The Tasgall Group

Thought I’d point you guys to a rather harrowing chart:

USG, the producer of wallboard materials and much more, has practically been in a free-fall the last few months. It was practically a rocket on the way up as it fought past a ton of negative asbestos litigation and is about to emerge from bankruptcy.

I typically wouldn’t care, but I recently sold USG because it hit my trailing stop (when it was at 95!). If you ever needed an argument for keeping trailing stops on individual stocks, just look back at this chart.

(USG is now so oversold it might be worth watching for a turnaround…)

On the subject of hedge funds, I started reading Inside the House of Money a couple of weeks ago… it’s a series of interviews with some of the top Macro Strategy hedge fund managers out there today. It is sort of a modern day Market Wizards (Inside was published in April 2006), though the author only chose to interview Macro Strategy types of hedge funds. His definition of Macro Strategy is basically: discretionary, big picture investors.

The book focuses on strategies, personalities, and general economic outlook. The few chapters I have read are entertaining as well as informative…

Oh, and sorry, this one isn’t available to borrow yet… not while I’m still reading it. 😉

My topic for today’s meeting will be a tactical one, and I hope to answer the question, “How can I limit the risk of the fundsI put into a given mutual fund?”

I use mutual funds for general asset allocation, usually for funds in taxable accounts to minimize taxable sales. (I use my retirement accounts for trading that typically creates holdings of less than 1 year.) At times, I might choose to invest large amounts in a single mutual fund to get to my asset allocation targets (e.g. 20% in international stocks).

If international stocks or gold stocks go down a helluva lot (which they have great tendency to do), do I just accept it as my fate? Not I… So, how do I limit my risk?
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On a daily basis, I do a couple of things…

• Daily news & chart briefing
• Monitor news and markets during the day
• Review positions to see if I should sell anything (preferably before close of day)
• End of day review

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There is a good section in one of the Market Wizard books about option expiration and why there tends to be a lot of volatility. I will try to recreate the blurb here… (more…)

Andy Kessler has a pdf version of his book How We Got Here available for free from his website. The book is about technology’s contributions to history and increases in the standard of living. Kessler was originally trained as an engineer, and he takes an engineer’s approach to the situation.

I read Kessler’s book Running Money a couple of years ago and his writing style is engaging and accessible. He also wrote the first chapter (titled Signposts in the Fog) of Just One Thing. He also has a pretty good blog here.

(The pdf is 212 pages, ~670kb.)

I was just browsing over at StockCharts.com and noticed on their Point & Figure (P&F) charts, they have quite a few sizes available…

• Tiny
• Small
• Medium
• Large
• Huge
• Wide
• Very Wide
• Super Wide
• Mega
• Super Mega
• Giga

Now that’s impressive. Not that many websites give their customers that many options. I tried out Giga – I can see how you might want that if you need to see EVERY LAST PIXEL.

If you’re looking to invest in CDs or a similar fixed income investment, consider loaning out part of your money at Prosper.com. You can invest in small amounts, start to get a pretty big boost to your yield, pay low fees (well, the borrower pays the fees), and get it all done with minimal hassle (everything can be done from a web browser).

You can take a larger chunk of money and lend it out in small amounts to many different people — the diversification should help with the risk that a person walks out on their debt. I believe all the loans are in 3 year repayment periods, so you’ll probably want to diversify across people as well as begin to ladder the loan over time.

Some obvious advice: focus on those with high credit ratings and a reasonable way to pay back the loan; don’t treat this like a charity and give money to the person who “deserves” it. Factor in expected defaults when calculating the return you’re willing to lend at.

Crestmont Research has put together an excellent resource called the Stock Market Matrix. It shows how the long-term buy-and-hold approach would have worked for every holding period of the last 100 years.

Take a look. There are a lot of other good resources on their website too. I highly recommend looking at the Excel spreadsheets they put together with the historical interest rate yield curve graphed over time.

The general consensus is that the markets and/or economy will do well once the Fed stops raising rates…

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