Author: Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

A Four-Step Retirement Plan

By John Del Vecchio

Ahhhh retirement! Most of us would love to be on a beach somewhere right now sipping a frothy Bahama Mama. But very few of us want to put in the right kind of effort to get us there. Retirement may seem way off in the distant future or even simply an unreachable destination. But, we can get there with just a few steps.
Step one is that you must know the magic formula. It’s really simple to understand, but not that easy to abide by.

Here it is:

Income – Expenses = Savings

See, it’s simple! No algebra required. The reason why it’s not easy to abide by is that we live in a culture obsessed with consumption. Consumption is 70% of the economy, after all. The average American has over 300,000 items in their homes. 300,000! All that stuff can’t even fit into our houses, and so the storage unit business is booming! We are a nation of hoarders, it seems. There are even TV shows about hoarders followed by TV shows of people buying storage lockers filled with stuff after those hoarders haven’t paid the bills.

Unfortunately, people don’t save. That’s just the cold hard truth. Statistics show that nearly 50% of Americans could not fund a $400 emergency. Scary!

So, step one is to ditch the consumption culture and save first rather than spend. One way to do this is to max out all of your retirement plans. Since I’m self-employed I have a particularly great plan that allows me to stash away both the maximum 401(k) contributions allowed and maximize profit sharing pre-tax. Then I also have my IRA.

Simply put, since this money goes from my corporate account into my retirement accounts I never see it. So, I pay myself first.

Then I save a portion of my after-tax money as well. That’s not to say I’m cheap and live like a pauper or anything like that. I’ve traveled the world and I enjoy life. But, I don’t have three stereo systems and five flat-panel TVs. Come to think of it, I don’t even own a car!

Step two is to own everything. In case you haven’t noticed from looking at my last name, I’m Italian. I think it’s in my DNA to pay cash for everything, so I use credit lightly. In the 23 years since I’ve had a credit card I have never paid one cent in interest. You don’t get rich paying someone else 15% a year to buy stuff you don’t need with money you don’t have.

Same goes for a house. Why is it good to have a tax deduction for your mortgage interest? Have you ever looked at an amortization schedule? All of the interest is billed up front. I paid off my first home in 11 years. What’s more, I lived in the same place for 15 years despite stretches where my income was more than 10 times higher than when I first bought it. I simply obeyed the magic formula. Just because I made more money didn’t mean I needed to blow it. My digs were plenty fine. Just be happy with what you have! There’s no need to keep up with the Jones’. They’re broke anyway.

Step three is to invest in yourself. Once you’ve saved more than you make and you own everything, a good way to ramp up your wealth is to invest in you! I don’t mean ripping through $100,000 on an online degree that won’t land you a job. I mean develop a skill. Do something other people don’t want to do but need.

My cousin Eldo once told me that if you want to learn how to do something, get an estimate. By that he means if someone tells you it costs $25,000 to paint your house, you’ll become quite handy with a brush in a short amount of time. That’s exactly what I did. I bought a home and renovated it for my Dad. The painters’ quotes were outrageous, and while painting a house is not as simple as filling up the roller with paint and slathering it on the walls, it’s not rocket science either.

By the time I was done, I became good enough to paint other houses. I did an analysis and determined I could make $100,000 annually working 3/4 of the time and undercut the local competition.

Of course, that’s just a fall back option. My largest gains have come from taking small bets on myself, such as developing a product or service and selling that to others. I have made gains far larger than in the public markets and I have never lost money betting on myself.
You can do it too! And it’s worth checking out what my colleague Charles has to say about collecting “automatic checks.”
One problem though is that I cannot compound this wealth. The cash flow needs to be invested elsewhere. That’s where the markets come in.

Step four is to invest in instruments that you can stick with consistently for the long-term. It may be all stocks. It may be a combination of stocks and bonds. Or, you might be an international explorer and find those markets more attractive.

Mine is a combination approach. Part of my process recognizes that I have no idea what’s going to happen in the future. Neither do you. Stocks are expensive but they could stay expensive. Interest rates are low but they can stay there. So, a portion of the portfolio should be in a few asset classes that over time should do okay if held long enough.

The second part of the approach is following trends. What goes up could continue to go up. What goes down could continue to go down. The trend is your friend until the end when it bends. So, by investing in some trends, you’re always in when the market is going up. But, you’re not always in the market. And while you may get whipped around, you most likely will be out when a huge smash occurs.

And the third part is sentiment and valuation based. When there’s blood in the streets, invest. When you attend your holiday parties and everyone is telling you how much money they made in the markets that year, call your broker the next day and reduce your positions or get out altogether.

Whatever you do, the portfolio must fit your personality. There’s four steps to investment success…

Step 1: Stick with your process.
Step 2: Stick with it through thick.
Step 3: Stick with it through thin.
Step 4: Stick with it through hell or high water.

If you can do all of that, you’ll be headed in the right direction to meeting your retirement goals. Bottoms up!

Financial Expert Forensic





This article was originally published on the Economy & Markets Blog

Areas of Fear to Use as a Contrarian

Jason, from, created what I thought was very savvy. Trying to find
areas of fear to use as a contrarian. Below are the times that CNBC created a special report
“market turmoil” segment that has basically set the bottom several times for the next few months there-after.
Good chance we can get a bounce into year end with short term sentiment also very over-sold.
( please also see )

Areas of Fear to Use as a Contrarian
Areas of Fear to Use as a Contrarian


Wall Street’s Finest are Starting to Get Bearish. Should we be Paying Attention?

By: John Del Vecchio

Talk about mixed signals… which, of course, is itself a solid indication that things are getting harder in the market.

