The Power of Thrift


There is power in investing thrift.  Avoid frequent trading.  Reduce investing costs. Don’t get ripped off by Wall Street.

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Image from WSJ.com article “Wells Fargo, Awash in Scandal, Faces Violations Over Car Insurance Refunds”  (1)

How bad are the thieves who are supposed to look after our money?   The big guys can cheat their customers again and again.  The New York Times article above shows how this bank has ripped off its customers for a third time in just one year.

The article says:  Wells Fargo, the scandal-plagued bank, is facing new regulatory scrutiny for not refunding insurance money owed to people who paid off their car loans early.

This is the third such incident revealed in just the last year, for just this bank.

How many shenanigans are not revealed in this industry?

Last year, Wells Fargo bank employees created millions of credit card and bank accounts that customers had not requested.  They robbed customers of millions.

Last month, this same bank was found to have forced unneeded collision insurance on consumers who financed their car purchases.  That practice hit 800,000 customers caused 274,000 people to be delinquent and 25,000 cars to be wrongly repossessed.

Now the Federal Reserve Bank of San Francisco is investigating a different insurance rip off related to a different type of insurance called guaranteed auto protection insurance, or GAP.

It is not mandatory for car buyers to carry GAP insurance, which typically costs $400 to $600. But car dealers push the insurance, and lenders like it because of the protection it provides.  When borrowers pay off the loans early, Wells Fargo should have provided a refund of some of the GAP insurance premium.

Guess what… they did not.

We are on our own!  We should not expect the authorities to protect us.

The Wall Street Journal article “When Brokers Want to Move Your Money Out of a Very Good Thing” (2) explains why.

The article says: So far this year, here’s what our friends in the federal government have done for — and to — citizens who hope to find simple ways to save enough money for retirement without anyone robbing them blind.

■ Continued a year’s long fight against a rule that requires many retirement advisers to act in their clients’ best interests.

■ Reversed a rule that would have made it easier for states to create retirement savings plans for people who don’t have one at work.

■ Abandoned a new federal program to help lower-income savers, young ones in particular.

The article tells how brokers allegedly persuaded about 200 people to move money out of a safe government plan and put the funds in expensive annuities, earning hefty commissions.  The overall costs in the government plan are about as low as employer-based retirement savings plans get,  about 38 cents for every $1,000 someone had invested.

Moving investors out of the plan earned four brokers about $1.7 million in commissions, at the investor’s expense.  Once again Wall Street used investors hard earned savings to line a broker’s pocketbooks.

We publish The Purposeful investing Course (Pi) to help readers improve their investment trading discipline so they can increase profits, reduce risk, reduce trading costs and save time.

The core of the Pi strategy is to use math based financial news to invest in a portfolio of equities in the best value stock markets using country ETFs.  These mathematically calculated valuations do not change quickly, and the portfolios researched by Pi have not traded once in the last two years.

This creates an enormous thrift.

One big question about how to manage these Pi portfolos called Pifolios is “What to  do when markets have a severe correction?”

Here is an excerpt from a recent Pi Update that looks at two strategies for dealing with market downturns but keeping costs down.

The first strategy is hold on and continue to accumulate value.  This works well if an investor has time for the portfolio to ride before cash is required.  If one sticks to the strategy (and does not bail out at the bottom), this strategy requires the least time.  Investors can focus on more important aspects in life.

Plus trading costs are kept at a minimum.

The second strategy is to use math to spot trends and use trailing stops (based on market momentum not entry price) to get out of a market before it severely declines.

This strategy offers the best long term profit, IF an investor can stick to the strategy AND ALSO uses the same math to get back into the market as it recovers.

As the US Stock Market leaps from all time high to all time high, it’s time to ask ourselves “When will the US stock market bull be over?   What to do about it?”

At Pi we track market momentum in all the Pi ETFs at Tradestops.com.

On June 16, 2017 Dr. Richard Smith CEO of Tradestops wrote: “Is This 9-Year Bull Market Over?”

We are well into the ninth year of a bull market that has barely seen any 10% corrections, much less a 20% drop.  But warning signs that this bullish market are coming to an end have begun to show up.

The three danger signals mentioned at that time were:

#1: The short-term trend of the Dow Jones Transportation Average (DJTA) was to the downside, yet the short-term trend of the DJIA was to the upside.

The  Dow Theory states that (DJTA) must also be trading at new highs for the new highs of the Dow Jones Industrial Average (DJIA) to be confirmed, otherwise the trend of the DJIA is not sustainable.

Since 1999, each time this has occurred has been the precursor of a downward move in the DJIA.

