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Howard Marks of Oaktree recently wrote about simultaneous problems in the market and what happens: “Markets usually do a pretty good job of coping with problems one at a time. When one arises, analysts analyze and investors reach conclusions and calmly adjust their portfolios. But when there’s a confluence of negative events, the markets can become overwhelmed and lose their cool. Things that might be tolerable individually combine into an unfathomable mess whose extent and ramifications seem beyond analysis. Market crises are chaotic, not orderly, and the multiplicity and simultaneity of contributing causes play a big part in making them so.” As I have mentioned before, when the economy becomes fragile, just about anything can become a trigger. So many countries are in crisis right now in Europe. Take a look at the chart below from the St. Louis Fed. The spike up on the far right shows foreign official and international accounts pouring money into the US Fed. The amount is much greater than during the last credit crisis in 2008.  We know they aren't loading their money into the US Fed because they are getting a good return from interest. They must feel there are going to be problems elsewhere they are trying to hide from. What do they know that they aren't telling the rest of us? These are huge institutional investors! John Mauldin, who writes a weekly newsletter to an audience of 2 million, said that people should be increasing cash within their portfolios and not buying long only mutual funds. He believes you should be using fund managers that are nimble, because "in the next crisis, opportunities to buy assets on the cheap will grow." Our entire objective at PivotPoint is to be exactly that. . . nimble. When we take a losing position, get out of it quick so we only lose a little and wait for the next opportunity. We want our entire portfolio intact and ready for the next opportunity to "buy assets on the cheap". Please go to the Briefing Room to see exactly what we think of the most recent developments in the market and what we are doing about it with YOUR portfolio. Have a great day!! John Norquay CEO PivotPoint Advisors |
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Monday, September 12, 2011
Preparing For A Crisis
Monday, September 5, 2011
Labor Day Update
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Europe is wishing their market was celebrating Labor day. Unfortunately, instead they are experiencing labor pains. Germany is down about 5% as I write this. Chancellor Merkel has just been pummeled in regional elections. I guess the fan base isn't happy at all how their leadership has handled the european turmoil or maybe they don't like the options presented to them by their leadership. I think people are tired of the same solutions for the same problems. The downturn is being led by the banks being sued by the US Government, while, at the same time, banks in general are releasing under performing numbers. The S&P 500 index futures are following suit, down over 2% in anticipation of a negative market open Tuesday morning.  I have said a number of times how the market inteprets even bad news in a good way when the overall cycle is up. Bad news on the down side of the cycle gets interpreted very badly. I think we all know the market goes down faster than it goes up. It is my humble opinion the market is preparing for another recession. We at PivotPoint have protected your portfolio from this carnage. If you know of anyone who might like our approach, please forward this email to them using the "Forward To A Friend" link on the right side of this email.  The employment numbers released Friday are a strong indicator our economy is not experiencing recovery. Our employment numbers are about the same as they were in 2000. Unfortunately there are about 30 million more workers in our economy than there were in 2000!!! I love the saying "Figures can't lie, but liars can figure". Economists can try to put lipstick on a pig, but those who know what a pig looks like, can still clearly see it is a pig. In our briefing this weekend, Don shows how the market performed exactly how we thought it might this week in an illustration containing a portion of last weeks briefing. This is yet another indication that the market speaks, if you know how to listen. There is a lot going on in the world today. Keep up to date with our response. Read the briefing here. And please, pass this email to a friend!!
Have a great day!!
John Norquay CEO PivotPoint Advisors |
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Saturday, August 20, 2011
Hurricane Irene
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Hurricane Irene has left the building. The power is back on in Cape Cod and Don is working his way back to normal. It has been one thing after the other. Once the power came back on, we found the servers were down. I guess they must be located on the east coast also. One of our most volatile markets of all time now heads into September, one of the most volatile months. This could get interesting. The briefing was written prior to the storm. You will find it enlightening. Please check it out.
Have a great day!!
