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Forget Buy & Hold – Here are 3 Easy Steps to Actively Manage Your Investment Risk


An important debate is still unfolding amongst investors and advisors – Is Buy & Hold dead? Does it really still make sense to buy a stock or ETF and ignore statistically significant signs that risk could seriously threaten your returns? While some say “Don’t do anything, just stand there!!” others, like, argue that technical indicators are an effective way to continually monitor your equity investments be ready to respond to risk. The trick is how to most easily and effectively monitor a broad portfolio and quickly respond to the most relevant statistical trends.

Buying and then holding (ignoring all market trends, often until your personal situation dictates the need to sell) is an investment strategy that worked when the economy was stable and consistent growth was the norm, but that was then… Now, we investors face a range of threatening factors, such as: historically low interest yields, unemployment, housing sector troubles, slowing growth in foreign markets, governmental gridlock, and the list goes on.

US stocks are now less than 10% away from its historic closing high achieved in October, 2007. The CBOE’s Volatility index (VIX), a.k.a. the fear index, is over 15, which is up 3% over the last 5 days, but down 35% from exactly a year ago. SmartStops’ Risk Barometer Index (SRBI), which tracks statistical market and sector risk based on triggered exit signals, is at .91 for the S&P 500, recently moving below its 100 day moving average. The financials SRBI at .70 is one of the few sectors that has also moved below its 100 day moving average.

Let’s not yet forget the unpleasantness experienced only last year, where the S&P 500 finished the year only a point away from where it started, with its highest point up 8% and lowest level down 12%. Going back further than last year, shows much greater volatility that erased profits from unprepared investors and advisors.

The bottom line: if you have stock or ETF investments, don’t ignore them. Economists are sending a consistent message that the economy and equity markets face a tough uphill battle with increased volatility. If you want to earn and protect profits, keep a vigilant eye on your stocks and ETFs. Make sure you are always prepared to respond when abnormal volatility is present and a downtrend can be detected.

Here are 3 easy steps you can take with to maintain continuous risk perspective on your portfolio and be ready to take action if needed:

1) Register your portfolio with to be continuously monitored. continually monitors member portfolios, sends alerts or places sell orders through partner brokers when a position displays significant risk of further decline. SmartStops exit triggers are calculated each market day using sophisticated analytics that dynamically adjust based on technical market factors, historic trends and optimal exit methodology.

2) React to statistically significant risk probabilities with automated alerts.
Once you get a SmartStops RiskAlert, your next step is to take a look at related market news and data. Consider alternative steps you might take such as: selling all or part of a position, hedging with options, buying more (sometimes the market overreacts!), or talking to your advisor.

3) If you are ready to sell, use SmartStops BrokerLink to automatically and immediately lock in profits. has partnerships around the world that integrate the intelligently adjusting exit triggers into leading broker platforms so continuous and effective sell triggers can be easily maintained. The latest broker to introduce this risk control service integrated with a trade platform is TradeKing.

So, stop reliance on Buy & Hold! If you don’t make the effort to manage your investments when volatility starts to increase and momentum goes negative, you are making the choice to participate in a downtrend that can be avoided. Why participate in major downtrends when you can take action and improve your profit or minimize loss? Services like provide an easy, effective way to manage your own investment risk.

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Stocktouch Issued A Buy Rating From

Stocktouch is an amazing app designed for both the iPhone and iPad by Visible Market Inc. According to Visible Market, the app concept was developed from a need to bring clarity to financial information, “we found the way financial information is typically presented to be confusing: we felt we could do something more immersive than index summaries and line charts.” I think they got it right.

I tried it out on my iPhone and it was just like having the market at my fingertips. Stocktouch brings up to the minute real time financial data and information together in one interactive format. Designed by a gamer, Stocktouch includes nice sound effects and is visually pleasing, making the experience for the user quite exceptional. The technology platform is the first of its kind to apply a video game engine to visualize statistical data, which is combined with a proprietary compression technology that transmits information at 20x the speed of comparable apps allowing the application to deliver up-to-the-minute market trends and numbers through a visually-intuitive, game-like, iOS-native interface.

