Minimum Investment Needed to Utilize the Tactical Timing System

By on May 12, 2006

Originally published on:

October 20, 1996

Byron Wien recently threw in the towel on his prediction of an imminent 1,000 point drop in the Dow. Mr. Wien is a very high profile individual and considered a sage in many circles. If we get more bears like him falling by the wayside, the market could be in serious trouble. If Elaine Garzarelli suddenly liked stocks again, I’d really be worried. However, given the outlook for inflation and interest rates, the market should continue to trend higher until the election. Disclaimer: the predictions made here should be taken with a “grain of salt.” I rarely trade on my view of the market since I don’t have a great amount of faith in anybody’s predictions, including my own.

Minimum Investment Needed to Utilize the Tactical Timing System

There is a minimum investment required to obtain the allocations recommended on the portfolio page. This is due to the minimum required investments in the mutual funds the “real world” portfolios hold. The minimum required investment in the Vanguard European Portfolio Index fund (20% of the aggressive portfolio) is $3,000. Therefore, the aggressive “real world” portfolio utilized by the Stock Market Advantage requires a minimum investment of $15,000.

The minimum required to invest in the Janus Worldwide fund (24% of the conservative portfolio) is $2,500. Thus, the minimum amount required to use the conservative portfolio as it is shown on the portfolio page is $10,500.

There is a way to invest with less money than mentioned above, maintain diversification, and utilize the timing signals issued by the Tactical Timing System. This can be accomplished by investing in certain index funds or country funds. One good, low cost way to get the diversification of the S&P 500 and be able to trade it at a moments notice, is by purchasing S & P 500 Depository Receipts (SPY). SPY is traded on the American Stock Exchange. Spiders, as they have been nicknamed, are proxies (derivatives) for the S & P 500 index and trade at 1/10th the current level of the index. Right now they are trading at 71 7/32. Annual operating expenses are very low, at around .2 % per year. You do pay a commission when you buy and sell, however, with an electronic deep discounter like JB Oxford and E-Trade this will be less than $20 per trade.

There are also many closed-end country funds and so called country baskets trading on the exchanges that give you the opportunity to diversify your holdings with a very low initial investment. There are funds that specialize in various regions of the world such as Europe and Latin America. Funds like Morgan Stanley Emerging Markets can give you exposure to a wide variety of developing countries throughout the world. Many closed-end funds trade at a discount to net asset value (NAV). It’s not uncommon to be able to buy a basket of stocks worth $1.00 for 85 cents or less.

Theoretically, you can maintain great diversification and act on the buy and sell signals with as little as $2,000. If I only had $2,000, and wished to utilize the Tactical Timing System aggressive portfolio for my investment strategy, I’d allocate it like this:
Annual Exp. Ratio
Discount to NAV
S&P Depository Receipts
71 7/32
Scudder New Europe
13 7/8
GT Developing Mkts
11 3/8

Buy Discovery Now to Avoid the Load

20% of the aggressive portfolio’s funds are invested in the Mutual Series Discovery fund. Mutual Series will be sold to the Franklin Templeton Funds on November 1, 1996, pending a shareholder vote on October 25. If you want to invest in this “no load” fund ($1,000 minimum), I suggest you do it immediately since Franklin charges loads as high as 5.75% on some of its equity funds. When I bought the Discovery fund back in 1993, I paid a $32 commission to my broker, which is a lot less than Franklin’s load will probably be.

Mutual Discovery is managed by Michael Price and a couple of his analysts. Mr. Price’s team will continue to manage the fund for five years, although Price himself has the option to bow out after two years. Mr. Price has a great reputation for high performance and low risk as a value oriented manager. There has been some speculation that he might slack off after selling out to Franklin Templeton. However, he’ll receive a $195 million bonus if the Mutual Series funds meet specific performance goals. Mr. Price has plenty of money so I don’t know how big of an incentive the cash is, but I’m willing to bet his pride won’t allow him to take an early retirement. Recently on Wall Street Week, Mr. Price stated his analysts are better at identifying profitable opportunities than he is, so the fund will probably perform well even if he does leave prematurely.

Discovery has been a great performer, with low volatility. After staying in for six months, you can transfer your money over to any other Franklin Templeton fund, free of charge. For instance, by buying a Mutual Series fund now, you can transfer money to the Templeton Developing Markets fund in six months without paying the 5.75% load. Developing Markets is managed by the highly regarded emerging markets expert, Mark Mobius. If Discovery has a dry spell, you’ll have plenty of choices from which to choose.

System Alert

On 10/18/96, a sell order was placed at 76 1/4 for 50% of the position in Merck and Co. (MRK). At 76 1/4, MRK is in excess of 10% of the aggressive portfolio and the “basic rules” require that 30-50% of it be sold and replaced with another security. If MRK is sold, Pepsico (PEP) will be purchased to replace the position.

Recommended Allocations

The aggressive portfolio is invested in 90% stocks, 10% cash. The conservative portfolio currently is 70% stocks, 30% cash.

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