The pros and the eggheads are getting cautious. The average individual investor is not.

How will the tension resolve?

Well, investment banks are getting bearish. Should we accord these Masters of the Universe any special attention?

Under most circumstances, the answer is, “NO!!!”

Wall Street firms are notorious for picking their clients’ pockets. That’s how Masters of the Universe fund their fancy vacations, private jets, elite schools, and tony estates: by taking the opposite side of client trades.

But, sure, it’s interesting that Goldman Sachs recently warned investors of lower returns ahead.

And, while the “great vampire squid” isn’t calling for a nasty bear market, it is approaching stocks with caution.

Rather than just accept its conclusion, though, I’ve reviewed my own metrics to see where we are and what we should do about it.

Let’s start here: Valuations are rich.

I like to look at market valuation relative to revenue. And we’re in uncharted territory here, an all-time record.

The S&P 500 Index is priced at 2.63 times its median price-to-sales ratio. Back in the heady days of the dot-com bubble, we hit about 1.8 times. And it went as low as 0.8 times in early 2009. (It’s easy to see now, but that’s a screaming buy.)

Let’s take a look at how individual investors have allocated their portfolios. The portion dedicated to stocks isn’t at record levels. But it’s close.

At 70%, we’re (un)comfortably are in the danger zone. And cash levels are at 16%, down from 45% at the beginning of the bull market.

At the same time, consumer confidence is skyrocketing.

Professional investors, meanwhile, are 85% invested in stocks, which is the functional equivalent of “all in.” They’re way too optimistic, too.

And let’s not forget that investors of all stripes are leveraged to the gills.

OK, how about the macro picture? Well, the Federal Reserve Bank of New York recently raised its measure of the probability of a recession to 15%.

That’s still “low” – it was 40% prior to the Global Financial Crisis/Great Recession. But it’s as high as it’s been in 10 years.

“Direction” is the real key: The New York Fed’s recession meter has been trending up for a while…

When everyone’s feeling flush and willing to spend, I hide my dough in a coffee can and bury it out in the backyard. The time to get the best deals is when everyone’s fearful.

But we’re still very far from fearful.

This complacency is a function of the fact that interest rates have been so low for so long. Interest rates are rising, and we’re starting to see smaller, “growth” stocks underperform.

And we could be in for a particularly volatile earnings season, as investors look to justify their holdings in the face of updated operating and financial numbers. At the very least, companies carrying large debt loads will see some cash flow eaten up by higher interest costs.

This combination of rich equity valuations and overly optimistic sentiment has been suggesting lower stock returns ahead for years. And still we rise.

So, what to do?

I’m going to keep my eyes on one trusty indicator, the 200-day moving average.

Since 1929, returns are nearly six times greater when we’re trading above the 200-day moving average of stock prices. And stocks are barely positive when the market is below the 200-day moving average.

So, a strategy built around investing when the market is above the 200-day moving average trumps a buy-and-hold approach.

A break of the 200-day moving average could signal that it’s time to get defensive. That’s when I’ll start to cut risk.

Unless the stock market crashes, odds are extremely high we’ll cross the 200-day moving average before any nasty bear market occurs.

It’s important to recognize the risks in the market right now.

But it’s equally important to not overreact.

The 200-day moving average helps me take emotion out of the equation. It’s how I let “price” tell me when it’s time to move to the sidelines.

It’s how I sleep at night amid crazy valuations and rising volatility…

-Originally appeared in the Rich Investor.

Stock Market Direction Sentiment Indicators Remain Mixed

Sentiment indicators in the past week indicated that investors weren’t frightened by the recent big market drops. Perhaps it was because of the quick recovery leading to complacency despite some worrisome economic indicators signaling caution. In fact, short-term sentiment indicators have moved into “buy” and “near buy “categories. The CNN Fear/Greed is at 12, up from 8 a few days before. The Ned Davis Research short-term sentiment is close to a buy at 36.

However, intermediate sentiment indicators unlike the short-term indicators are still on the bearish side. The Investors Intelligence Bulls/Bears measuring market direction sentiment among market newsletter writers remains at 18% bears, unchanged from the previous week, which is bearish as a contrarian indicator. The bulls were at 51%, down from 61% three weeks before, but still in the negative territory. The NDR Crowd Sentiment is at 61, down from a more negative 69 two weeks ago but not anywhere close to an intermediate buy signal.

In other words, it seems the market bounce after the big drop lured investors into complacency despite worrisome economic indicators. Which tells us to remain cautious.

Stock Market Direction Sentiment Indicators Remain Mixed
Stock Market Direction Sentiment Indicators Remain Mixed



























Market Sentiment Indicators Warn: “Stay Cautious”

Intermediate sentiment indicators show investors have become slightly less bullish during the past week. But viewed as contrarian indicators that doesn’t mean we’ve reached a major bottom and you should throw caution to the wind. The Ned Davis Research (NDR) Crowd Sentiment was slightly less bearish at 62% compared with the previous week (70 is a sell signal), but still signaling caution. The Investors Intelligence poll of more than 100 newsletter writers remained clearly bearish as a contrarian indicator with 57% of the newsletters bullish and 18% bears.

The CNN Fear’/Greed Index was at 8 while the NDR short-term sentiment gauge was at 36, signaling the markets may be reaching oversold territory for the short term, but both are far from signaling the markets are reaching bullish territory.

In other words don’t be fooled by temporary upswings in the market. The worst may be yet to come.

Fear and Greed - Sentiment Chart Oct 11, 2018
Fear and Greed – Sentiment Chart Oct 11, 2018

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