What's Working
Market-Timing Errors: Being Bullish When Stocks Are Falling

Market timing, based on the Portfolio123 approach, stands at the crossroads of the Multi-market (regime switching) model I recently introduced. The goal is to have it switch strategies depending on whether market conditions are bullish or bearish. That's all well and good if the timing model works. Backtesting and recent real-time experience has shown it to function properly much more often than not. But if there's one thing we learned in 2008, it's the need to stay alert to the potential for new scenarios to arise. So no matter how sound the test results may be, it's still important to inquire into what might happen if the timing model falters for a prolonged period.   Full Article »

What's Working
Introducing A Portfolio123 Multi-market Model

A previous seven-part series described a technique known as Regime Switching, where different strategies are implemented depending on market conditions, as determined by a set of market-timing rules. This is a fairly complex protocol involving a two-part ranking system, a specially-created bear-market universe, and most buy-sell rules and rank factors being embedded within if-then rules. A model applying this approach is being made available in order to help Portfolio123 users assess the strategy (to determine whether it offers benefits that make it worthwhile to cope with its complexity) and if interested, to copy and edit it to reflect their own ideas. I'll update its progress periodically, so we can all see which aspects work and which ones require improvement.   Full Article »

What's Working
Performance Bargains

Previous blogs in this bargain-hunting series have spotlighted book value, cash, lack of debt and divined income as themes that could provide opportunities in this bear market. But we ought not ignore the most basic factor of all, one that should play well not just in times of crisis but in any kind of market: a strong track record of above-average corporate performance.   Full Article »

What's Working
Income Bargains

Yield-oriented investing was cold for a generation, became a bit more fashionable when the tax treatment of dividends changed a few years ago, and then seems to have cooled again. But it's often seen as a good bear-market strategy so nowadays, it's at least in the conversation. With the magnitude of the losses we've seen in the past year, one can hardly argue, as many once did, that dividends can effectively offset capital losses. But assuming markets won't spiral downward indefinitely, the yields we're seeing might attract some buying interest when things change for the better and produce some nice upside movement early on, thus providing an opportunistic flavor which we don't usually see in the income arena.   Full Article »

What's Working
Debt-free Bargains

The economy is a mess and nobody knows how long it will stay that way. So rather than looking at who beats estimates by how much (the usual favorite metric among investors), the big issue is staying power. Which companies are most likely to be able to withstand a potentially prolonged flat-line economy and still be relevant when conditions finally improve. One potential clue is a balance sheet with zero debt. Such firms won't be admired by academic capital structure theorists, but in times like these, they might garner respect from Wall Street, especially if their stocks are bargain priced.   Full Article »