#2: The divergence in the DJIA and the Nasdaq Composite Index (COMP).  The DJIA was trading at new highs, yet the COMP was trading more than 2% off its most recent highs.

Since 1971, there have been 12 times that the DJIA has been at new highs with the COMP at least 2% off its highs.  In 9 of the previous 11 occurrences, the DJIA has moved lower.

#3: Commercial traders in the DJIA had a historically-large net negative position.  When their positions have been negative in the past, it has led to downturns in the DJIA.

Last week Dr. Smith warned again in an editorial titled “Is the Bear About to Pounce?” and pointed out that the divergence  of the Dow Jones Transportation Average (DJTA) from the  Dow Jones Industrial Average (DJIA) has grown.

The short-term trend of the DJTA is to the downside, yet the short-term trend of the DJIA is to the upside.

tradestops

The benefit that Tradestops offers investors is a Stock State Indicator of specific shares that suggests price levels for rising trailing stops as the markets rise.

Dr. Smith also wrote in last week’s editorial:  “No matter what happens with the markets, however, I’m not worried. I’ve got my stops in place. I know what I’ve got at risk and I’m comfortable with it. Could something go terribly wrong? You bet. That’s what my stops are for. They’re like having your seat belt on in the car.

“On the other hand, could something go terribly right? Absolutely! The entire summer has seen the stock market climb a wall of worry to new all-time highs. Just today we saw stronger than expected job creation. Upside surprises are always a possibility.

“My stops protect me on the way down, but they’ve also been moving higher and capturing greater profits on the way up. We should never forget that trailing stops are just as important for “unlimiting your upside” as they are for limiting your downside.”

Warnings of a Wall Street crash lead us to other important questions.

Will other stock markets fall in tandem with the US?

Will other stock markets rise as investors pull out of the US and invest in other markets.

Whatever the answer, the best place to be is still in good value markets.  The best strategy is still to use math based financial news to reveal good value and to invest equally in good value markets.

Trailing stops is an additional way to protect again a global secular stock market slide.

Pi uses math to reveal the best value markets.  Pi also uses math at Tradestops.com to see the momentum of these good value markets.

For example, we can see that all the ETFs in the Pifolio have green SSIs (Stock State Indicators).

The Stock State Indicators at Tradestops.com act as a full life-cycle indicating the health of your stock. They are designed to tell you at a glance exactly where any stock stands relative to Dr. Smith’s proprietary algorithms.

What this signal indicates is the current health of the stock (performing well, or in a period of correction, or stopped out).

The SSI will tell you one of five things:

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Momentum based on the latest 521 days of trading is a key component of the Stock State Indicator (SSI) system.  A stock changes from red to green in the SSI system only after it has already gone up a healthy amount and has started a solid uptrend.

How SSI Alerts Are Triggered

If the position has already moved more than its Volatility Quotient below a recent high, the SSI Stop Loss will trigger.  This is an indicator that the position has corrected more than what is normal for this stock.  It means to take caution.

Below are the Major and Emerging market Pifolios that we track at Tradestops.com.

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Click on images to enlarge Equal Weight Good Value Developed Market Pifolio.

All the ETFs in the Developed Market Pifolio currently have a green SSI.  This is also the case for the Good Value Emerging Market Pifolio below.

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Good Value Emerging Market Pifolio.

We do not know when the US market will fall.  We only do know that it will.  We also do not know if, when the US market corrects, global markets will follow or rise instead.

The fact that the Pifolios are invested in good value markets reduces long term risk.

Additional protection can be added by using trailing stops based on the momentum of each stock in the Pifolio.

Take for example, the iShares MSCI United Kingdom ETF.  This ETF has a green SSI at this time.

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iShares MSCI United Kingdom ETF (Symbol EWU)

Pi purchased the share at $31.26 and it is currently at $34.43 and rising.  Tradestop’s algorithms suggest that if the price drops to $31.69, its momentum will have stopped and it is trading sideways.  The stop loss price is currently $29.86.  If EWU continues to rise, both the yellow warning, and the stop loss price will rise as well.

There are numerous signs that the nine year US stock market bull will end.  No one knows for sure when or how severe the correction will be.

When the bear arrives, what will happen to global and especially good value markets?  We do not know the answer to this question either.

What we do know is that the equally weighted, good value market Pifolios have the greatest potential long term and that math based trailing stops can be used to protect against a secular global stock market correction when it comes.

You can learn how to use Tradestops.com to improve investing discipline.

Gary

(1) www.nytimes.com: Wells Fargo, awash in scandal, faces violations over car insurance refunds

(2) www.nytimes.com: When brokers want to move your money out of a very good thing

 


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