Saturday, December 3, 2011


The article below is the most recent iteration of my talks around the bay area on DITM, which increasingly appears to be the most optimal of strategies in this volatile, yet lateral market - for now and the immediate future.
I have sent it out to various places in hopes of finding a mutually beneficial situation to domicile my managing funds, while allowing experts to handle the regulatory and legal back office part.
I hope you find it interesting- any suggestions would be greatly appreciated.

By Brent L. Leonard, CMT
* Fully invested, in December 2011 my portfolio received 20 dividend payments, or 1 for each trading day of the month!
* When I buy a $50 stock, and "pre-sell" it 5-6 months later with a $6 call (the 45-strike), instead of an 8% dividend, with my cost basis at $45, the dividend rises to 8.8%. The $1 dividend each quarter is deducted from the part of the stock that I already sold; otherwise the stock would be $46 after a year, excluding appreciation.

* With today's Volatility, I get daily peace of mind knowing any stock loss is minimal, with the safety net in place. If it does fall to $45 at the time of option expiry, I can roll the call down and out to the $40-strike with 100% of my known profit. If it happens to fall below $45, I can resell the next $45 call ABOVE the current price, a la normal covered call writing, waiting until it recovers -meanwhile receiving a higher dividend %.

* In just short of the three years I have been extensively testing DITM with almost all my retirement, all summaries show a 10-13% "annualized" return - with slippage ( waiting for settlement or an ex-dividend date, etc., a more realistic return would be 7-10% for the year.

* According to a recent J.P.Morgan 2011 quarterly report, the following shows annualized returns on other asset classes for the past 20 years:
REITs - 10.5%
OIL- 8.0%
S&P 500 - 7.7%
GOLD - 7.2%
BONDS - 6.1%
HOMES - 2.8%
All the above have no hedge or safety net, as DITM has. Only a 20% or more Bear market can severely hurt a quality DITM portfolio - since 1900, no more than 2 Bear markets per decades (no less than 1) have occurred. (S&P, U. of Chicago)

Since 1790 U.S. securities markets have performed in 18-year alternating cycles: looking backward from the sideways cycle we are currently in - 1982-2000 was the Mother of all Bull markets; before that the sideways 1966-82 (actually down, if inflation-adjusted); before that the 1949-1966 postwar Bull market, and before that the Great Depression, etc.
Contrary to Conventional Wisdom, Buy & Hold no longer works in today's casino environment of hedge funds, high frequency traders. Anyone who gets ready to save for retirement after schooling and raising a family is subject to the 18-year cycle they are born into. The stock market is exactly at the same level as it was, not only a year ago, but 10 years ago.

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