John Norquay CEO PivotPoint Advisors |
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Monday, August 8, 2011
Meaningful Risk vs. Reward Measurement
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With today's market volatility mirroring the volatility around the great depression, I thought I would re-cover our thoughts on risk. Many Advisors and Brokers use the standard measuring tools, such as Sharpe Ratio, Alpha, Beta, Standard Deviation and such. The problem with these measuring sticks, is that normal people don't understand them, rendering them useless to the normal human being. I have found that what keeps people up at night, is when their current portfolio value is less than the value it once was. It seems that most people know what their portfolio value was at its high and they know about where it is today. The difference between the high and today's value is called Draw Down. When draw down becomes too large, people become uncomfortable. Max Draw Down is measured from your portfolio's highest point, to its lowest point within the time period being assessed. This tells you how much the person who started on the absolute worst day (the high) would have lost on the day the portfolio hit its lowest low. Current Draw Down tells you how far from the portfolio high you are at today. The following table gives you these statistics for our Moderately Aggressive Model.
These figures shouldn't be confused with return. This does NOT tell you that we are currently down 3.01% from where we started. What it DOES tell you is that we are down 3.01% from the portfolio HIGH. Another table will help explain this.
First of all, Normalized Return is simply making the beginning point of the portfolio and S&P Index equal to make a simple comparison. You can see I normalized them to $100. This simply means that if you had invested $100 in the model, the numbers in the table would depict what actually happened to your portfolio. You can see that the portfolio went from $100 to $103.04 before our current draw down of 3.01% which puts us almost at where we started. Had you been able to invest in the S&P 500 index, your $100 would have only gained to $101.53 before it Drew Down to $83.66 which represents a Current Draw Down of 17.61%.
I hope this helps you understand why we manage money in the way we do. We don't care how much the market goes down, we want to limit the draw downs within our portfolios. However, we want to do this without limiting the portfolio's upside when the market turns around. If we do this effectively, we won't have very far to go before we break even and begin to reach new portfolio highs in the next market recovery.
For Chris' sake, I've updated and have embedded the current Moderately Aggressive Model's chart. This is a nice picture of the information in the above tables. Our value proposition is the blue space between the S&P 500 and our portfolio value. As of yesterday, Friday August 19th, our value over the S&P 500 index is 16.29%.
VISIT THE BRIEFING ROOM!
Everything we do is designed to give you the comfort of having your money in the market, without worrying about losing it in the next recession. To that end, we intend to be as transparent as possible about what we are doing with YOUR money and why we are doing it. The briefing room this week shows you one of the many email conversations Don and I have each week. He warned of a significant "trap" that was occurring the day before the market gave up another 6%. Reading this briefing each week should give you comfort knowing that someone is watching over your portfolio EVERY market day and acting according to your Risk Profile. Please visit the Briefing Roomand enjoy!
Have a great day!!
John Norquay CEO PivotPoint Advisors |
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Thursday, August 4, 2011
Special Video Update due to Market Crash
Hello all,
Most of you may know that the market has been on a major slide this week culminating in today's 512 point loss in the Dow.
First of all, I would like to reassure you that we are not participating in this market slide. Our first priority is to protect you from large market downturns.
In the spirit of transparency, we thought you would appreciate a word from our Chief Investment Officer, Don Miller. You can watch a 14 minute video Don prepared this evening to inform you of our position in the market right now and give you some insight into what we are thinking may happen next. The video can be seen by clicking this link: http://tinyurl.com/8-4-
We appreciate your trust and will keep you posted as this market develops.
John Norquay
John Norquay
Monday, July 18, 2011
Come Out Shooting
You can find this week's update in The Briefing Room
Later this week could be interesting in Europe. Within the last few days Greece seems to have changed their strategy. Instead of acting like the ugly step-child that can't control their finances, they seem to have realized that there is power in the corner they have backed themselves into. Greece has borrowed themselves into a position that they can't pay their way out of. They can't simply print more money to pay their bills (like us) since they have an agreement not to do so as being part of the Euro Zone. Their debt is poorly rated causing its yield to be over 20%. Borrowing costs for them are outrageous. The EU would like them to conform to "Austerity Measures", which means suck it up, quit spending, and become responsible. If you watch the news, you know the Greek people are highly opposed to that idea. The Greek Gov't owns many businesses. The EU would like them to sell a bunch of these business and pay off debt. This is where it gets interesting. The Greek deputy finance minister just announced they aren't going to be selling anywhere near the amount of assets the EU has requested. At the same time, the Greek Prime Minister sent the EU a public letter stating Greece has done all that it could and that the EU should meet in a closed forum, with no damaging press leaks, and emerge with a strong, unambiguous message.
