Market Back On Offense: Good For Your Investments

by | Jan 12, 2010 | Asset Management, Point and Figure

Just what the heck does that mean…”back on offense?”

When I refer to “offense” and “defense” I mean which team currently controls the momentum of the market.

If the defensive team is on the field, then “supply” is in control.  If the offensive team is on the field, then “demand” is in control.  When the market is on defense, news can be interpreted as either “no news” or “bad news.”  Meaning “surprises” (good and bad) usually bring lower prices.  Nearly everything can become a reason to sell.

When the offensive team is on the field, “demand” is in control of the football.  We don’t know how long we’ll have the ball.   It could be “3 and out” or it could be a sustained drive culminating in a touchdown.  We don’t know the outcome.

But we know the plays to run when which side is in control.

See, a lot of folks (in my line of work) just run “offensive” plays, all the time.  Yes, ALL the time!

And when the things don’t work out, they lament “well, right now the market is bad.”
What kind of _____ answer is that?

I’ve got a fiduciary O-B-L-I-G-A-T-I-O-N to my clients to make sure we invest this money prudently. If we are on defense, the first play in my playbook is to STOP buying.   There is an entirely different set of plays I run whether we are on offense or defense.

You should know the market can go UP even when we are on defense. Or markets can just hang around doing nothing.  Defense means the risk of losing money is greater.

Here’s an example: in this recent defensive period, the Dow Jones climbed to their highs for the year, but most individual stocks — and most sectors — pulled back and stalled.  You probably noticed in the 4th quarter that your accounts stayed flat, while the Dow moved up.  Most stocks and most sectors pulled back to the middle of their trading band.  So we didn’t get hurt during this defensive period.

Ok, for this time around…defense was on the field and didn’t give much yardage.  But we can spend more time talking about defense later.
For the present time, we are back on offense.

Which means the chance of making money is better now than in the recent period (when we were on defense).  Yes, the market can (and does, sometimes) go down while on offense.  But the odds of making money in the market improves when on offense.

Some areas will out-perform others.  My work keeps us in those areas.  But the tone on offense is a rising tide.  And a rising tide lifts all boats in the harbor…good and bad.

So a lot of lousy investments may go up when we are on offense.  When the football goes into defensive hands, the lousy investments will be exposed.  Warren Buffet said “It’s only when the tide goes out that you learn who’s been swimming naked.”

We have the football.  Let’s get to work.

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