As an investor, I found most of the data that I might follow on a particular stock to be offered in this app. I particularly liked the heat map that is initially divided into 9 sectors which show the current state of the market visually by spanning red or green depending on the market conditions. Shades of red indicate stocks are losing value while shades of green indicate stocks are gaining in value. Then when one scrolls out it dials down to individual stocks in each sector. You can easily do a search and find a specific stock, scroll through the available information for that stock and then see it immersed back into the sector stocks on the heat map. Another feature I liked was the ease of being able to save your favorite stocks. Then, when you go back to the heatmap, the marked favorites float up above the other stocks in the grid. The heat map is interesting because you can view it from several perspectives, from arrangements in a spiral pattern showing large to small companies, to arrangements ranked by percentage gains, volume, market cap or alphabetically. Another great feature on the Stocktouch is the ability to see a sector or individual stock’s previous returns spanning from 1 day up to 5 years. Stocktouch is a well thought out app that provides a plethora of useful information.

It’s hard to find anything that is missing or to dislike about this app. One feature that would compliment the current market data provided is some kind of analytical tool. SmartStops automated risk assessment decision tool might be perfect for this app. provides real time information when a stock is experiencing unusual risk beyond the normal risk of the marketplace and covers both equity securities and ETFs.

Priced at $4.99, this app is a cost-effective purchase. Stocktouch efficiently captures the financial marketplace at your fingertips.

Is The Chinese Consumer A Risky Bet For U.S. Investors And Corporations?

Targeting the Chinese consumer is considered to be a low-risk market bet by many corporations. Wal-Mart (WMT) is one corporation that has been forging into the Chinese marketplace since 1996 and recently showed their continued commitment to investing in China with the announcement of their intent to buy 51% of Yihaodian for an online retail presence. With a population of 1.3 billion people, China is expected to emerge as the largest consumer market in the world by 2020 with half the Chinese population having arrived to middle class status. However, China recently announced a revised growth rate of 7.5% after a seven year stretch of seeing year after year of 8% growth. Couple this with their intention to reduce exports and increase consumer spending, and we are left asking if the market environment has shifted dramatically for U.S. corporations already entrenched in the Chinese economy.

If U.S. companies can successfully navigate through the increased competition coming from within China’s domestic marketplace, the long term upside potential is huge. How can investors navigate the possible risk involved when investing in an emerging market such as China? One way would be to invest in U.S. corporations that are successfully investing in China, while having a strategy to sell during periods of abnormal risk and reinvest when risk conditions have returned to normal.

Many forward thinking multinational corporations have expected the shift away from the export market and towards the Chinese consumer by China’s manufacturers. Invariably, this will lead to increased competition from within China’s domestic borders for U.S. corporations. Wal-Mart has been successful with the Chinese consumer by adhering to their own core mission of saving people money. It obviously resonates well with the older Chinese consumer who is accustomed to saving much of their income and has more recently just started learning to consume. According to recent studies, after being the beneficiary of years of economic reform, the young Chinese have become the consumer with the most spending ability and are becoming the driving force of the Chinese economy. The younger Chinese consumer loves to spend money and tends not to save as much as the previous generation. There is opportunity in all price points within the Chinese marketplace. High prices are often equated with higher quality and many U.S. corporations have successfully raised prices on products sold within China as a marketing strategy targeting the luxury market. Tiffany & Co (TIF) and Coach (COH) are both luxury brands positioned to profit from China’s new, young, rich consumer.

For anyone that has been to China, the visual image of consumerism is often in conflict with many analyst opinions. With China’s rising standard of living, the approaching change in leadership and slowing exports, it’s often difficult for an investor to make the best decision regarding the potential for investing in the Chinese consumer. There are risk assessment tools to help investors manage their portfolio during periods of uncertainty and volatility in an emerging market. One option investors could use is provided by and is a portfolio protection service which provides an investor with risk alerts that identify periods of above normal risk. Another alternative indicator is the SmartStops Risk Barometer IndexTM (SRBI) TM . The SRBI can be used as a predictive indicator as abnormal price movements often precede extended periods of equity and market risks.

