Good commentary this morning by Jeff Saut of Raymond James. Mr. Saut is well known for his focus on risk management. Although he is still confident that the economy will improve from here (and stocks should follow) he recognizes that last Wednesday’s 90% down day (with failed subsequent rally) means investors need to be particularly aware of the potential for more selling (via RJ):
“Last Wednesday (-279.65 DJIA) was a 90% Downside Day, meaning 90% of the total points lost, and 90% of the total volume came on the downside. Typically, such Downside Days are followed by two- to seven-session “upside” rebounds. Clearly, that did not happen, bringing into view the SPX’s April intraday reaction “low” of 1294.70. Violating that would imply 1250 and then 1230. While I don’t think that is what will happen, the stock market doesn’t care much about what I think. Hence, the SPX had better hold above the April reaction “lows” or we will be forced to raise even more cash. Remember what Benjamin Graham said, “The essence of investment management is the management of risks, not the management of returns. Well managed portfolios start [and end] with this precept.” We continue to invest, and trade, accordingly …”
Source: Raymond James
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.