I recently had a conversation about invest- ment strategy with a friend and fellow actu- ary (who also happens to be in the invest- ment business). My friend made the point that markets are g enerally efficient, meaning that they reflect all relevant information making it impossible to consistently ―beat‖ the market. His argumen t follows the ―efficient market hypothesis‖ made famous by Eugene Fama of the University of Chicago Booth Schoo l of Business in t he 1960’s. The implication for investing is that only asset allocation matters and that within alloca- tions, a low-cost, index approach should be used. Therefor e, techniques s uch as techni- cal analysis really don’t work in the long run. While accepting the idea of using low-cost, index-orient ed investments is best (although my preference is to use exchange-traded funds rather than traditional mutual funds) my point of view is that by using technical analysis (such as those discussed on page 6) and relative performance analysis, above av- erage performance can result (though not automatically so since no system is perfect and there’s always room for human error). The implication for investing is that a more hands-on approach is taken to allocation using technical analysis. Readers should be advised that this is a popular and ongoing disagreement among investment pr ofessionals. I bring thi s topic up here because I want reader s to know my rationale in providing Stock Market Com- mentaries in the way I do. Inside these pages, I provide both current economic develop- ments and current technical analysis, though it is, on account ofspace constraints , limited in its extent. I do that because I find the economic informatio n provides a useful backdrop for market action and relevant information about what to ex- pect from the market in the long run. But relying exclusively on that informatio n ex- poses the investor to swings in the market that diminishes long term returns. On the other hand, in my view, market swings can be mitigated, though not entirely avoided, b y using technic al analys is. In the doing, long term investment performance can be improved though, of course, future per- formance can never be guaranteed. Based on information through the end of Feb- ruary, economic conditions are ambiguous in that green shoots continue to appear while, in my opinion, the larger picture still looks challenging (see page 9). Coinciding wi th the economic outlook, as discussed on page 6, technical indicators are also a bit ambiguous, though still in the positive camp. I believe the market is on edge in that reac- tions to news events are at a heightened stage and we should expect increased market volatility. That said, I am not a pessimist on the market quite yet as my view of the tech- nical analysis r emains c autiously positiv e. In- vestors should discuss these matters with their advisors. On The Edge Stock Market Commentary .. by Ed Lane March 2010 Lane Financial Management Special points of interest: The markets remain on edge as economic re- covery is anemic and concern is raised about sovereign debt defaults Momentum indicators are barely holding up and, in some case, are turning south Investment caution is advised as the S&P has had little net movement in the last four months Inside this issue: On The Edge 1 At-a-Glance 2 Economic Recap 3 Market Recap 4- 5 Momentum Watch 6-8 My Bottom Line 9 Disclosures 10-11
