CONTINUOUS ADVICE

Seamless guidance across time is highly sought after by investors; no investment system or plan renders continuous advice, though many purport to do so. This is true whether the system is fundamental, technical, or some blend of the two, or whether it is one of the famous investment plans from the past1 or one of the new-fangled programs of today. There may be times when a system is working well, but inevitably the time will come when it is working poorly or not at all. There may be markets in which it is effective, just as there may be markets for which it is ill suited.2

Mutual fund investors seem to be the group that spends the most time chasing the holy grail of continuous advice, mostly via the various switching programs. Some programs switch in and out of just one fund, while others switch from fund to fund or sector to sector. Some programs continuously alter the balance of

Chapter 4: Continuous Advice

a portfolio of funds. Some approaches seek out the highest-performing funds, whereas others try to achieve some stable rate of return while attempting to reduce or eliminate risk. All share one factor in common: The system is deployed and relied on continuously.

And eventually, for all, disaster strikes. It is inevitable. Markets change, economies change, and the world changes. Waves of panic and greed sweep through the markets. Rules and regulations change. The infrastructure changes. Fund managers and fund objectives change, sometimes without notice. And then there are subtle changes that are only understood and recognized after the fact-sometimes long after the fact. All this conspires to render any system of continuous advice moot after a while-sometimes after only a very short while. No amount of testing or planning for change can alter this.

Perhaps most important of all, even if the foregoing were not true, investors change. The plan that fits today chafes tomorrow. Yesterdays goals become todays irrelevancies. Todays plans become tomorrows noise. Age changes; income changes; needs and desires change. A plan to be relied on today becomes an adversary tomorrow. And even if the investor could remain constant, relative change occurs; the economy evolves and changes the environment the investor lives, works, and invests in.

No system, program, or investment plan can survive this onslaught of change. This is true regardless of how well thought out or adaptive it is. Baron Rothschild asserted that the simplest system, compound interest, was the eighth wonder of the world, and then pointed out that not even that approach could be relied upon. Taxes interfere; banks collapse; capital is confiscated; wars intervene; governments change; jail looms; the public objects; socialism arrives. ... It is no accident that the annual tabulation of the worlds richest people is composed mostly of people who made their fortunes, not those who inherited-generating wealth is far easier than preserving it.

The point is not that we are without hope; it is just that continuous advice is not a viable alternative. What is viable is discrete advice-the identification of individual opportunities

Part I: In the Beginning

with superior risk-reward characteristics that can be exploited. Those discrete opportunities can be woven into approaches that can be adapted over time to reach ones goals. It is to this effort that this book is dedicated.

Many people expect that Bollinger Bands alone, or perhaps even with the use of indicators, can and will deliver continuous advice about what to do. They open up a chart, and after a quick scan they focus on the right-hand side-where the most recent price bars are-and try to decide what action to take. If an appropriate setup is at hand, their chances of success are good. If not, their chances are at best no better than random and perhaps a bit worse, for emotions will rule. This is a flawed approach that eventually will lead to trouble.

What works is the identification of individual opportunities with superior risk-reward characteristics. These may occur frequently, several times a year in a given stock, or not at all. Our job is to find and exploit these patterns when they appear. This means sifting through a number of stocks, funds, indices, etc., looking for opportunity. Often one can look at a chart and see that what to do is clear. More often it is not clear. We must be like a forty-niner panning for gold. That does not mean continuously panning whether there is gold to be found or not. It means finding the right time and place and then going to work.

In order to help you locate these opportunities we have set up a Web site, http: www.BollingeronBollingerBands.com. Waiting there for you are daily lists of the stocks that qualify under each of the methods presented in this book. These lists have been prescreened from a large universe of stocks. If you prefer to do your own screening, there is a stock screener that will let you screen for opportunities based on any of the criteria from this book.

The focus in this book is on identifying opportunities using Bollinger Bands and indicators. This book offers not a panacea, but a set of tools and techniques. It says in Ecclesiastes, "To every thing there is a season, and a time to every purpose under the heaven." So too it is in investing. These tools and techniques each have their times and uses. Carefully and thoughtfully deployed, these tools can help you achieve your goals, at least insofar as they are achievable.