Last weekend I published a book review of Super Sectors: How to Outsmart the Market Using Sector Rotation and ETFs, by John Nyaradi. I had asked him some questions while reviewing the book and have now received his responses. Without going into details prematurely, let me say that not only is Nyaradi’s system deliberately simple, it seems superior to most when combined with fundamental analysis (and discipline), and I’m intrigued by him finding writing covered calls to be more effective than dividends for generating income.
Steven Towns (ST): Describe one of your success stories in which you followed the chart(s), i.e. buy signals, despite the opposite message coming from the financial media or elsewhere, as you conveyed having experienced such instances in your book with the charts proving right in each case.
John Nyaradi (JN): The current situation is a good example. Markets expected QE2 to move indexes and risk assets higher. Charts indicated a short position was warranted. Recent activity would indicate that might be correct.
ST: Do you have any recommendations, web-based or in print, for learning more about the 5 signals you introduced for entering/exiting trades? There are a ton of sites and books out there. Each of these signals can be adapted to accommodate a variety of trading styles, as can be seen in your expert Q&A section in the book.
JN: There are lots of good tutorials at stockcharts.com regarding point and figure charting, MACD and trend lines.
ST: You make the argument that buy-and-hold doesn’t work, as evidenced particularly by the U.S. market returns over the past decade; I mostly agree, but wonder what thoughts you have for those looking for dividend income. If interest rates were “normal,” the sector rotation, or at least the trading style you introduce, would be ideal, since when sitting in cash (money market) one could still earn something. Nevertheless, one could, as you say in the book, use the sell signal to short the stock, and thus, the matter of interest rates and dividends becomes less important from a trading perspective, since the focus is on capital gains. Do you find that when you sell your position that you often go short, too? Finally, interestingly enough, you quote Warren Buffett throughout the book, but he is perhaps the epitome of buy-and-hold if there is one (he said his ideal holding period is “forever,” but of course he increases/decreases select holdings). That said, in addition to what one of the experts said in your Q&A section (Mr. Harrison, I believe) with regards to having separate accounts (one for trading), can you comment on whether you seek dividend income at all, and if you keep an account or funds for longer-term holdings that you’re less prone to trade. There are obviously a lot of individuals contributing to retirement and non-retirement accounts on a monthly basis, and even to things like DRIPs.
JN: I don’t seek dividend income. I also go short during “sell” signals. Even Warren Buffett is a trader, for everyone buys or sells at some point. The only differentiations are when, how and why. My view is that a portion of one’s portfolio should be positioned for gains, a portion for safety (bonds or cash) and I am coming to believe that writing covered calls might be the best way to pursue additional income in an actively managed program.
See book review here.