It seems they are going to come out of their corner - shooting. They know that if they default on their debt, dominos will begin to fall. The potential for a Europoean debt crisis similar to the one in the US could emerge whose contagion could / would spread to the rest of the world. The EU may need to begin printing money in a fashion that would make Bernanke jealous. The EU have scheduled an emergency meeting this Thursday. We will soon see how the new Greek strategy plays out.
As I said last week, the market reflects the economy. There are many economies in Europe and around the world that are walking a thin line. The good news for us is that all this pushing and shoving creates supply and demand in the market, which is trackable. We are doing that and changing your portfolios as needed.
Please check out the Briefing Room update to get an idea of our thoughts for this week.
Have a great week
John Norquay
Wednesday, July 6, 2011
Market In Transition?
The briefing room was updated on Saturday, but due to Holiday festivities, I'm just now letting you know of it (it's my excuse, and I'm sticking with it).
The last briefing (June 24th) stated "While we remain defensive at this time, we’ll be watching closely for either (1) further oversold conditions for another short-term trade or (2) a turn on the hourly and daily cycles
which could spark a longer lasting up cycle."
This week's briefing outlines some of the events last week and the difficulty that we will sometimes have during market transitions.
As we have mentioned numerous times, investing is a game of patience. The market never goes straight up and it never goes straight down. Often times when it changes over all direction, overzealous buyers (in a market transitioning from down to up) will cause the price to go up much quicker and steeper than it will move over time. We as patient investors choose not to "chase" the price when it is out of its normal boundry. A well trained dog will not chase cars due to the excessive risk to his health. We will not chase excessive price due to the excessive risk to our portfolios.
Last week was the end of a month and a quarter. We will quickly find out if this change in price direction is for real or simply window dressing created by mutual fund managers.
Monday, June 27, 2011
A Successful Week
Last week will go down as another success. Being a person who has grown up in the investment industry, this has a strange sound to it. Most brokers would tell their clients that what happens in any given week doesn't matter. After a down week you may hear "You don't need to spend the money for another 15 years, so just hang on and stay the course." While at the same time, after an up week you may get the feeling from a broker that YOUR PORTFOLIO had an up week due to their skill.
We come from the approach that if you watch your pennies, the dollars will take care of themselves. We pay attention to every hourly move of the market, knowing that if we make the proper decisions with this "pennies", the weeks and months "dollars" will take care of themselves.
The account we are tracking that reflects our Moderately Aggressive model is below. Recent successes have increased our portfolio while the market is trying to make a new bottom. Our value (the blue area) ended last week at the highest point since we began tracking in February, nearly 7.5% above the S&P 500.
I don't want to beat a dead horse, but our absolute return approach to investment management tries to avoid losses while not giving up the opportunity for gain. So far, so good.
I get to share with you the results of our approach, while the briefing room discusses the inner workings. In other words, I get to show you the completed car, but you can go to the briefing room to look under the hood.
Have a great week!
Saturday, June 4, 2011
Market Mood Change?
Hello Everyone,
I'm going to keep it short and sweet this week. The update says it all in the briefing room.
The mood of the overall market seems to be changing. Remember my email a month or two ago when I mentioned June may be the beginning of a rough market? QE2 is coming to an end in a few weeks and the market tends to react ahead of the actual event. The update explains the market change.
We are preparing for my daughter Chelsea's High School graduation party that is tomorrow. It's a beautiful day to be outside, even if it is to work.
Hope you all enjoy your weekend.
Monday, May 30, 2011
Sequences and Position Sizing
Hello All!
The weekly briefing has been updated.
We hope you all are enjoying (have enjoyed) the extended weekend and Holiday. We certainly appreciate all those who have given their lives and are willing to give their lives so we can live in a land of Liberty.
The weekly briefing has been updated.
Sequences:
In prior briefings, we have referred to the term "sequence". Many have asked what this means, so I've decided to summarize for all. But first, let me explain the environment in which we work.
Since there isn't such a thing as "perfect" in the investment arena, when we are wrong and take a position that is a losing proposition, we want to get out of it quickly so it doesn't do any damage to the portfolio.
