Much truth is behind the often-made point that the majority of investors tend to exhibit exceptionally bad timing.  So, we have come to recognize the value of contrary indicators as they help to weigh in on the decision making process.  The opinion that matters most is the market's opinion, which is why we stay attentive to market direction.

Recognizing that a few mutual funds (in the growth category) she has owned since July of 1998 have really rebounded impressively from their March 2009 lows, my mother decided to call me up in recent weeks to discuss matters.  She pointed out that she did not panic and sell at the absolute "worst" time, but that she felt very fortunate to have seen such a great improvement from the lows, and so she was considering taking a good portion of the money out of those funds now to eliminate the chance that another downturn could wreak havoc on her retirement nest egg. 

Mom is still a big fan of CDs and Money Market funds which are guaranteed, but back in 1998 she was suddenly compelled to get more aggressive.  If memory serves well, she went to a free luncheon or dinner and heard a convincing presentation from a person about some well-recognized mutual funds with an excellent track record. As contrary indicators, I felt her decision to sell could be almost as bullish an indicator as her decision in 1998 to buy those funds was a bearish indicator.

I had decided, years earlier, that I was not going to go with funds that were bound to produce near "average" returns. I would use the investment system described in the book "How To Make Money In Stocks", and recommend that my clients use it too, because it offered a real chance at "above average" returns.  But, I was not strongly opposed when she wanted to buy the funds, because I believed that she would stick with them for a long time, allowing them to do what they historically have done.  She did stick with them, but they have not even kept up with guaranteed CDs or Money Market funds. And 11 years later, she is stuck with losses as those funds have not kept pace with their historical performance. I understand that a lot of investors who might be reading this newsletter are in a predicament much like my mom's.  Reevaluating certainly makes sense!

PICTURED 1 : The IBD Mutual Fund Index has rallied +64.4% from its March 2009 low.

There is no simple way to reassure those who would still say that investing in individual stocks is "too risky".  At least with a disciplined approach to limiting losses at 7-8% in individual stocks, investors should be able to spare themselves from suffering terrible setbacks like most fund investors endured in 2008.

RETIREMENT ACCOUNT CONVERSIONS & MANAGEMENT
A recent trend we have seen is that investors with Traditional IRA accounts have been converting them to Roth IRA accounts. There is the long-term advantage that, at retirement, withdrawals from a Roth IRA are not taxed as income, but there are consequences to converting which may likely impact your tax liability in the immediate term.  There were some pundits earlier this year suggesting the conversions be made when valuations were low and the immediate impact was less substantial. 

Contact us if you may have an interest in converting your IRA, or if you simply need to get a better plan in place to manage your retirement portfolio in a proactive manner using the investment system.  Whenever you have good fortune of landing big winners, it is nice to keep those gains working for you instead of sending a big chunk of them off to the IRS for redistribution as the policymakers see fit.

A LOOK AT MARKET BREADTH
A number of loyal readers have appreciated and commented on my past references to the Advance/Decline lines for the major exchanges, so I am including a current chart which illustrates the weaker action in the Nasdaq overall. Note the line's downturn since October, which helps explain why many sell stop orders went off in recent weeks -while more stocks have been falling, instead of rising.  The NYSE Advance/Decline line (not shown) has been holding up better.

PICTURED 2: The Nasdaq's Advance/Decline line showed a positive bias for many months, but turned uglier in October and has yet to improve.