except for the semiconductor manufacturer that we are accumulating in the midst of a bottoming process, every position of ours gained.
The Dow gained 3.1%. The following positions beat it:
Dow One …… +9.7%Oil Co ……. +7.9%Max Midcap … +7.8%Double Dow … +6.1%Net Media …. +5.0%Student Lender +4.5%Media …….. +4.1%Debt Collector +3.8%
What I’d like you to take particular note of, is that three of the top four positions are occupied by our permanent portfolios.
One week does not a trend make, but we have a lot more data than one week, and this is not the first time this has happened. We have nearly five years of real-life data since I finished researching the strategies, and decades of back-tested data confirming the validity of this approach.
It’s so simple that I’m continually amazed that we’re the only ones doing it. All you really need to know is that the market beats 80% of active money management including mutual fund managers, advisors, brokers, and, yes, newsletter writers. It’s certainly beaten me quite a few times.
Knowing that, isn’t it an obvious next step to just double what the market does? It was to me, but everybody I contacted about the idea told me that doubling was too dangerous because it would wipe out all benefits during a protracted bear market.
A severe sell-off would indeed cause major damage to the portfolios. However, such a sell-off is widely feared but rarely present. In fact, most people misprice the market by being too careful, not too aggressive.
It’s historical fact that the market rises twice as often as it falls, and that its general tendency is upward. Of course there are down times, as we just experienced earlier in the month, but those represent good moments to add money to a solid long-term strategy, not times to sell out.
It’s common for new subscribers to ask me how I time the market. Particularly, they want to know when I would plan to sell out of the permanent portfolios and await a better entry point.
My reply is always the same: I don’t time the permanent portfolios. They’re always invested, hence their name. The only thing the letter does is buy more of them at the end of each month, no matter what’s going on. That time-tested approach purchases more shares when the price is down and fewer when it’s up, giving us an average buy price during most time frames that is lower than the average price of the investment during the same time frame. This is called dollar-cost averaging, and my subscribers see it in action here. I didn’t invent it, I just apply it to some of the best strategies ever devised.
The market is constantly reminding us of what works. I’d like you to think back through your own emotions of the past month or so, honestly, and see if you wanted to do precisely what you should NOT have done. For most investors, the answer will be yes.
As the market warned of trouble in China three weeks ago, sending the Dow down 4% and the Nasdaq down 6% in the week ended March 2, did you want to run for cover? Most people did.
Here’s what I wrote about Shanghai Tuesday that weekend:
Wall Street got manically depressive. A full 84% of stocks on the New York Stock Exchange fell; on the Nasdaq it was 89%. The Dow crumpled 546 points before rebounding to close the day down 416 points, suddenly negative for the year.
How did you feel that week?
Think back two weeks when the market fell in the shadow of sub-prime mortgage defaults. Former Federal Reserve Chairman Alan Greenspan told the Futures Industry Association in Florida that he expects to see “spillover” from sub-prime defaults, which are “not a small issue.”
Reading that, did you want to hide under your bed? Were you looking for parts of your portfolio to sell? Judging from the notes I received, many of my subscribers were. Yet, the very next week, we had the best five-day showing in the market since 2003.
Staying put through the bad times was a good idea; adding more money was a better idea. Even in the dot-com crash of 2000-2003, which was the worst bear market of my career so far and likely the worst I’ll see in my lifetime, the best action to have taken was to buy.
If you missed this chance, don’t worry, there will be more. There will probably be more this year.
Stick with me so that the next time the market does its best in several years, you can smile knowing that you did twice as well.
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