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Retirement Plans & Trend Following

The bubble has burst on the equity market buy and hold dream as your retirement solution. You have to do more than simply trust someone else while only glancing at your pension statement once a quarter. It’s your money. Watch over it. Don’t pretend it’s just retirement and that it always goes back up — that is not true. It will go back up and you will make money only if you have a plan of attack.

View the Japanese Nikkei 225 stock index chart. It reached nearly 40,000 in the early 1990s. Now it hovers around 10,000 12 years later. Do you think the Japanese still actually believe in buy and hold?

Q. Can trend following be traded in a retirement account (IRA, SRA, Keogh, 401K)?
A. Yes. Absolutely.

Q. For stocks, futures, commodities and or currencies? Going long and short? Bull or bear market?
A. Yes. Absolutely.

What can happen when you trust someone else:

Solution?

1. Think about how you got here and learn how others actually win. 2. Decide where you want to go, and what you’re willing to do to get there. 3. Now, get to it with a plan.

Ponder the words of Jonathan Hoenig:

Trading isn’t about making hundreds of transactions or jumping on a hot stock. It’s about being open-minded enough to realize that we don’t know the future — and flexible enough to admit that at some point we might want to trade one position for another. I am a trader because my interest isn’t in owning stocks per se, but in making money. And while I do trade in stocks (among other investments), I don’t have blind faith that stocks will necessarily be higher by the time I’m ready to retire. If history has demonstrated anything, it’s that we can’t simply put our portfolios on autopilot and expect things to turn out for the best. You can’t be a trader when you’re right and an investor when you’re wrong. That’s how you lose.

Retirement Myths

Allan Sloan on retirement today:

Once upon a time, back when the bull market was roaring, it was easy to fantasize about rising stock prices giving you financial independence in your forties. Your toughest decision in retirement would then be whether to take a cruise or stay home and wax your Ferrari. Everyone with money in the market — and their ranks grew by millions a year — seemed to be getting rich through options or stock-laden retirement accounts…It was sure nice while the fantasy lasted. But it didn’t last, of course. The stock market, down 25 percent from its high, has posted two years of losses and is barely breaking even this year. The future of Social Security isn’t looking too great, either…So now, with your portfolio trashed and Social Security looking insecure, you may be having nightmares about spending your retirement haunting the mac-and-cheese early-bird specials, or about not being able to retire until six years after you’ve died. With the bull market gone, will the impending retirement of the post-World War II generation be the Boomer Bust?…If you work hard, save and adopt more realistic expectations, you can still retire rather than die in the harness. It’s just not going to be as easy as it was in the ’80s and ’90s. Remember that for 56 years before the bull market, millions of people managed to retire without having to move into cardboard boxes or their kids’ basements. Earning maybe 9 percent on stocks isn’t as good as the 20 percent that you might have grown used to. But it’s not bad.

We generally like Alan Sloan. Pragmatic guy. Seems to be a straight shooter. But, saying 9% compounded is not bad compared to 20% compounded, ignores the pure math.

Imagine the last 25 years and 2 investments of $1000 each. Investment one generated 9% for 25 years and investment two generated 20% for 25 years. Does it seem like a big difference?

  • $1000 compounded at 09% for 25 years = $8600.
  • $1000 compounded at 20% for 25 years = $95,000.

It is a huge difference!

Trend following shoots for 25 to 100%+ returns. Compound those potential returns and you have a chance to make some serious cash.

Barber Shop Quotes

“The conviction that the party is far from over is part of the reason…technology stocks soar ever higher. I don’t think anything could shake my confidence in this market, Mr. Allen says. Mr. O’Keefe adds: Even if we do go down 30%, we’ll just come right back.”

“There was that bad stretch a little while back,” he says. Guys called me up and said, What do I do? I told them, Buy more.”
“Tech-Stock Chit-Chat Enriches Many Cape Cod Locals”
The Wall Street Journal
March 13, 2000

“All they ever say is, Buy, buy, buy, all the way down from $100 a share to bankruptcy, the burly 63-year-old barber said…Now, they give a stock tip and I stay as far away from it as I can. Nobody trusts anyone any more.”

“Indeed, while mostly avoiding investments in more stocks, Mr. Flynn has been driving to a casino in nearby Connecticut every Monday to play blackjack and poker. I do better there than I do in the market, notes Mr. Flynn.”
“At Cape Cod Barber Shop, Slumping Stocks Clip Buzz”
The Wall Street Journal
July 8, 2002

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