Dan’s Blog

Asset Allocation for Today's Market

Dan Calandro - Tuesday, July 05, 2011

I closed the final chapter of LOSE YOUR BROKER, NOT YOUR MONEY by recommending a balanced approach towards investment by splitting your assets equally among three or four asset classes, citing the below allocation example:

                        Stocks    25%

                        Bonds     25%

                        Gold      25%

                        Cash      25%


As mentioned in the book, when making investment decisions you should take your cues from the Market not the stock market. And for all the change that was promised after the "financial crisis," central governance continues to make the same irresponsible mistakes. 


Monetary policy has been way too loose for far too long and the dollar continues to lose value because of it. They say inflation is not a problem – but have you seen the price of food and gas? Commodity prices also continue to rise with volatility, and gold seems to reach a new high everyday. Unemployment remains stubbornly high and is once again up over 9% (and that doesn’t count the people who have dropped off the list due to expired benefits.) Add to this reckless government spending (this year a $1.7 trillion deficit is projected) and what you have is America following Greece off the proverbial cliff. 


When the condition of the Market is increasingly negative you should approach stocks cautiously. As a consequence, conservative investors should consider adjusting their asset allocations to the below spread.

                         Stocks  15%

                         Bonds   25%

                         Gold     25% (or 35%)

                         Cash     35% (or 25%)


Reason: Cash is king. You can’t buy low without it. Investors looking for growth more aggressively can add to their gold position, as world currencies remain under persistent pressure. Whatever your investment posture is the formula for success never changes: Buy Low and Sell High. 


Successful investors do that by not buying into the stock market hype and taking their cues from what's actually happening in the marketplace.  There's simply no reason to buy into the fluff.


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Pricing "the market" and Establishing Action Zones

Dan Calandro - Sunday, July 03, 2011

As you know, GDP is reported by the government after market activity has occurred. The stock market is priced daily on the whims of current news and events. For this reason, the DJIA will always trade around GDP, at some multiple above or below it. 

Remember that GDP is where the DJIA always wants to go. That’s its goal.  Knowing this, it’s easy to draw a parallel between the two and use them to define a range to make your investment transactions.  I call this range an action zone. 

For instance, the Dow traded at an average GDP multiple of .89 for the past 15 years (1995-6/2011). The low multiple was .61, and since the last bottom (2002) it was .83. Once these multiples are applied the results suggest that the DJIA will trade between 9,184 and 13,323 until the next correction.  That's the action zone. 

You can always profit by targeting the midpoint of the action of zone to make your investment moves (right now 11,245). That’s about 700 points higher than what I wrote in chapter 8 of LOSE YOUR BROKER NOT YOUR MONEY. Why the change?  Was my book wrong?

No. Market conditions changed.

The Fed has pumped more than two trillion dollars of currency into the economy and has continued to run trillion dollar deficits since I wrote that chapter. Both practices are extremely inflationary, and right now both the economy and stock market are artificially inflated.  Sooner or later they will have to correct. 

How do we know?

Because the government can’t keep running trillion dollar deficits while printing currency like it grows on trees.  Once these practices stop, the economy will return to recession and the stock market will sell off.  That’s the way it works. 

My advice: Don’t try to sell at the highest and buy at the lowest. It’s Buy Low Sell High. Pick a spot in the action zone to make your move and then wait for conditions to change -- or better yet, a clearance sale to Buy Low.   

(PS: Remember the stock market overreacts to everything.  "The market" can easily trade below 9,184 when correction hits.  In fact, you can count on it.) 

ShieldThe road to financial independence.™

Data Disclaimer -- Just so You Know...

Dan Calandro - Thursday, June 30, 2011

Early on in this project I made a strategic decision to get the data for LOSE YOUR BROKER NOT YOUR MONEY from free websites like MSN and Yahoo!  I did this to demonstrate that you don't need to pay high brokerage fees to get this information.  The free sites provide everything required to be a successful investor -- though it might not be 100% accurate.  

Luckily perfection isn't required to be a successful investor.  What you need is superior construction and 15-51 methodology delivers that.  Guaranteed.  So when I made my data decision I knew that any data flaw slipping past my due diligence efforts wouldn't change the story, nor would it impune the superiority of 15-51 methodology.  For that reason I maintained my approach not to pay for stock price data.

That was then and this is now.  

Now I have a website and a technology team to verify and compile stock data that I purchase from a supplier. Armed with this new arsenal of information and capability, I've learned that the performance of the 15-51 Indicator (15-51i) was better than I originally calculated.  I previously reported that the

15-51i's return on investment was 273% for the 13 year period from 1995 through 2008 -- but it actually advanced 329% during this time.  It gained 802% from year ended 1995 to current.  Here's the picture. 


15-51 methodology -- It is that good.  

LYB's 15-51 portfolio builder is the most powerful investment tool ever made available to the average investor. Read the book, use the web tool, and you will see: It's easy to beat "the market."

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