The Long and Short of it #1 - Can a Little Guy compete?

The Long and Short of it.  #1

Someone recently asked, “Can a regular small investor compete with the 'big guys' on Wall Street”? He then asked why I was smiling.

The smile came from many years of observing “big guys” as U.S Exchange floor traders, investment managers and guys in the bar. I spent over 25 years as a member of National Securities Exchanges.

The biggest guys these days are hedge funds. Fees in this sector usually run 2% of assets AND 20% of profits. Big fees. According to USA Today (Jan 8, 2015) their returns for 2014 averaged 2.5% for this sector. The S&P index rose 11.4% for calendar 2014.

Can an individual do better than “big guys”? Absolutely. Requirements, however, are stiff. These include having a plan and committing time to execute that plan. I will write more along this there in the future, so please keep following.

Modern Portfolio Theory and EFTs

There has been much written of late about risk, diversification, and some time honored ways to participate in very volatile and uncertain markets with the hope of reduced risk profiles.

Complicated theories abound. The basic theme of many is to reduce volatility and diversify. This thought has been around for many years. It has been called by many names, but despite exotic packaging it is still Modern Portfolio Theory. MPT has proven profitable for many, and the Holy Grail for others.

Regarding U.S. investors, my answer is far too simple for many. I believe one should invest a comfortable amount of needed safe cushion funds in laddered U.S. Treasury securities. In my case this is 75% of available assets. The remainder should be thoughtfully but aggressively invested in available ETFs. For investing in EFTs I believe SectorSurfer is the definitive and necessary tool.

Please contact me for further background and information on this theme.

Dealing With Uncertain Times

Being intimately involved as a market participant, trader, analyst and portfolio manager for the past many years enables my thinking on our current market scenario. Essentially we are in uncharted waters today, economically, geo-politically and financially. I don’t believe anyone in this environment can confidently predict the future course of financial markets - and that certainly includes me.

Given that uncertainty, what we can do is prepare carefully for possible future outcomes. My sense is that the best tool for this time is a starting involvement with SectorSurfer. 

SectorSurfer is a big data tool that can identify the current strongest momentum trends for investment. It will mathematically monitor these trends on a monthly basis going forward and signal important changes. Perhaps one of these trends will be long lasting and prove to be an excellent vehicle for long-term investment.

A new trading world is upon us

I had the opportunity to watch Michael Lewis (Flash Boys) on a Sunday morning TV interview. He has written extensively about Wall Street for decades.

His contention was that financial services are undergoing rapid and dramatic changes. Essentially functions (i.e. trading, portfolio analysis) of yore are being transformed by digitization. This may mean lower costs, but perhaps less human interaction. I could not agree more.

To me this means more personal empowerment to advantage data now being afforded by digital means. At SectorSurfer University our aim is to teach individual investors to use powerful big data to select appropriate mutual funds and ETFs (Exchange Traded Funds - see my blog from March 5th for more about ETFs) for investment.

I’d enjoy discussing this opportunity to be in the "sweet spot" of the new investment world with you.

Personal Responsibility

It has become quite apparent the we, as market participants, are in for very volatile times.  This may play out over weeks, over months, or perhaps even for years to come.

I am both agnostic and concerned about this current volatility and potential future outcomes.  There are many factors at play here - the most significant of which I believe are the constant withdrawal of commitments and liquidity by previously large participants.  I am specifically talking about professional market makers, banks and brokerages.  This applies equally to both debt and equity markets.

Insofar as this blog is addressed primarily to individuals; there seems to me only one evolving answer to this question.  That answer is personal commitment and involvement in the overall plan of their own investments.

By that I mean, "What are one's BASIC concerns - preservation of capital?  Income?  Growth?"  A person will need to be firm in their own commitment to their specific goals to withstand the winds of increasing volatility.  Questions that need to be answered are:  what specific percentage of investment funds should be committed toward preservation of capital and others. The answer to this question will need further attention and review, and definition of what this goal continually means.

In my view, every individual investor seeking to participate in public markets of our volatile and rapidly changing world needs to accomplish this critical task.

Is it time to think about inflation?

I think it may be time to being to think about inflation.

For example, let's take a look at what is happening with wages around the country. Walmart recently instituted a large across the board wage increase for it's employees.  The strength of the dollar and currency volatility have also caused some concern about the future course of price indices, as has the negative inflationary effect of falling and instability of oil prices.

