Bill Gross in his wonderful July missive suggests, “short-term policy rates will be kept low for longer than cyclical norms, and the outlook for risk assets – stocks, high yield bonds, and commercial and residential real estate will involve just that – risk. Investors should stress secure income offered by bonds and stable dividend-paying equities.”

Steve Johnson at the excellent Bristlemouth blog declared it’s Time to Get Defensive (again).

“We may have seen the worst, but I doubt we’ve seen the last of the global economy’s woes. The massive fiscal and monetary stimuli are obviously making a difference. But they come with a price tag attached. What the consequences will be nobody knows, but hyper inflation, debilitating deflation, currency runs and potential government defaults are all on the cards.

For mine, there’s a very good case for shifting your portfolio back towards those businesses with guaranteed customers and pricing power. In stark contrast to the situation four months ago, Telstra and QBE look relatively good value.”

I have a large position in Telstra, it is the ballast for my portfolio.

[I wrote this post yesterday and was planning on editing and adding to it today, but won't have time. I decided to post it anyway as the first article I read today was "Move into defensives helps lift Dow and S&P"

"The Dow industrials rose and the S&P 500 rebounded in late trading on Monday as investors' concerns about the strength of an economic recovery triggered a move into defensive stocks.
But the technology-heavy Nasdaq slipped as investors rotated out of the tech sector, which is viewed as more reliant on the economic cycle.
A series of reports showing the economy is in less dire straits than it was at the start of the year drove stocks sharply higher in the spring, but lately investors have been looking for consistent evidence of a sustained recovery."

While tech was falling FormFactor Inc. (FORM) continued it upwards move which began last Wednesday. Funny how it moved up ahead of the Oppenheimer analyst Gary Hsueh raising his rating for the stock today to "Outperform" from "Perform" and increased his price target by $8 to $30.  ]

I read the following advice on this ASF thread

Take a portion of your profits, say between 10-20% per year and put aside into a compounding strategy. For example, buying banking stocks or any stocks that have a decent div yield which helps increase the return over the long term. If you don’t need the cash for the div, take the extra shares. Then apply long term charts and BUY into major pullbacks each year. This will help increase the return in the long run, as it allows you to purchase more. And keep repeating the process every year. Just make sure you’re not buying the ‘tops’ of the market, which is easy to do if you don’t understand the Primary trends of the market. It will take about 13 years for the strategy to kick into gear, but you’ll be on your way after that.

Excellent advice to give to a young trader, though as always the young buck viewed the sage advice as the folly of an old man. It reminded me of some discussion a few years back on TMF Hidden Gems message boards. Some new investors were advocating putting 100% of their assets into small caps as, on average, small caps have greater average return over the long run. They could not be swayed by arguments encouraging them to diversify. As Marcus Padley explains in this article, Relying on the average return is a mug’s game, “the reality is that the market is volatile, not average, and you rely on the average at your peril because next year could be up 65.8 per cent or down 32.4 per cent. The average really means very little because we don’t have average returns with the occasional good or bad year“

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