Market Strategist Jeff Saut on Risk Management Principles ~ market folly

Friday, July 23, 2010

Market Strategist Jeff Saut on Risk Management Principles

Market strategist Jeff Saut is out with his latest investment commentary entitled, "Don't bet the farm." In it, he lays out some basic risk management principles. The first of which, obviously, is to not bet the proverbial farm on any one scenario, no matter how good it looks. Managing downside risk is the key to success in markets. Louis Bacon, famed hedge fund manager at Moore Capital, will be the first to tell you that. Saut also believes that portfolio rebalancing is one of the tenets of successful investing. This whole conversation is an extension of his commentary last week where proclaimed risk adjusted stock selection is a key to portfolio success.

You can read his entire investment strategy for the rest of his thoughts on risk management but we wanted to touch on his latest market thoughts as well. Saut highlights an excerpt from Lowry's Selling Pressure Index, who writes, "When selling pressure begins to consistently contract, despite new los in the major indexes, such a divergence usually indicates the desire to sell has been largely exhausted; and, the end of the decline may be near at hand." That would certainly prove to be the case (at least in the near-term), given that the market rallied 200 points on Thursday.

The Raymond James Chief Investment Strategist continues to watch the S&P 500's 200 day moving average with a watchful eye. Saut feels that until a breakout to the upside of this level occurs(around 1,112 on the S&P), he is quite happy to remain flat in trading accounts and to position favorable stocks in investment accounts. He continues to pound the table on large cap blue chips such as Walmart (WMT), Intel (INTC), Enterprise Products Partners (EPD), Allstate (ALL) and Microsoft (MSFT). One thing's for certain: many smart investment firms advocate buying high quality stocks as of late.

Embedded below is Jeff Saut's latest weekly market commentary:

You can download a .pdf copy here.

Be sure to also check out Saut's previous thoughts on risk management and keys to portfolio success in 2010.

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