For example, if we look at the consumer services sector on the SmartStops Risk Barometer IndexTM (SRBI), the consumer services sector has an SRBI reading of .99 meaning that the current risk ratio for this sector is below the 100 day moving average. An SRBI below 1 infers that the percent of equities in the group experiencing above normal risk is below the 100 day average. A reading above 1 indicates tht the risk is on the rise and the above normal risk percentage is above the 100 day moving average. Note that the consumer services sector risk ratio has been on the decline as the consumer and U.S. economy has begun to recover over these last several months. Now, if we look at the risk chart for Wal-Mart, we see that the first exit trigger in the most recent above normal risk series occurred on 21-Feb-12 at $60.41.

(Learn More At

Although an investor who is invested in Wal-Mart might not want to sell at this point, the fact that the consumer service sector is close to approaching risk above the 100 day average at the same time that WMT is experiencing above normal risk, a stop loss order should be considered to minimize loss.

The Chinese consumer market is not a risky bet for investors that conduct proper due diligence and place well thought out stop loss orders.

Do you want to receive equity risk alerts? Join SmartStops today!

Take The Greek Factor Out Of Your Investment Portfolio

By contributing writer: Rebecca Petcavich

February 23, 2012

Although one may think that they’re not invested in the Greek crisis, many portfolios may hold equity positions and ETFs that could be effected by the European debt crisis.  The European Union is the U.S.’s number one trading partner.

The risk of a Greek default could have lasting consequences here in the U.S.  For starters, U.S. corporate manufacturers that provide export products to Europe will start feeling the pinch of reduced European consumer demand.  A few of the companies widely held in portfolios such as Whirlpool, Nike and Abercrombie & Fitch have already been reporting slower sales in the region.  Reduction in exports could lead to less hiring and investing by many U.S. corporations.  Portfolios could be holding U.S. bank positions, many of which may be heavily tied to the European economy, which could cause a slow down in loan financing and new business projects.  In addition, central bankers are unleashing a flood of money.  The U.S. Federal Reserve has pledged to keep rates low throughout 2014, which impacts retirees trying to get by on interest income from their savings.  The ripple effect to investors from the Greek factor could be costly and come from many sources.

Greece has until March 20th to meet a 14.5 billion Euro debt repayment.  As an investor, how do you protect your equities from Greece exposure risk when it may not be clear which equity positions are being effected?  One approach would be to protect the entire portfolio against abnormal risk or price weakness by placing a stop order per equity position.  The goal would be to enter your stop prices below an expected trading range for each particular equity.  If the stock or ETF falls in price and triggers the stop loss, we know that the stock is experiencing weakness but we often times don’t know whether the equity is experiencing normal or abnormal risk.  There are companies such as which help identify optimized stop loss prices for equities and ETFs by monitoring for risk conditions that are beyond normal conditions of the marketplace.  Investors can be notified in real time by alerts when optimized price points are triggered.

With the recent agreement by the Euro zone for the new €130 billion Euro bailout package, is it time to relax about your investments yet?  Whirlpool (ticker WHR) reported slower sales in the European region in recent earning reports.  SmartStops placed the equity in an above normal risk condition in May 2011 while it was trading at $84.73.  This equity position recently returned to a normal risk state on January 12th at a price of $51.68. WHR is currently trading at $70.90 as of the close of Feb. 23, 2012.

Whirlpool Risk Alert History

While the bailout may succeed, many factors remain that could derail a European recovery, including the Greek government’s ability to abide by the austerity measures imposed by the agreement.  If you choose to stay in the European market during the Greek recovery, it would be wise to protect any investments you make with a well thought out stop order.

Tax Loss Harvesting – using sector ETFs to continue the exposure

originally posted at ETFTrends:
Many financial advisors use low-cost, liquid exchange traded funds in tax-loss harvesting strategies that can offset future gains and cut clients’ tax bills in the long term.

Talking about underwater positions is never fun as the end of the year approaches but realizing losses has a “silver lining,” said Rande Spiegelman, vice president of financial planning at the Schwab Center for Financial Research, in a conference call with reporters Friday.

“The good news is losses can be used to lessen the tax bill and position for next year,” he said.

