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Sticking With Stocks in Bear Markets

Comment posted to “The Danger of Getting Out of Stocks During Bear Markets,” by Charles Rotblut, CFA, in the May 2014 AAII Journal.
I refer to an article written in the January 2009 AAII Journal by Dale Domian and William Reichenstein called “Stocks for the Long Term: Why Prospects Are Rosy.” This article said “stay the course”—do not bail out of stocks. This article saved me over $100,000! I never sold any stocks and kept my allocation the same, and now I’m up over 200% from the February 2009 lows thanks to AAII’s article. Sometimes the best thing to do is nothing!
—Richard Abbott from Florida

This is an informative and well-written article on the perils of getting out of stocks. It seems like it may have a touch of confirmation bias in it, though, in that you chose a panic scenario for getting out of stocks. A number of financial services provide systematic, non-panic-driven approaches to timing the market, on the theory that avoiding most of the bad times is worth giving up some of the good times. It would be interesting to see the current three scenarios compared against a more optimistic fourth scenario that times the market in a systematic way—perhaps using a moving average crossover criterion or some other non-proprietary mechanism. If this fourth scenario also comes out inferior in practice to the buy-and-hold and buy-and-rebalance approaches, I think your conclusions against timing the market would be much stronger and persuasive.
—John Hawk from Massachusetts

New Rules for IRA Rollovers

Comment posted to Briefly Noted, “New Rules for IRA Rollovers,” by AAII Staff, in the May 2014 AAII Journal.
I would appreciate further clarification, as this comment from the article seems like it is not correct: “The key is that you move the actual account, and don’t move funds from one IRA to another. (If that sounds like a technicality, realize it is a big one.)”
— James W. from California

Charles Rotblut responds:
The tax rules are designed to prevent people from taking advantage of the 60-day window to get what is effectively a free short-term loan. I added the part about moving an account from one broker to another to clarify what is and what is not allowed.

Managing “Pockets” of Assets

Comment posted to “The Three Pockets Approach to Investing,” by Timothy F. McCarthy, in the May 2014 AAII Journal.
I highly endorse the idea of “pockets.” I have used it for years. I call them “buckets.” Each pocket, or bucket, needs to be monitored and managed differently.
—Jim Grant from Ohio

Screening for Cash Flow and Value

Comment posted to “Strategic Value Investing: Screening for Cash Flow and Value,” by Robert R. Johnson, Stephen M. Horan and Thomas R. Robinson, in the May 2014 AAII Journal.
Excellent article, thank you. Please keep more like this coming. It is this kind of fundamental analysis that separates investors from speculators. It is also this kind of publishing that separates investor education from sales hype. Thanks for holding true to your charter at AAII. It is when I read articles like this that I once again consider gifting a lifetime membership of AAII to my children.
—Richard Thomas from Florida

Agreed, excellent article. I’ve even successfully input the screen into SI Pro. There was one custom criterion that I thought was missing in Table 1: CumulativeNI > 0. Otherwise, negative values of NI in years 4 and/or 5 would produce unintended outcomes. The advice about doing due diligence is spot on. Some of the companies passing the screen looked to me like real dogs when viewed in light of other measures. Others looked attractive enough for further scrutiny.
—Walter Gardner from Tennessee

Tulipmania Correction

Comment posted to “Peculiar Facts From 500 Years of Finance,” by Timothy Knight, in the May 2014 AAII Journal.
Timothy Knight wrote an interesting article. However, he should fire his fact checker. He refers to the bubonic plague in the Dutch Tulipmania section as being caused by a virus. Bubonic plague is actually caused by the Yersinia pestis bacterium, according to the Medline Plus website. Other than that nearly fatal error, I greatly enjoyed the article.
— Jeff Spartz from Oregon


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