Change Your Timeframe to Fit the Cycle

10/19/2011 8:45 am EST


Andrew Houghton

Partner, Delta Investment Management, LLC

We’ve been in a bearish supercycle since 2000, says Andrew Houghton, but obviously there are pockets of great profitability, which means re-evaluating your holding period, as he explained in this exclusive interview with last month.

Andrew Houghton says we need to change the way we think about supercycles. Andrew, thanks for being here.

Thanks, Myron.

Let’s talk about that. First, explain the supercycles.

There is a theory that investing comes in these big waves, or cycles, and over the last 115 years, there have been four bearish markets and four bullish markets.

The most recent bullish market from 1982 to January 2000 would be almost an 18-year run, and since January 2000 through 2011, the markets basically traded sideways. Actually, it is down from the January 2000 level.

So how do you see that as something that you incorporate into your program and how you work for your clients?

Well, the thinking is that strategies that work during the buy-and-hold period during a bullish cycle might not work in a bearish cycle. So we call these cycles on average about 17 years…there has been a bear cycle that has lasted 25 years.

The bear cycle that we are in now, where it is basically sideways, gyrations with investable periods, it could stop tomorrow, it could stop in five years or ten years.

So the trick is, one has to change the mindset that the buy-and-hold strategy that worked during the 1980s and 1990s hasn’t worked in the last 12 years, and we don’t know when it’s going to work again. So we believe a tactical approach is the way one should approach investing in stocks.

What do you mean by tactical?

Tactical is another way it would be actively managed. So, in a buy-and-hold period, you can hold the stocks for five to ten years on average. Here, our holding period is less than a year.

It is not daytrading by any means. We are looking for longer cycles. We’d love to take long-term capital gains, but in actively managed accounts, the tax considerations are not the primary driver.

Do you have any specific stocks that you recommend at this time?

At this time we’re 100% cash. We’re in a bearish point of the cycle, and we think it’s best to stay in cash right now.

So what strategies do you incorporate to take advantage of these cycles?

In the super cycles, when you’re in a cycle of a consolidating market/bearish market overall where the market just goes sideways, tactical investing gives you the opportunity to play intermediate trends, and so, clearly over the last 12 years, there have been periods where months the most recent example is September of 2010 through February 2011—was a great time to be invested and we were fully invested. But since February, there has been a sideways market, and most recently, with a downward plunge.

Related Reading:

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on MARKETS