While I am not about to predict inflationary problems in the near term, I do believe the current atmosphere begs for a small investment in future corporate inflationary beneficiaries.  I am little interested in the discussion of traditional hedges such as gold and silver here, but am interested in sound companies that can benefit from an upward move in prices.

To this end, I have assembled a portfolio for use in SectorSurfer that employs a group of ETFs that bear watching in this regard.  I have prepared this for clients who currently use or will use SectorSurfer for this portion of portfolio rotation.

Richard Erkes - My Background

I have worked in the securities and commodities business for my entire working life.  It must have been a while ago, because my first employer was the original E.F. Hutton and Co. and they sent me to New York, for one year, to train as a securities broker.  I moved from doing straight brokerage to become the Midwest Director of Research for a NYSE company.  From there, I was invited to become the manager of a small investment partnership investing in U.S. securities.  Later the Chicago Board Options Exchange opened for business in Chicago and I was a charter member of the exchange.

I found a home on the trading floor.  Acting on my own behalf as an independent trader, I plied my trade, as a member, on other local exchanges such as the CME, MSE and the Chicago Options Exchange, for many years.  This was a period of dramatic growth for Chicago based futures and options markets.  I retired from those pursuits to learn about off the floor and computer based trading, an area of work where I remain to this day.

Among my current activities I have come to serve as a Director and Program Chair for the Los Angeles chapter of the American Association of Individual Investors (AAII).  It is in that capacity that I became acquainted with the SectorSurfer program.  This affordable program levels the field for individual investors versus the big financial powerhouses.

Essentially, SectorSurfer allows individuals to employ big data to filter mutual funds and ETFs (see my last blog for more information regarding ETFs) and choose those with the best momentum for personal investing.  SectorSurfer University is our educational effort to assist individuals in using this high-powered tool.  Currently, I am full time involved with SectorSurfer Unversity.

ETFs - What Are They and What Should I Know

There are many investment opportunities in the market today, and investors are encouraged to learn about ETF investments and how the use of those funds may affect investments and opportunities.

ETFs (Exchange Traded Funds) are very different from Mutual Funds in that they typically invest in a smaller basket of stocks and usually bear a more targeted approach to sector advising than do Mutual Funds or other tools.  These parameters may create less diversity, but may offer larger gains (and risks), by investing in a smaller array of securities.

For example, most Mutual Funds invest in perhaps up to one hundred plus stock issues whereas ETFs typically have 10 to 15 issues in their basket.  An individual may invest in a mutual fund which represents investments in the electronics industry, but in the alternative the individual could select an ETF investing in cloud computing securities.  Such a selection would contain fewer issues and provide a greater concentration of issues in that specific area.

The following list represents some advantages to owning ETFs rather than a mutual fund:

1. ETS can be bought or sold at any time during market hours. Mutual Funds are usually purchased and sold at one price based on closing values for its components.
2. Management charges for ETFs are considerably lower than those for most mutual funds.  ETFs can be purchased or sold with or without regular commissions.
3. There are no minimums for investment, whereas Mutual Funds generally have minimum required investment amounts.
4. There are no restrictions or fees on ETFs related to holding periods.

If you are interested in learning more about ETFs, please contact Richard Erkes at sectorsurferuniversity@gmail.com or browse to http://sectorsurferadvisor.com.

Introduction to RIchard Erkes and SectorSurferUniversity

Welcome to my blog, through which I will be providing my thoughts regarding investing, big data, and my new venture:  SectorSurferUniversity.  These blogs will be both educational and productive for persons interested in investing in mutual funds, or more preferably ETFs.  Having worked in the investment and trading worlds for over 40 years, I can be quite helpful to investors.  My long and unique perspective on investing in the world economy.

Now serving as program chair and director of the Los Angeles AAII chapter, I am constantly updated on developments for analysis and review.  In this regard I have been very impressed by the current use of big data to analyze and project momentum trends.  These uses are encompassed in my work at SectorSurferUniversity.

My educational efforts primarily concern a product priced for individual investors that can perform this function - using big data to assist in their investment efforts.  The product, as I noted above, is SectorSurfer, and I serve as Principal at SectorSurferUniversity.  While I am not exclusively involved with SSU, I believe investors will be greatly rewarded by their introduction to SectorSurferUniversity.

Please browse to http://sectorsurferadvisor.com/InfoRequestForm.html to request more information about this great tool.

Richard