Dorsey, Wright Client Sentiment Survey – 1/20/12

January 20, 2012

Here we have the next round of the Dorsey, Wright Sentiment Survey, the first third-party sentiment poll.  Participate to learn more about our Dorsey, Wright Polo Shirt raffle! Just follow the instructions after taking the poll, and we’ll enter you in the contest.  Thanks to all our participants from last round.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions!  Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients.  It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good!  It’s painless, we promise.

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Cut Your Losses and Let Your Profits Run

January 20, 2012

Carl Richards has a great piece in the New York Times on why people delay correcting financial mistakes.  Most of the time they are trying to avoid regret or avoid recognition of a poor decision/loss.  He writes:

Being wrong isn’t fun. When there’s a problem, it’s often because we’ve made a mistake. We’ve been conditioned to believe that making a mistake is something shameful. Embarrassed, we tell ourselves stories to avoid recognizing that we’re in trouble. We tell ourselves that things aren’t actually that bad. We tell ourselves that things will get better. We even look for others to blame.

No one likes losing. For most of us, the pleasure we get from gain, like our investments doing well, is dwarfed by the pain we feel from loss. While this pain can be chronic from a continuing issue, it becomes acute when we decide to face the facts and do something about it.

…big mistakes almost always start as small mistakes. Then we delay doing something about them, and they grow until we find ourselves in a hole that we thought unimaginable just a short time before.

By the way, psychological studies verify that we feel the pain of loss 2x-3x more than we feel the pleasure of a gain.  It’s not your imagination.  Losses are definitely hard to take.

The most important reason that we use a systematic investment process that ranks everything using relative strength is so we have an objective guideline to make portfolio changes.  Did a stock fall in the ranks?  Then we cut our losses and out it goes, no questions asked.  Is a stock or asset class still ranked highly, however toppy it might feel to us at the moment?  Then it stays in the portfolio and we (perhaps reluctantly) let our profits run.  On any one transaction we never know if we made the correct decision–that’s something you can only find out in hindsight.  But the discipline of a systematic way to cut losses and let profits run gives you a much better chance of coming out ahead than caving in to your emotions at every turn.

Successful investing, whether you use relative strength or value or any other method, is more about temperament and discipline than analysis.

HT to Abnormal Returns.

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Sector and Capitalization Performance

January 20, 2012

The chart below shows performance of US sectors and capitalizations over the trailing 12, 6, and 1 month(s).  Performance updated through 1/19/2012.

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