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September 23, 2005

Up, Down or Sideways?

Warning: This post deviates from my standard policy of not discussing the Snider Investment Method on this blog. But, in this context, I hope the information will be educational rather "salesy". At least - that is the way it is intended. So here goes ...

 

Have you noticed how many commercials on the radio lately are talking about making money whether the market goes "up, down or sideways"? I have been using that phrase for a long time to describe the Snider Method - long before it became so fashionable apparently. But is everyone talking about the same thing?

 

The answer is an emphatic NO.

 

There are three possible interpretations of the phrase "makes money whether the market goes up, down or sideways". Let me take you through each, talk about who uses them and what they really mean.

 

Insurance Salesmen

 

This phrase is often used in connection with a principal protected annuity product. It will sound something like this … "You get stock market returns or x%, whichever is higher, so you can't lose. You make money whether the market is going up, down or sideways!"

 

There is no point in my rehashing all the problems with deferred annuities in this post when I have already covered them so extensively elsewhere on this blog. If you are interested just click the link for the category "Variable Annuities".

 

Speculators

 

The way the phrase is used most often is the way people think we (read: I) mean it - but don't. The majority of investments (and investment seminars or strategies) are speculative in nature. They depend on correctly guessing which way the price of the underlying asset will move and then placing a bet on the accuracy of that guess.

 

This category would include owning stocks, selling stocks short, mutual funds, long-short funds, and buying or selling options, commodities or currencies (either in combinations with one another or as a straight bet). The most common usage of the phrase "up, down or sideways", in this context, comes from people who sell trading seminars or software.

 

One example would be WizeTrade or 4X Made Easy. These two software platforms work on the same premise. Their software lights up with red and green lights to tell you when you should buy or sell the underlying security. The theory is that is the software tells you something is going up, you buy it. When it thinks it is going down you sell it - or even sell it short which is a bet on the security going down in price rather than up.

 

Another example would be a covered call seminar like Compound Stock Earnings or the now defunct Wade Cook. In order to make money with a traditional covered call strategy you must be able to find stocks that are consistently going up - preferably, not too fast - even in bear markets. If they rise slowly, the covered call will be more profitable. If it rises too far, too fast, the covered call will have left money on the table and you would have been better off in a straight bet on up - either by owning it outright or by buying the call option.

 

Other examples in this vein would be Optionetics, Trade Secrets, Options Made Easy, Optioneer and others that are primarily options based. If I know that a stock is going to rise, or even better, how much and over what time frame, there is an option strategy I can use to make money from that. If I know that a stock is going to remain range-bound for some period of time there is a different option strategy that will make me money from that. And if I know a stock is going to go down, there are yet more strategies I can use to make money from that. But, there is no one options strategy that can make money under all three scenarios.

 

So when these folks talk about making money whether the market goes "up, down, or sideways" there is a HUGE unspoken assumption underlying it which says "provided you have a crystal ball" and none of us do! If they tell you their system or software is that smart, they are lying, you should put on your track shoes and run like hell! Market timing or stock picking are a fool's game that you cannot win.

 

The Snider Investment Method

 

When I say "up, down or sideways" I am saying two things different from what you just read above:

 

1.) I am saying that the Snider Method makes no attempt to time the market or pick stocks that will move in a given direction because we don't care - we are not trying to bet on direction, and

 

2.) We use the exact same methodology in every case, regardless of what the underlying asset does so we can accurately say "make money regardless of market conditions".

 

No trading seminar or software peddler can say that.

 

I think the main point is this, with investments - as in all things - people often say the same thing but mean something different. It is up to you to understand what they are REALLY saying, or SHOULD BE saying, and base your decisions on that. Don't fall for slick rhetoric without understanding what lies underneath. (Pun intended!)

 

Thoughts? Comments? As Always - please leave them below. Thanks for stopping by.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Posted by Kim Snider on September 23, 2005 | Permalink

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