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  • Michael Turner

07-19-2021 - The wonderful thing about stops...

The wonderful thing about stops is that stops are wonderful things... my apologies to plagiarizing Tigger...

It was quite a day today with the markets moving solidly to the downside. The reasons for the downturn focused on the Delta variant and the potential need to lock down the world economies. The markets closed the day in the neighborhood of 2% or so to the downside. Our clients fared quite a bit better. And, while a lowering tide does tend to lower all boats, our clients lost quite a bit less than the market (except for LI, which is a 2x that completely went to cash with great net profits) and with the stop-outs (most with nice profits) and the risk of those holdings being exposed to a falling market has been completely taken off the table.

The market may be worried about the variant wave... or China... or unending mountains of US debt... or a host of other reasons... Maybe the fact that this is an aging bull market had something to do with the reasons why the sell-off happened.

But honestly, it doesn’t matter what the reasons might be for today’s downturn just as it doesn’t matter what the reasons are when the markets move higher. The markets are going to do whatever they’re going to do on any given day and the market is always right!

What matters is how we react to the market. As I mentioned in my Client Letter this morning, my team and I spent the entire weekend digging even deeper to each of our positions and adjusting the exits based not only on the Expected Moves of the underlying stocks, but also on the conditions of the sectors of each individual stock. We know that Sectors are like mini-markets and when a Sector is falling, we want to make sure we are not overly exposed to that Sector with client holdings. Our investment mission of making money when market conditions allow us and protecting client monies when the markets become more difficult is always at the forefront of our active management.

What is important... critically important... is to ALWAYS have an exit strategy... ALWAYS assume a trade can move completely against you... NEVER assume that fundamentals will keep a stock from tanking... ALWAYS have a stop loss in place and work your butt off getting that stop above basis. This is what we do; and we never stop monitoring and adjusting to the vagaries of the market. It's what clients pay us for and it's why our client base grows (mostly) from client referrals. Pro-Active asset management with a rule for every market condition is our approach and it is why our clients never have to worry about us staying in a buy-and-hold condition in falling markets.

In my blogs, you won't read about what I think the market is going to do in the future. Why? No one knows what the market is going to do in the morning or next week or next year. The market may boom higher in the morning; or it may hover in a flat line; or it might tank again. We don't care. Our strategies are designed to go wherever the market goes. If it booms tomorrow, we have a lot of holdings that will do very well and we'll buy more. If it flatlines tomorrow, we'll leave everything where it is and, if possible, raise stops some more. If the market tanks tomorrow, we will put more net gains in the bank for our clients. And, if this is the beginning of a major market correction, we'll start buying inverse ETFs.

It is our 'take-what-the-market-gives-you' approach that absolutely does not rely on guessing what to hold... what to buy... what to sell... or when to simply move to cash. It's just math, discipline and a fair amount of hard work on the quantitative analysis side.

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