I truly believe that during times of challenge we have a unique opportunity that unfortunately many miss out on. It may sound silly but the relationship you have with the market and the relationship you have with others are extremely correlated and when you face a challenge, you can either take the time to learn some things about yourself and others or barrel through with your head down, oblivious to the improvements you could be making along the way.

There are many areas we could segment but one that has been a particularly hot topic on the streets of TickerVille of late has been the element of time and how it plays a role in our portfolio. The phrase ‘time frame’ is thrown around without having really been defined and to the novice can be quite confusing.

I believe it is broken down in two segments, one being determined by where you are in life and your financial situation, the other being determined by your personality. Many will blend the two however I firmly believe they are completely different and may even need different titles. For example, a person in there thirties may desire to retire at the age of sixty and thus has thirty years to reach their desired financial goals. Any advisor would agree that this person has a much longer time frame than a person who is already in retirement and their current investment dollars support their lifestyle. For the purposes of this piece we’ll call this a person’s investment time frame.

The other element of time, which we’ll call the trading time frame, has to do with ones personality and daily responsibility. For example one may have the ability to sit at the computer all day long and watch stocks, hence resulting in an extremely short time frame or day trading style that when applied successfully will meet the requirements to achieve financial success within a persons investment time frame. On the other hand, someone who doesn’t have the time or desire to sit at the computer all day and therefore approaches the market in a more methodical manner, seeking trades that last several days, weeks or even months, has a medium time frame, and will seek to utilize this in order to achieve their set financial goals within their investment time frame. And lastly, a person who seeks to buy solid companies and not watch them at all, allowing several years to pass before turning over any positions, possesses a longer term trading time frame, in which to achieve the desired results of their investment time frame.

I think as mundane as this subject matter is, having a firm grasp on the above, helps to clarify exactly where we are and refocus our efforts on our goals.

Investment time frame correlates directly with risk exposure, is a subject matter altogether and one I will cover another time, however as I mentioned above, trading time frame correlates more with ones personality.

As I ponder where we are currently, and I consider the element of time, I think about what opinions the different time frames may possess. I would imagine that the extreme longer-term time frame would be viewing this current state as a normal bump in the road and possibly with an eye on opportunity. Bank and utility stocks are selling at historic lows and despite the volatility; stocks like General Electric are finally showing some life after many years of doing nothing. Investors like Warren Buffet are buying perceived value through stocks like Kraft, and possibly some are even starting to nibble on a few of the bigger named home builders seeking a bargain. Of course these people don’t concern themselves with what will happen over the next several months rather they are concerned about where these investments will be over the next several years.

On the other hand, the medium term trader who desires to place trades that derive profits over several days, weeks or even months, understands that the market is in a state of flux and the risk simply does not yet justify the reward of venturing out to attempt this trade. The medium term trader is fine with this, as he understands there are times when waiting things out is necessary and appropriate.

The short time frame trader eyes the current situation no different than any other. Should a stock offer up the opportunity for a quick trade, it will be taken without a second thought. Should the trade not work, it will be reversed quickly minimizing the loss.

Just as important as the style is, as is our current state of mind. If you find yourself concerned with the next wiggle and the possibility of deriving some quick gains, you may fall into the short term camp and should consider sticking to this plan, however if you find yourself with the ability to sit idle and wait the action out, you are more than likely classified as a medium term trader and should you be eyeing a few deep discounted gems, quite possibly you fall within the longer term camp.

I have often been asked if there is a place for all three time frames in your portfolio and the basic answer from my vantage point is yes, however while possibly some stocks may fall into different categories, one time frame will more than likely dominate and should be what is focused on before a trader deviates too far.

As you go through this rough patch where we aren’t doing much at all, take the time to do some personal reflection and truly define who you are. Look back over your position sheet to see what trades have worked and what were they classified as. Ask yourself where you feel most comfortable. After you have pondered this, set out to move forward by sticking with this predominant style. Should you deviate here or there, that is fine however always being able to fall back within your comfort zone should help you to hone your skill and achieve any goals you have set forth.

Futures on this Monday morning are currently trading slightly lower as traders brace for another shaky week. The predominant talk surrounds the credit crunch, stemming from the sub-prime issues. Interest rates have fallen over the last several days and the air is ripe for a possible bounce however looking to jump in at this point seems a little reckless and I have no desire to try any heroic attempts at this stage. Unfortunately, it could be another long week of catching up on other tasks.

~ Trade ‘em well

Quint