Saturday August 7. Everything I did was based upon my estimate of how low the market could go in a fluctuation

Saturday August 7. Everything I did was based upon my estimate of how low the market could go in a fluctuation, based on the ebb and flow of the economic and political news. I also felt strongly that I wanted to unload some stocks that I had held for 10 and 15 years that were performing very badly. I felt and still feel that the outlook for large cap equities is not as good as in the past.

Of course, if the market discounts their prices accordingly, because of market equilibrium, they would again become equal or in parity with others stocks, relating return and risk according to price. But I guess I estimate that the market has not fully discounted these stocks and they remain a bad buy or a bad holding.

 I have a bond fund FAGIX that has outperformed all the stocks I have over the last 10-12 years, plus it pays about a 5% dividend (yield). So what I did was as the Dow reached 12,700 I felt it was time to sell. I began selling $15,500 in those stocks of mine and buying the FAGIX as the market dropped. It was a double-win, because as the market was dropping I had unloaded some equities, plus even thought the FAGIX that I was buying was dropping, I was doubling-down and buying more near the bottom. Problem is, I did not gauge the bottom. It dropped out, pretty much, as you know, and I did not anticipate that.

And yet, I am still better off for three things: getting rid of $15,500 in badly performing stocks, buying the FAGIX bonds at increasingly better prices and gaining the additional dividends, which add about $70 a month to my interest income.

I still feel that it helped me a lot to set parameters for my investing. That I think was the best thing I did. That should be first and foremost in everything I continue to do. Lay out a strategy and follow it. Then when things get crazy, I do not lose my perspective. Also, set very defined and limited goals for what I want to achieve, and stick to them. Then like a gambler who need to know when to walk away, stay in control: take my winnings or take my losses, and prepare to start again. These will be my Rules of Engagement for the future.

I am not satisfied with my portfolio, and I still want to buy more bonds. I can't buy any more because I ran out of cash. I need to wait until the market recovers and start again, by selling some equities again. I don't want to sell those now at these depressed prices. But I think the market will recover because it always does.

Part of playing this game is forcing myself to think the opposite of the market. When everybody else is panicking and selling, that is probably the best time to buy, and vice versa. When everybody is in a buying fever, that is probably a good signal to sell.

But these are generalizations. Specifically, if/ when the Dow recovers to 12,500, I will sell some more, maybe $5000. If/ when it hits 12,600 I will sell $5000 more and 12,700 $5000. Then I will sit with $15,000 and wait for a market fluctuation. Even though I could just place it in my bonds right away, it will not hurt me to wait 30-60 days to see if I can get a better price.

One key for me has been that my bonds seem to fluctuate a lot less than the stocks. They are, in that sense, a more conservative investment. And yet, they drop a lot when things get very bad, but most of the time they have about 1/5 the volatility of the stocks. I do not yet know how to buy individual stocks. I do, in a sense, but I guess I feel they are not a good investment for me.

Since I was a finance and investment major, I have studied analysis. It is complex and tricky. Plus you can get lost in the trees and not see the forest. And, of course, there is always the risk of bankruptcy. Finally there are wizards all over the world using advanced mathematics, complex algorithms, in-depth analysis, computer modeling and insider trading that I have to compete with. I am not convinced yet that I stand a chance against that kind of competition.

In conclusion, the only thing that appears to be working for me is watching the swings in the broad market. The trick is not getting caught up in the emotions of the moment and remembering that when the market is down, it usually goes back up, and when it is up, it usually goes back down, but it trends upwards in the long run. The best time to buy is when the political news is bad, because it causes the market to drop, but it does not change the market fundamentals of company performance, at least immediately.