Sadoff Investment Management LLC believes superior, long-term performance is achieved by limiting downside risk. Before we sell any holding, we will carefully consider the tax impact and your personal situation.* Additionally, we will not always be fully invested in the stock or bond markets (alternatively Treasury bills, bonds and/or money markets).

Our strategy is to sell (or reduce exposure) when:

  • The earnings for an industry, particularly the weaker companies within this industry, are less than the anticipated forecasts over time. Eventually this carries up to the better companies. While we attempt to buy the best, we also closely monitor the worst.
  • The Federal Reserve Board’s monetary policy becomes too restrictive.
  • Other economic, technical and psychological indicators turn bearish.

Stock market signals

One early warning sign of a major market decline (typically a sell-off of more than 20%) is rising short-term interest rates. We know that a significant tightening by the Fed in an attempt to suppress inflation and/or intense speculation brings about this rise in short-term rates. We are always on alert when the Federal Reserve is tightening interest rates, especially when it leads to an inverted yield curve. An inverted yield curve is when short-term rates (Fed funds or 90-day T-bill rates) are higher than long-term rates (Ten-year Treasury bond yields). As you can see from the chart below, since 1960 almost every time the yield curve has become inverted (bottom clip below zero), a recession has followed.

The following table shows that rising short-term interest rates have the potential to create a major market peak. All major peaks have been preceded by rising short-term rates.

Major stock market tops are signaled well in advance by a dramatic rise in short-term interest rates over a long period of time. This increase in short-term interest rates acts as a depressant upon stock prices, corporate earnings and the economy. Most major stock market declines occur against a rising interest rate trend. With our sell strategy and overall reduced-risk investment philosophy, we have reduced the down years while still participating in the market advances.

* Always consult a tax professional regarding your special tax situation. Please see disclosures for complete listing.

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250 West Coventry Court, Suite 109
Milwaukee, WI 53217