2008 saw not only the destruction of wealth, it also saw the destruction of trust and credibility. Financial gurus racked up huge losses for themselves and others and severely dinged their reputation of market savvy.

Paradox as it is, investors will start trusting mistaken financial gurus again before they trust the stock market.

It drives me nuts to see so-called analysts produce one outlook after the other without any accountability or track-ability of their predictions. If one forecast falls flat on the nose, they are quick to manufacture another one. This goes on until finally one of the many forecasts is fulfilled. The correct forecast is displayed on a pedestal while the pile of wrong calls remains conveniently hidden.

Bogus forecast are forgotten too fast

Nobody talks about Jim Cramer’s spout of denial when he proclaimed: “No! No! No! Bear Stearns is not in trouble!” just five days before Bear Stearns collapse/takeover. Nevertheless, you will see Jim Cramer delivering his “I told you so’s” tomorrow on CNBC.

In May, a reputable Wall Street analyst predicted “huge gains ahead for AIG (NYSE: AIG) in the second quarter” while another Wall Street firm upgraded Lehman Brothers to a “buy” weeks before its collapse.

In June, the House Financial Services Committee chairman stated: “Fannie Mae (NYSE: FRE) and Freddie Mac (NYSE: FRE) are fundamentally sound!” Just a few months earlier, President Bush said that “the market is in the process of correcting itself.”

When evaluating any financial or economic outlook, credibility and track record are the single most important factors rendering such an outlook credible or dubious. 2008 was the year of the doomsayer. After dry-spells in 2003, 2004, 2005, 2006 and 2007, doomsayers were finally right in 2008. Even a broken clock is right twice a day, right?

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Ask yourself: Have financial gurus, doomsayers, Wall Street analysts or political leaders earned the right to exercise any control of your money?

Don't trust a cook who doesn't eat his own cooking

If you can’t trust financial gurus, political leaders and permanent doomsayers, who can you trust?
My Mom used to say: “You can’t trust a cook who doesn’t eat his own cooking.”

Unlike ever-changing analyst opinions, ETFguide’s recommendations can be tracked, visible for anyone to see and examine (see performance summary below). For 2008, we recorded another year of market outperformance. All six of our Ready-To Go Portfolios (model portfolios) outperformed the S&P 500 (AMEX: SPY) in 2008 and 2007. Our Sector Savvy portfolio recorded a 10.66% loss while the S&P 500 and Dow Jones (AMEX: DIA)  tumbled over 38%.



Our 2005, 2006 and 2007 performance shows that we are not doomsayers; our 2008 performance proves that we were not oblivious of the financial/real estate bubble. We simply approach the stock market with a healthy dose of common sense.

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A step ahead already in 2007

On December 24th 2007, CNBC invited me for an interview with Maria Bartiromo. Maria’s straight forward question was: “How do you make money with ETFs in 2008”? 

Controversial at the time, I said: “First you have to take a step back and look at the bigger picture, the Dow has gone from 7,800 in 2003 to just over 14,000 in October 2007. With this in mind, you have to ask yourself, how much life is left in this bull? A strategy that profits from a topping stock market would be the way to go in 2008.”

It didn’t take a rocket scientist to call a top around Dow 14,000. Some knowledge of the markets, crowd behavior and common sense will go a long way. Subsequently, from the beginning of 2008 we took a conservative stand which we expressed through an increased allocation to cash and commodities.

Portfolio snapshot

Four of our portfolios (Capital Defense, Strategic Balance, Contrarian Fox and World Traveler) take a composite look at ETFs in connection with diversification and asset allocation. The remaining two portfolios (Generation Growth, Sector Savvy) take a more pro-active approach with a small dose of market timing.

The burst of the commodity and corporate bond bubble proved difficult for all asset allocation models. Even though exposure to more conservative sector ETFs such as the HealthCare Select Sector SPDRs (AMEX: XLV) and Utilities Select Sector SPDRs (AMEX: XLU) helped soften the blow. Additionally we held short term U.S. Treasuries (NYSEArca: SHV) and the SPDR gold Trust (NYSEArca: GLD).

Some of our best calls

In anticipation of landmines going off in the financial and real estate sector, we’ve added the UltraShort Financial ProShares (NYSEArca: SKF) and UltraShort Real Estate ProShares (NYSEArca: SRS) back in 2007. In September of 2008 we added the UltraShort Consumer Services ProShares (NYSEArca: SCC) which we sold shortly after on a double.

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On October 30th we added silver (NYSEArca: SLV), up 15% since. On December 31st, the day 30-year Treasuries peaked, we featured the ProShares UltraShort 20+ Year Treasuries, up 10.5% since. On October 17th 2007, the day China peaked, we sold the iShares China (NYSEArca: FXI) at its all time high. FXI is 61% off its high. On September 16th, 2008, we added the iShares Short Term Treasuries (NYSEArca: SHY), up 2.5% since.

If you could turn back time

Of course we had some “bogeys “ in our portfolios. I wish we would have sold the Claymore/Zacks Sector Rotation Fund (NYSEArca: XRO). XRO outperformed the S&P by 10% in ’07 and underperformed the S&P by 10% in ’08. I wish we would have gotten out of the Vanguard Emerging Markets ETFs (NYSEArca: VWO) or other country specific ETFs such as iShares Switzerland (NYSEArca: EWL) and iShares Canada (NYSEArca: EWC).

Nevertheless, $10,000 invested in the S&P 500 at the beginning of 2005 is worth $7,700 today. $10,000 invested in the Sector Savvy portfolio is worth $12,600 today. In 2008, cash outperformed all other asset classes. We couldn’t call our portfolios



To improve performance for our subscribers, we added the Market Meter (see image above) to the portfolio service. In short, the Market Meter is designed to optimize entry and exit points for individual portfolio positions by providing a short, mid and long-term outlook along with target levels for the major markets.

Four out of five stocks fall and rise with the market. The Market Meter identifies good buy and sell points and helps you determine whether it’s time to own long ETFs or short ETFs.

2009 forecast

Wall Street analysts, polled by Bloomberg, expect a 17% gain for the S&P 500 (AMEX: SPY) in 2009. We are not as confident. We believe that the stock market will retest and break the November 2008 lows in the first or second quarter of 2009. The ensuing rally will soften the impact of the general down trend. In fact, this counter trend rally will deliver the biggest gains since the October 2007 high. Still, I would be highly surprised if the markets end 2009 in positive territory.

2009 will see a choppy stock market performance with opportunities on the up-and downside. A pro-active approach (not radical) will go a long way to preserving and growing your wealth. Our Sector Savvy portfolio is already up 1.90% this year while the S&P is down more than 6%. It doesn’t take a Mercedes-driving, Armani suit wearing Wall Street analyst to figure out investment success recipes.

How did you do last year? Remember, if you keep doing what you were doing, you will get what you got. The Ready-To-Go Portfolios offer champagne performance at a beer price. Perhaps it’s time for change.

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