By: Todd Wheatley
(c) IQ-2k   11-11-12

The 2012 general election ended decisively despite polls and pundits predicting a tighter race. That was great news both for the market and the economy. And while the market was spared an election cataclysm now comes the job of governing. Especially in regard to fixing the "Fiscal Cliff". In other words, we are still in the Black Hole outlined in my last article. So the market ratios you set prior to the election should remain.

If you remember, "Active Market Involvement" works similarly to the kind of wealth management used by fund managers. This strategy is designed for 401Ks, IRAs, ETFs, and mutual funds. Groups of stocks, in other words. And does not conflict with the sage advise of Warren Buffett of buying stocks based on value irrespective of the market. That strategy, however, works for individual stocks. The average investor today primarily deals with the kind of grouped stocks mentioned above. Many times the average investor only has broad categories to work with - growth funds, small cap funds, international funds, ect.

I want to make clear that "Active Market Involvement" does not imply active market trading. On the contrary, it is a waiting strategy. When risk increases you pull to the sidelines and WAIT. A minimum wait time should be at least a month. Be "ACTIVE" by trading on the news, but DO NOT get caught in the economic data, shifting employment picture, or the various ups & downs of the market. "Active Market Involvement" seeks to allocate investment resources according to risk and generally as uncertainty increases so does risk.

Consider the current market activity. A 1% jump in the DOW Jones on the election and the day before became a 3.5% drop the day after the election. Prior to that the market jumped 1% at the Superstorm Sandy reopening and fell 1% the next day. A classic sign of uncertainty and thus high risk territory. Overall the market has been trending down since my last article. Hence it was good advise to get out while the getting was good.

Since there was no election cataclysm the downside was mitigated, but substantial risk still exists. The "Fiscal Cliff" may be resolved as soon as February or as late as April. We will just have to be patient and WAIT! Don't be surprised if the market moves substantially upward on the news of a budget deal. And don't be too quick to buy into the news. Give the market a week or so to digest and stabilize.

Make no mistake - this is a proactive strategy - NOT - repeat - NOT a reactive strategy. You must follow the news and the market. Market shocks happen with regularity, but from time to time, you will be given warning. At that time money is pulled from equities and shifted into bonds or cash ... or ... or something else. The idea is to reduce or eliminate the POTENTIAL downside of an unstable market. Why risk your retirement on an unstable market?! Sit on the sidelines and WAIT.


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