What to Ask an Advisor | Moon Run

What to Ask an Advisor

Bryan Johnson
Moon Run Report, LLC

When considering a financial advisor to overlook your account and give advice, there are a few things I would suggest, even though this is an information website not an advisory website. I have had mixed results with brokers and friends that are in the industry and my own experience might lend a good read on this subject.

Experience is probably the best teacher, but the advisor should have learned something from it. I like to have an advisor that is willing to teach you something about the market, not just churn the account. I had a broker say that when he felt that the market would go up it would be a good time to buy stocks. That's fine, but is he going to tell you what he looks for to determine signs of a bull market?

Does the advisor have a track record to document results? Is the advisor afraid to publish results, thinking that some clients did not do as well as he did and feel they were left out? Whatever the technique the advisor adheres to, an advisor with a well-rounded background and sometime in the lab is a good start. The question as to whether an advisor is acting in the best interest of the client is moot, and it is up to you to determine whether to keep or drop the advisor.

Why not get a few advisors rather than just one? You might want to attend meetings at a local investment club to get insights into the market as well as get references in the industry. There might be lectures by reps on various topics that interest you. The important thing is, get acquainted with the industry and get educated.

Here is a list of methods and techniques that advisors may be using. There are adherents to each method or system and will give reasons as to why they prefer it.

1) Modern Portfolio Theory

Harry Markowitz produced a document published in 1952 in the Journal of Finance with the basis that stock movements are random and the market is efficient. According to Harry, there is no way to outwit the market and the best idea is to buy asset classes that do not correlate and rebalance on a periodic basis. Essentially its premise is to sell your winners and buy your losers. A weighting determined for each asset class will be matched every time the portfolio is rebalanced, which may be quarterly, semiannually or annually. Actually, this is a well-respected practice in the investment circles, with the idea that non correlating assets will eventually find profitability and the market will always come back.

2) Market Timing

Market Timing, like the title says, is the art and science of determining precise buy and sell points based on mathematical or visual (charts) methodology. It is NOT the function of predicting future prices, which is forecasting. There are various ways of planning your entry or exit points. The Moon Run Report uses quantitative analysis to produce its timing models. I prefer market timing because I feel it gives me an edge for a strategical method keeping an eye out on the market rather than letting the market control me. There is a publication, Timer Digest, that keeps a record of how well the better timers are doing, with comparisons of bonds, gold and long term timing as well.

3) Mutual Fund Switching

This is the art of moving money from one mutual fund to another. Some advisors like this because it gives them diversification as well as vehicles to trade. Through the years ETF's now become favored because of the ability to trade intraday.

4) Technical Analysis

In 1948 Robert D. Edwards and John Magee published Technical Analysis of Stock Trends which is widely considered to be one of the seminal works of the discipline. Unfortunately, Technical Analysis cannot be back tested and remains the opinion of the viewer rather than a serious study of investing. There are quite a few angles to Technical Analysis, however, eyeballing a chart has the drawback of being beauty in the eye of the beholder. What you may want to do is Google, "Why Technical Analysis Doesn't Work". Guaranteed you will find hundreds of websites. So be it, here is a list of a few things that Techies use:

Japanese Candlesticks

Trend lines

Channels

Support and Resistance

Flags

Triangles

Pennants

Cup and Handle

Double Bottom

Point and Figure

Trend Trading

Golden Cross

Death Cross

5) CANSLIM

The book, "How to make money in stocks" by William O'Neil should be mandatory reading for any serious student of the market. CANSLIM is an acronym for details on what to look for in stocks and the market. O'Neil made a fantastic amount of money with this method and others have taken to it and been successful. Unfortunately I was unable to make it to work and had many losing years with it. One needs to have current charts and analysis. I was using it in the 90's when they had these chart books that came on Monday night when they were not as useful. You had to flip through the book looking at chart formations that were not as useful as computers are today. I gave up on CANSLIM and focused on other tools to make me successful.

7) Quantitative Analysis

Quantitative Analysis uses math and fundamentals to determine which assets to buy or sell. They start with a ranking system to determine from top to bottom a list of stocks to search through, then determine buy and sell rules to manage the list of stocks chosen. A back test through a number of years will show suitability of the system they are designing. Here's an item: Google "Why Quantitative Analysis Doesn't Work Stock Market". I was unable to come up with any websites. Why? Because Quantitative Analysis DOES work. This is the beginning of my success in the stock market. To have back testing capabilities and mathematical analysis with ranking systems and buy and sell rules built in one has a powerful tool to invest with. The computer ushered in the new angle to stock market investing and this is the tool of choice. The major advantage of QA is back testing. Back testing will not necessarily show you what does work, but will show you what doesn't work. Live testing and walk forward analysis will lead you to finding simulations and portfolios that give you a chance.

There are a number of things an advisor may trade. Options, futures, forex, day trading and swing trading are aggressive types of investments that a small percentage of traders can master. The investor should be aware that a system or method may work only 50% of the time and still make money overall.

The Moon Run Report

I started the Moon Run Report with the idea that I could outperform the market by using a limited number of stocks and portfolios. The Short to Intermediate Market Timer was first designed in 2004 and updated in 2005, 2006 and 2010. The other timers were designed in 2009 and modified during the next few years. The Tsunami Indicator was back tested from 2000 to 2006 and used live to the present day. The 1987 crash was analyzed successfully as well as the 1929 bear market. It is preferable that the Tsunami Indicator overstep its predictions by being wrong than to miss a bear market. My interest in determining successful investing has led to contribution to theory and, I hope, good information for my subscribers.

About me

I graduated from Drexel University in 1976 with a BS in Math, and spent 10 years in the computer field.  I turned to the stock market to determine ways to outperform the market.  I use Portfolio 123 to develop stock selection methods and Metastock to develop timers.  My focus is to develop simulations that outperform areas of the market.