Marc Cuniberti Knowing when a market is setting up to correct is the Holy Grail in investing. Many advisors and investors adopt the methodology to just buy and hold. However, readers of Money Matters (Money & Sense) know I advocate a more hands-on approach to portfolio management that includes an attempt to accomplish some degree of portfolio protection.
What I mean by this is that investors can actively try to protect profits and guard against losses instead of just sitting on their hands by adopting some basic strategies.
Decades ago I developed such a method called “The Safe and Conscious Investing Methodology” (SCIM).
Let me begin by saying no one can predict market movements at any time and no guarantees can be offered that gains will be protected or losses will not be realized. After all, investing involves risk.
Much like the study of volcanos, volcanologists can look at what is happening but cannot guarantee what will happen. The same goes with market prognostications. There are no guarantees of any kind. If an investor cannot tolerate risk, they consider FDIC bank products and there are varying strategies to consider there as well.
To utilize SCIM means the advisor monitors various things not only happening in the markets but in the economy as well.
Needless to say, an economic background would help facilitate this monitoring, for, without such education, one would not know what to look for when it came to the economic portion of the strategy.
In lieu of using SCIM, the buy and hold strategy (which I call “do nothing” advisory) exists on the principal markets that always recover.
I am of the opinion the do nothing principle is flawed on the most fundamental of levels. Remember, advisors stating that markets always come back is technically illegal. That illegality comes from the basic rule that advisors are strictly forbidden to guarantee any market direction of any kind at any time.
However, if one believes markets always come back, it is my opinion an advisor is not needed, and that one could just buy a broad market representative holding that attempts to mirror an index, purchased through a discount brokerage firm, and be done with it. With no advisor, there would obviously be no advisor fee as well.
The SCIM method, instead of just buying and holding, looks at a variety of events and movements in the market and economy, then considers what the markets have done in the past to guide the advisor as to what may happen in the future.
What to look for is the key when attempting to limit downside using SCIM.
An example of a SCIM event is illustrated stating the old adage that stocks and bonds have a tendency to move opposite of each other. Although not always true, it happens enough times for a mix of stocks and bonds to be a commonly recommended stock allocation rule.
(https://www.investopedia.com/articles/investing/062714/100-minus-your-age-outdated.asp).
SCIM looks at many events, including the stock and bond relationship, and how it is changing over a given period of time. Other observations in SCIM consider action in the Fed Funds arena, interest rates, the Repurchase Agreement facility, (REPO), overseas markets, currency fluctuations, political considerations, and movements in certain market sectors like fixed income, consumers staples, utilities, preferred stocks, real estate investment trust (REIT) and other areas.
Although the reader may not fully understand all the considerations that SCIM looks at, just know that the events occurring in multiple areas of the economy and in the markets may alert an astute economist and an experienced advisor that something may be occurring beneath the surface that could erupt into a more serious event.
Although no methodology can guarantee anything when it comes to the stock market, much like a volcanologist who studies underground movements and occurrences beneath a potential volcano, there can also be tremors felt in the markets that may indicate something far more terrible is about to occur.
Opinions expressed here are those of Mr. Cuniberti and not those of any bank or investment advisory firm. Nothing stated is meant to ensure a guarantee, or to be construed as investment advice. Neither Money Management Radio (“Money Matters”) receive, control, access or monitor client funds, accounts, or portfolios. For a list of the services offered by Mr. Cuniberti, call (530)559-1214. California Insurance License #0L34249 and Medicare Agent approved. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity. Email: [email protected]. No person or methodology can predict market movements of any kind. Past performance is no guarantee of future results.
