Last week, in my Nov. 18 column, I sketched out a picture of a very volatile 2011 and said that today I'd take my best shot at a strategy for how to invest through the turbulence.
I probably shouldn't be telling you this, but most of the time investing is pretty simple: Follow the trend with your money and get your emotions out of the way. And that's also the key to even as turbulent a year as 2011 promises to be.
My strategy is based on taking advantage of that "most of the time" and staying alert for the exceptions.
Markets love trends
Most of the time, markets are in a trend. Look it up yourself on a chart of something as staid as the Standard & Poor's 500 Stock Index ($INX) or something as supposedly volatile as the iShares MSCI Emerging Markets Index (EEM, news, msgs).If you graph the market's daily moves along with its 200-day moving average, you'll see that while the daily moves create a mountain range of jagged peaks and valleys, the smoothing average reveals a remarkably steady trend line.
So from March 2003 to December 2007, you'll see a 200-day moving average draw a very steady ascending slope. That's despite the big valleys caused by daily moves like those of March 2007, or the big peaks caused by daily moves like those of July 2007.
Long-term trends are your friends
If you play around with these charts, a couple of really important investing truths pop out at you.First, the longer your holding period is, the less important the volatility on the daily chart. Peaks and valleys fade into insignificance when you're looking at an upward-trending 200-day moving average from March 2003 to December 2007 or from May 2003 to June 2008.
This observation can easily get extended into something like the extreme form of what's called buy-and-hold investing, which argues that if your holding period is long enough, you need never sell stocks. You just hold on through any volatility.
Second, it's clear from looking at these charts that this extreme form of buy and hold isn't very good advice. And that's because these "most of the time" trends are punctuated by bouts of volatility that are big enough to completely reverse the 200-day or any other trend line.
The volatility from January 2008 through August 2009 (otherwise known as the global financial crisis or the bear market of 2007) decisively ended that March 2003-to-December 2007 upward trend. Same thing happened in the volatility that stretched from November 2000 to April 2003 (otherwise known as the tech bubble or the bear market of 2000).
Even if you draw a chart all the way back to 1950, you will see clearly these great trend-busting events. Some volatility is big enough to get your attention no matter how long your holding period.
Continued: The course through volatility
ok i watched it, but that is just superficial one-dimensional fox people stuff. without consumers like that you would lose 70% of the US economy. some people DO like to shop for fun stuff with the money they work hard to get and MOST are civil to one another while doing it despite all of the video "spin" on that clip.
lol lost, i am here for some sporadic intellectual relaxation in between client work, not to advertise or solicit. i manage over $75mm in assets up from $10mm in 1999 and we don't need any new business. readers will either get religion on this new normal and make money over the coming decade with active management or continue to lose/break even and whine about the president, congress, spending, wall street, liberals, and every other excuse in the book or decide to make money investing intelligently and pro-actively.
for the umpteenth time - go see a qualified professional and stop the pity party! we have been making money for clients in both up and down markets for the past twenty years and you could be making those same returns. there is no free lunch, the government is not here to help you, and it is now time to fish or cut bait. go spend a few hundred dollars a year on a pro (fee-only and independent) with a substantiated track record of success. nike man, just do it.
so what will barbara and sarah discuss over tea? the next third world country to invade and exploit for their oil? i guess the best we can hope for is that dick cheney will visit and they will go quail hunting together and ... 
I got 1 for you too: Some people in this world will either die or be killed tomorrow. Take that one to the bank and cash in your winnings, because that is a sure bet,... unlike the rigged casino called Fraud Street. 
I'm just wondering who are going to buy back from the buyers of those the big numbers of shares sold by the CEO's and traders later on in the game. Will their be a big bailout to save the 401k 's or is it gamblers beware rule roles?
