Today's Market
by Dr Invest

We have been watching the performance of the bond portfolio of TIP and BND. Remember that seven trading days ago, our gain for TIP and BND was .33% and today our gain sits at 1.76%. This is a dramatic gain of  1.43% in our bond position over the past seven days.

Renewed hope for a stimulus for the U.S. could change the direction of the market, but for now stocks are moving lower while bonds move higher.

This is good for us, because we are wanting to see our exchange traded funds (ETFs) in TIP and BND continue a growth trend.

ABSORBING THE MARKET REALITIES

The human mind is a wonderful, yet faulty thing placed upon the shoulders of we humans. We tend to forget losses and remember gains. This genetic wiring needed to keep us hopeful while we patiently pursue game to put on the supper table. While this works well for the hunter/gatherer, it is counter-productive to someone trading stocks.

So here is how the human mind works...."Someone bought stocks in January and sold them in April, making 12%. Then they reinvested their entire portfolio into the market in June, making another 12%. That means a 24% gain is possible that some smart person out there made. If I could hire them, I wouldn't mind paying them 2% of my portfolio and walk away with 22% gains. Who knows how much they will make by the end of the year!" This is classic caveman thinking and has no basis of reality.

Here is the market reality for 2012. Choppy markets have caused professional investors to loose billions of dollars. John Paulson, fund manager for Paulson and Company has made billions for investors over the years. Here is what was recently written about him:

Many of Paulson & Co.'s investors hung with it last year despite an annus horribilis in which the company's flagship hedge fund lost 35 percent. But with returns continuing to sag amid a rising equities market, some of those investors are now jumping ship. Including Citigroup and Morgan Stanley.

Bank of America (BAC), another big investor of Paulson's, has recently expressed support for the fund company. But at a conference call scheduled for late Tuesday afternoon with financial advisors, Paulson representatives may face some sharp questions about performance and strategy.

These developments come at a difficult time for John Paulson, the former Bear Stearns banker who opened his eponymous hedge fund eighteen years ago.

Paulson has gone from managing more than $38 billion in assets at his company's peak to $19.5 billion today. And while a number of his funds are up this year - including the merger fund, which is up 3.6 percent, and the recovery fund, which is up 3.9 percent - his flagship funds, which consist of holdings that represent an array of different strategies, continue to suffer.

So far this year, Paulson's main flagship fund, known as Paulson Advantage, is down about 13 percent, according to people familiar with the matter, and its levered sibling, Paulson Advantage Plus, is down 18 percent. And while the so-called redemption window - the moment at which investors can pull back, or redeem, their capital from a hedge fund - varies for Paulson investors according to which fund they are in and when they invested, the protracted slump in the flagship funds is prompting hard looks at investor portfolios.  (CNBC financial reports)

I can't really be critical of a billionaire like John Paulson, but if he can't squeeze a gain out of the market for his investors, then who can? My understanding is that many funds have losses in spite of the perceived gains in the market. This means the only real way to discover your real losses is to take each bond, stock, and mutual fund, checking for the YEAR TO DATE gain or loss. This is time consuming, but the only way to see if your financial adviser is really delivering to you the right advice.

By doing your own detective work, you can determine the real market realities. It is likely that we will see a 12% drop in stocks before stocks rally again. To maximize the return on your portfolio you will need to stick to an investment method and not be dissuaded from it by negligence or laziness.

The 2012 rollercoaster ride will continue, so keep your stop-sells in place and don't lose money.

(Note: the above information is for entertainment purposes only and not to be used as investment advice.)