We expect to having winning positions only about 60 or 70% of the time. Our desire is to let the winning positions "run" and gain more on average than the positions that lose. If our winning positions gain 3% on average and the losing positions only lose 1%, then we only need to be right 1/3 of the time for our portfolios to break even. In order to accomplish this, we only take new positions when we know exactly where we will get rid of them if they go bad. For instance, if the market bottomed at the same point (floor) a couple times, then we know the buyers like that price and become stronger than the sellers, thus causing the price to start going back up. We call this price point a Support Area. If we always buy near support, then we won't lose much if, after taking a position, price turns and falls through that support area.
Position Sizing:
Sequences fall within the larger category of position sizing. Since we work with market cycles, and are interested in capturing as much of the upside of a cycle as possible (so our average return for a winning position is increased), we must buy as close to the beginning of that cycle as possible. Unfortunately the beginning of a new cycle is where the greatest possibility of being "wrong" is. The good news is that cycle bottoms (the place where a new cycle starts) is also a support area, so when we take a position here, we will only lose a little if we are wrong. An effective sequence will place only a portion of our portfolio into the market at this early position. As we get more confirmation that we are truly in a new upward cycle, we will take another position and upon even further confirmation will complete the position. Through this "sequence" of buying three different times to fill one position, we decrease the average loss percentage when we are wrong without giving up much return when we are right.
The more aggressive your Risk Profile the larger position you will receive on the early purchases.
The same thought process occurs when we believe a cycle top has occurred. We won't sell the entire position in case we are wrong and price continues to rise. But at this point, the amount of the position that gets sold, "locks" in those gains, while the rest of the position remains invested and continues to add gains to our portfolio.
I hope this has helped. Let us know if you would like further clarification. Have a great week and enjoy the Briefing Room Update.
Monday, May 2, 2011
Bin Laden Effect?
In the past, everyone is used to having nice gains for a period of time and then all of a sudden the market takes them back. In our approach, we want to keep those gains, and realize that sometimes by cashing in those gains we may not sell at the very top. But over time, when you add up all these 1 or 2 or 3 percent gains, all of a sudden you have a nice ANNUAL gain and hopefully with a lot less risk or losses in the portfolio.
There is usually a trigger that causes these sudden pullbacks in the market. This morning I read an article that says the death of Bin Laden could be that trigger. The quote: "The irony of bin Laden’s demise is that it could cause US markets to sell off as an act of caution. Good news is supposed to travel fast. For the financial markets, the news about bin Laden is not good."
We don't speculate on fundamental data like news articles and earnings reports. Instead we try to keep that "noise" from distracting our monitoring of what people are actually doing with their check books.
View the update in the Briefing Room.
John Norquay
Monday, April 18, 2011
Dodged A Bullet
Last week, as the markets were consolidating, we slowly edged out of the market to where we are holding only a small position. One of Don's comments in the Briefing "we continue to anticipate a consolidation mode with erratic short-term swings" . . . ."we chose to play defense this week by scaling down many equity positions".
This morning the Dow opened DOWN 175 pts due to the Standard and Poors downgrading the U.S. debt to negative from stable.
We have dodged another bullet and I'm sure we will start scaling us back in when the "technical picture becomes clearer over the coming weeks."
Please visit the Briefing Room for more details.
Monday, April 11, 2011
Week of Consolidation
Hello all,
Don added his comments and insights for the upcoming week in the Briefing Room.
Last week the market did exactly what we thought it might do. . . digest some of it's prior gains.
The market can digest gains (go sideways with only small pullbacks) in two different ways. It can be nice and methodical going mostly sideways with only small pullbacks with low volatility which is actually healthy and points to continued gains. Unhealthy consolidations will have increasing volatility and large short swings in price which will break key support levels. Many times these types of consolidations point to larger downturns in the near future.
We are moving into earnings season with this current consolidation. It shouldn't take long to determine which category this consolidation will fall within.
For those of you who haven't watched Don's blog at www.DonMillerBlog.com, this last post and video ranks as one of the best I've seen.
I will be contacting those of you who haven't completed new Risk Profiles this week.
Have a great week!
Don added his comments and insights for the upcoming week in the Briefing Room.
Last week the market did exactly what we thought it might do. . . digest some of it's prior gains.