Realized losses can be deducted from ordinary income by up to $3,000 a year, while any additional losses can be used in future years.

However, investors need to be aware of the “wash-sale” rule. Investors cannot claim the loss if they buy a “substantially identical” security within 30 days of the sale.

This is where ETFs can help out if investors want to keep exposure to the market.

For example, an investor may be sitting on a loss this year on a financial stock, explained Michael Iachini, managing director of ETF Research at Charles Schwab Investment Advisory. The investor can sell the stock and take the loss, but they might miss any rebound rally in the financial sector over the next month.

To maintain exposure to the sector, the investor could buy an ETF indexed to financial or bank stocks, Iachini said on Friday’s call. ETFs are a “good fit” for the strategy if investors don’t want to be out of the market for a month.

Some financial advisors use tax-loss harvesting strategies featuring ETFs that track the same sector but are pegged to different indexes.

The IRS hasn’t provided a hard definition of “substantially identical,” and investors should consult a tax advisor about the wash-sale rule.

Also, investors need to consider any ETF commissions or other trading costs associated with the strategy.

Finally, Schwab’s Spiegelman said not to lose sight of the overall investment plan and let the “tax tail” wag the dog. “Don’t upset the long-term investment plan or asset allocation just to get a tax break,” he said.

“ETFs have made tax loss harvesting a lot simpler than it used to be,” said Charles Zhang of Zhang Financial in a recent Reuters report. “It’s not that hard to find one that’s a good stand-in.”

ETFs And Allocations To Protect Portfolios In The Current Financial Storm

excerpt from article at Seeking Alpha: 

 This is a followup to a previous postings suggesting how investors can take refuge in the oncoming financial storm. If you’ve not done so already, be sure to read my previous post Say It Ain’t So for a description of our dismal macroeconomic picture.

The purpose of this article today is to explore any safe havens for your investments to shelter them from this worldwide slump. What are we protecting against? Problem is, we don’t yet know. And we won’t until the elections play out next year, and events in Europe unfold.

The market may not wait for the politicians. Technical indicators suggest a very large correction in the market can be expected, and fundamental macroeconoomic trends unfortunately offer no consolation.

How severe will the downturn be?

In my view, that will depend in part on what fiscal and monetary policies we pursue, and how international political relations progress. There my crystal ball is a little cloudy.

Scenario one sees a continuation of monetary easing, as pursued by both the Bush and Obama administrations, and largely aped by European governments to a lesser degree.

In this scenario, the policy response will be pure Keynes, with large bouts of government spending to build out our country’s infrastructure and hopefully create jobs. The Fed will assist with gobs of money dished out to offset rapidly deleveraging private expenditures and to support our wobbling real estate market.

for rest of article, click here

Read More…

The New Oil Dynamics

originally posted by Tony Daltorio at

The oil market changed back in 2009, but most Americans did not notice.

That was the year, for the first time, China temporarily surpassed the United States as Saudi Arabia’s biggest and most important customer.

At the time, Saudi oil minister Ali Naimi said “Ten years ago, China imported relatively little crude oil from us. Now, it is one of our top three markets, and is the fastest growing market for us globally.” He added that this showed the increasing “depth of Saudi-Chinese relations”.

Today, when oil tankers leave Saudi ports with their load of crude oil, they increasingly travel eastward to the rapidly growing economies of Asia rather than to the established markets of western nations.

When looked at historically, this new trend is significant. Remember that the most of the oil industries in the Middle East were originally set up by western companies with the sole aim of providing oil for western economies.

The day when Saudi oil exports to China permanently overtake those to the U.S. has not arrived yet.  But it will soon. Read More…

ETFs Turn Exotic – Protect yourself

Source: McGraw-Hill Financial Communications

Investments that do not move in tandem with U.S. stocks present opportunities for diversification and potential performance enhancement.

Summary Points

  • Exchange-traded funds (ETFs) are a convenient vehicle for accessing a variety of investments other than stocks.
  • Alternative investments include hedge funds, commodities, derivatives, and real estate.
  • In addition, there are alternative investment strategies that encompass short selling, arbitrage, leverage, and futures.

