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Art Day: One of the most important aspects
about investing, especially in intoday's world,
is you have to be flexible.
Now that is a great term that people like to utilize, but
unless you have the indicators that give you an idea of
what is is you need to do, and
when you need to do it, it's really just talk. We truly are incredibly flexible in
regards in how we allocate our clients portfolios.
that is a true tactical approach. Don Hagan: Sometimes things just go
wrong. Things can just go wrong with technology stocks,
like they did in 2000 through 2002. Things can go wrong with banking stocks
like they did from 2007 through 2009.
What will be next? We don't know, but we have to be aware of those
trends and understand what the environment
is for each of those sectors of the market. We can extrapolate that even
further,
we can take a look at what's going on internationally. How are emerging markets
doing?
China is so important to world economic growth; you have to stay on top of that.
We do that as well, using unemotional, objective,
mathematical indicators.
You need to rely on objective indicators. We can all listen to CNBC in the morning
and hear about the economic statistics du jar, but how do you
actually relate that economic statistic
to history? We do it with mathematic and statistical probability.
Art Day: A tactical approach is not a buy hold strategy;
it does not rebalance to a fixed benchmark. It has the latitude and flexibility to go
where the economic evidence leads.
We can literally be over ninety percent in the market we could be ninety
percent out of the market.
Don Hagan: We understand when it's a good time to make money and when it's a good time to take
a risk off the table.
Art Day: We make decisions about your portfolios
every single day. Don Hagan: Perhaps most importantly we use history is our guide.
We need to understand what happened before, so that we can
understand
what's going to happen next.
You have to understand those risks
that are around you, known and unknown. You have to understand how much liquidity is
available
should things start to go bad. When things are getting to
frothy, a little too hot, maybe overextended,
people are becoming a little too overly optimistic. Being risk-averse
means
keeping your profits, keeping your money
in your pockets.
Siegel's Paradox is something that most investors aren't aware of.
But if your stock portfolio goes down by 10 percent it only needs to grow by 11
percent to get back to even.
If your stock portfolio goes down fifty percent
your portfolio has to grow 100 percent to get back to even.
Most investors just don't have time to recover
from a 30, 40, or 50 percent decline in their portfolios.
They must be avoided at all costs.
If you take a look at the math behind declines, avoiding declines
is the number one way to make money for over time.
When you retire
you might be the luckiest person in the world, in the next year
the markets go up by 30 percent or you might have a rougher time, you retire
and the markets go down by 30 percent. How do you know which way the markets are going
to go?
What you have to do is identify risk. How much risk is in the market?
The more risk, the less exposure you want to have to equities. And
there's a way to quantitatively interpret
what's going on around you. Art Day: Especially when you take into account
past 13 years where we've had two devastating to declines.
Having the flexibility be able to move
the allocations of equities to bonds, to stocks, to cash
is absolutely key with regards to making sure
that you can endure all economic environments.
Don Hagan: You have to know where the impetus is
for the next bull market. You also have to know where the risks are
that could ignite next bear market.
Day Hagan Asset Management, 941.330.1702, DayHagan.com