The market can digest gains (go sideways with only small pullbacks) in two different ways. It can be nice and methodical going mostly sideways with only small pullbacks with low volatility which is actually healthy and points to continued gains. Unhealthy consolidations will have increasing volatility and large short swings in price which will break key support levels. Many times these types of consolidations point to larger downturns in the near future.
We are moving into earnings season with this current consolidation. It shouldn't take long to determine which category this consolidation will fall within.
For those of you who haven't watched Don's blog at www.DonMillerBlog.com, this last post and video ranks as one of the best I've seen.
I will be contacting those of you who haven't completed new Risk Profiles this week.
Have a great week!
Friday, April 1, 2011
Escaping The Dreaded Pull Back
Hello all,
As the market approaches the high it established on February 18th, all of you have been able to get a feel for what Don Miller brings to the value of your portfolios. Instead of losing around 6% of your portfolio and then spending the last month and a half trying to get back to even, you instead have been gaining ground above your portfolio high set February 18th.
We saw the set up that led to the correction and avoided a majority of the decline. He also recognized the set up that allowed him to buy back in near the bottom of the correction which has allowed us to enjoy new portfolio highs.
Please visit the Briefing Room for this week's update. Don explains some of the things that happened within the portfolios this week and what he is thinking may happen next.
Also, for those of you who haven't checked out Don's blog, goto http://donmillereducation.com/journal/ . You will be pleasantly impressed.
Have a great week.
John Norquay
Friday, March 18, 2011
A Proper Sequence of Trades
You can see that we like to let the winners run and cut the losers short. Over time, this approach has potential to pay off handsomely while doing everything possible to mitigate large pullbacks (risk) in the portfolios. We don't pretend to know everything or always be right, but when you limit the losses when you are wrong and maximize the gains while you are right, the long term tends to turn out well.
Please note the percentages listed vary based upon your risk classification, but this gives you an idea how we attempt to mitigate risk without limiting gain.
The following chart depicts how we are protecting your portfolio while, at the same time, trying not to limit potential gains. A majority of the activity in our accounts will surround the pivotal areas of the market. We take new positions when we aren't far from a support level where we know we have the least amount of risk. When we are right and we get further confirmation of a new positive cycle, we will add to our positions. If the market decides to go the other direction, we know exactly where we will get out and save the portfolio values.
S&P 500 (IVV etf)
We can begin on the left side of the chart. Although Don wasn't officially the CIO yet, he suggested I take a position on Dec. 8th of last year after a brief market consolidation.
- You can see this initial position had a nice run and had gained over 9% before sold in this last consolidation.
- Once the market corrected about 2.5% we scaled in with another position, knowing there was a support level near by where we could sell if this consolidation was really the beginning of a larger correction.
- Scaled in again at 133.64 since the correction started showing signs of a short life with prospects of more gains.
- Immediately the next day, March 7th, indicators turned negative and began pointing to a possible deeper correction, so we began scaling out at 131.40.
- Confirmation of further deepening of the correction so we scaled out again at 130.73 on the 10th.
- Expecting further decrease in the market, sold the balance of the S&P500 position on the 11th at 130.98.
By doing this we missed a 4.5% decrease in the market over the next few days.
New support levels developed at this point. Remember support levels are areas we can buy in the event the market begins going up while at the same time we know exactly where we will get out if things go wrong. These support levels create excellent potential for a small amount of risk.
- 7 We purchased a 39% position at 127.51. Gives a 6% return if the market simply returns to it's high 2 weeks earlier.
- 8 Short term expectation decreased so we lightened the position by selling 20% which represented about half of our position.
- 9 Immediate market improvements occurred so we increased positions by adding a 32% position so the total portfolio is now about half S&P 500.
Monday, March 14, 2011
New Video for the Briefing Room
The weekly briefing is up. Don has added a video which adds another dimension of understanding to the Briefing Room. We are looking forward to your feedback.
For those of you receiving email confirmations, you don't need to reply or respond to them. They simply let you know a trade has occurred in your portfolio.
Have a great week, and I look forward to hearing from you.
Mom's funeral was Wednesday last week, most visitors were gone by the end of Thursday and I am now catching back up. Thanks for all the cards, emails and prayers. You have no idea what it means to receive stuff like that. You guys are awesome!