Of the top-selling ETF strategies to emerge on the scene in 2011, many present investors with choices other than U.S. equities. For instance, an ETF investing in Asian debt topped the list of launches with $470.98 million in net flows as of June 30, while a managed futures strategy fund came in second with $192.72 million in net assets.1 Other funds making the top ten include an ETF investing in senior loans and a fund investing in real estate investment trusts (REITs).1

What’s behind investors’ attraction to these more sophisticated, and in some cases more risky, investment choices? People are looking for something besides a plain vanilla fund, something that puts them outside the universe of U.S. Treasuries and domestic equities. They are looking to diversify their portfolios globally as well as thematically via commodities, emerging market debt, and hedging strategies such as managed futures. Managed futures funds invest in listed futures and options to benefit from expected trends in commodity prices, interest rates, or currency exchange markets.

What’s driving investors’ attraction to the exotic is a desire for investments that historically have not moved in tandem with U.S. stocks. Read More…

Hedge fund leverage in the industry – how its grown

SmartStops comment:   Who watches out for the little guy?

A chart from MIT’s Andrew Lo of the growth of assets and hedge fund leverage over the last 20 years. You can see the expanding leverage in the 2001-2005 period.  originally posted at Infectious Greed blog.

Hedge Fund Leverage how-its-grown

Hedge_Fund_Leverage how-its-grown

Chicken or Egg? Risk Tolerance as a Driver of Financial Success

SmartStops would like to draw your attention to this article’s statement:    Overall, by taking more risk Bill can expect to be significantly better off.    As SmartStops will remind you, you can take on more risk by ensuring there is constant active oversight for it.  See other articles on that subject.   

 published originally at:  Advisor One by Geoff Davey, FinaMetrica

Many studies have shown that risk tolerance correlates positively with income and wealth. The correlations are not strong, usually around 0.3, but they seem to be universal.

There is a temptation to think that higher income and/or higher wealth lead to higher risk tolerance. However, there is always a danger in trying to read a cause and effect relationship into a correlation. To know for sure we would need to conduct a longitudinal study measuring risk tolerance, income and wealth as we went along.

Failing that, we can conduct a thought experiment. Suppose that Bill and Bob have different appetites for risk. Presented with a choice between taking a certain $100 and a 50/50 gamble of winning $0 or $X, Bill will take the gamble when X is $250 but Bob won’t take the gamble until it reaches $300. Looking at any single $250 gamble choice, Bill has a 50% chance of being no worse off than Bill.  However, if Bill and Bob are presented with a series of such choices, the longer the series runs the more certain it is that Bill will finish up better off than Bob. With a series of 10, Bill has an 83% chance of being no worse off than Bob and by the time we get to a series of 100 that chance has increased to 98%.  Over 10 choices, Bill will finish with $1,000 but Bob could expect to have $1,250, though he may have nothing or $2500.

Now suppose that Bill and Bob both started with a kitty of $1,000 and that rather than the choices being framed from a base of $100, they were framed from a base of 10% of the kitty at the time. For 10 choices, Bob’s kitty grows to $2,593 but Bill’s grows to an expected average of $3,260 and 62% of the time will be greater than $2,590. At worst Bill will have $1,000 and at best $9,300.

Overall, by taking more risk Bill can expect to be significantly better off.

So how does this relate to real life? Clearly, life’s choices are rarely as simple as in our example and rather than a series of identical choices we face a series of mainly different choices where there are usually more than two alternatives—and those alternatives will often include the possibility of losses. Further, the range of outcomes is often not clear and they must be estimated rather than calculated. Finally, we may make cognitive errors in assessing the situation and in identifying and evaluating the alternatives.

As we know from experience, risky choices take many forms and occur in different contexts including employment, borrowing, insurance and investment. For the riskier alternatives to be considered there would be a commensurately greater expected reward, but this will come with the possibility of an unfavorable outcome. The more risk tolerant amongst us will need less of an incentive to take the riskier alternatives. If we continue that pattern over time, all other things being equal, we should finish up better off.

So my hypothesis is that risk tolerance is a driver of financial success rather than the converse.


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