Investment Strategy by Jeff Saut

The call for this week: The current debate de jour centers on whether what we have experienced since the March 2009 “bottom” is just a rally in an ongoing bear market or the beginning of a new secular bull market. Plainly, this is not an unimportant question, for the difference is whether you become more invested on weakness or less invested on strength. As for me, since the initial Dow Theory “sell signal” of September 1999, I have opined that the equity markets were likely going to be in a trading range characterized by numerous tactical bull and bear markets. My strategy, therefore, has been to attempt to determine where there is a secular bull market and tilt the investment account (80% of the portfolio) accordingly. Since the 4Q01, I have been adamant that there is a secular bull market in “stuff stocks” (energy, agriculture, metals, water, electricity, cement, etc.), preferably “stuff stocks” with a yield, as well as a bull market in emerging and frontier markets. I still feel that way despite my near-term caution. For the other 20% of the portfolio (the trading account), I have recommended a more dynamic approach in an attempt to take advantage of the various mini-bull/bear market “swings.” The most recent example of this strategy was the recommendation to layer downside hedges, and “bets” on increased volatility, into portfolios during the entire month of April as protection for the “long” positions in the investment account. Currently, those hedges have been shed, leaving the trading account flat. And, this morning that looks to be at least partially correct given the Chinese news, albeit still half wrong since the trading account is indeed flat. Nevertheless, I’m back and hopefully can get in step with the various markets this week.

P.S. – I have jury duty tomorrow so there will be no verbal strategy comments.

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About Jeff

Jeffrey Saut is one of the managing directors of research and he also serves as the firm's Chief Investment Strategist. He is well known for his insightful and colorful commentary regarding the stock market and makes regular appearances on Wall Street Week, CNBC, Bloomberg TV, USA Networks, Fox TV, NPR, and many local radio and TV networks. He is also often quoted in The Wall Street Journal, New York Times, Barron's, Washington Post, Business Week, U.S. News and World Report, Fortune, SmartMoney, as well as on many websites like MSNBC and TheStreet.com.