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Would You Like a Little Turbulence in Your Portfolio?
Ironically, volatility is on the rise when many market participants would love to see less of it.
The technology and housing bubble pops and the credit crunch have hurt many people financially and left them wondering whether there is any way to make money in stocks when they move so far, so fast. Those of us who are meaningful investors are getting older and becoming much more focused on having enough money to sustain us over a longer-expected lifespan.
In some sense, investors are asking for Vanilla and the market is serving Rocky Road. The market has what we want, but we have to know where to look, given the structurally elevated volatility levels.
Buy-and-Hold Equals Long-Term Capital Loss
Investors would love to go back to the time of the 1980s and 1990s when a buy-and-hold strategy would yield about 10% returns per year. Since 2001, it is clear that the buy-and-hold market is no longer profitable. 
Take almost any of the S&P 500 ETFs and look at their performance over the past eight years. Almost none of them show appreciation but many do reflect substantial losses.
In a world where we are all steadily using more technology in our daily lives, the Technology Select Sector Fund ETF (XLK) has gone from about 35 at the start of 2001 to about 16 today. However, since 2001, there have been spectacular trading opportunities, including buying the index in July 2006 and selling in November 2007 for a 50% gain.
We believe we can safely say that the 17-year span from 1982 to 1999 was a buy-and-hold time. We also believe we can safely say that, from 2000 to some point in the future (that is still several years away), buy-and-hold will not be the most-effective strategy.
Studies of the last 80 years show that the market alternates between trading versus trending cycles. The market switches between these two states about every 16 years. We are in a trading time that is predicted to last until 2015.
This doesn't mean that stock investing is going to go out of fashion anytime soon. After all, 401(k) accounts and IRAs are still among investors' top tools of saving for retirement. But in days like these when every monthly statement looks worse than the previous month's, even the staunchest buy-and-hold guys are realizing that they need to step up and take more control over their portfolios.
Whether you create a separate trading account or simply take a more-active role in managing your current holdings, there are a variety of trading strategies designed to match both your profit goals and increase your comfort level with trading stocks and options.
Remember, your money can be working twice as hard for you, but only if you let it!Day Trading Hurts
At the other end of the spectrum from buy-and-hold is the day trade. But how do you day-trade a market that can move 7% in any direction within an hour? The radical, intraday moves of the market have become virtually unpredictable as global financial factors that are not transparent are driving the market in the very short term.
The professional traders at hedge funds, with the best information flows and fastest trading technologies available, are generally getting hammered when attempting to keep pace with the daily market moves.
While it's a trader's market and adding trading strategies to your investment arsenal can yield big profits can be made on both longs and shorts, don't get discouraged and cash out if you feel you don't have enough time to dedicate to watching your portfolio on an hour-to-hour, or even minute-to-minute, basis.
If you can't watch the ticks or have little experience with day trading, it's better to gain experience with paper trades before going for the real thing. You can also shift your focus to other profit strategies (in the form of longer-dated options instead of playing the ones that expire in the next month or two) that give you a little more time for your trades to play out.
As the market became more volatile in September and October, average losses at hedge funds for each month exploded upward. Long/short hedge funds lost more money in September alone than they had year-to-date through August, although their October losses make those in September look small.
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