The challenge facing many investors today is they are attempting to use the same techniques in a different market. Different markets require different strategies. We need to think outside the box to deal with the current investment environment. This morning I was listening to an interview on CNBC by Mark Haines with two professional money managers. The question was simple enough, "What do you like looking forward?" The responses were based on earnings and growth over the next 12 months. Mr. Haines responded, "if we don't know what growth is going to be based on the current outlook for the economy, how can you determine earnings?" That is my question as well. The normal fundamental data we are used to looking at isn't necessarily going to work short term to measure the outlook for the stocks or even sectors of the market. Therefore, we have to come up with different short term tools or wait for some since of normality to return to the market. Waiting is perfectly acceptable, but it is a choice we have to make versus trying to put a square peg in a round hole.

That is why I am willing to hold a larger than normal cash or cash equivalent position. On the other hand looking at what is happening in the economy and the market, I do see opportunities. The key is coming up with a disciplined strategy for approaching each investment. That strategy has to take into account two key components. First, the risk of the asset itself and second, the risk related to the current market environment.

Let's look at an example. I have been following the last couple of weeks. The Dow Jones Telecommunications index has sold off much like everything with the exception we have held the closing low of 95.77. That is a positive from my perspective technically for the index. In looking at the index the question becomes what is holding it up and why? Using software, you can pull up the telecom index and thumb through the stocks that make up the index. This permits you to look what is working and ignore what is not. Several stocks looked attractive from a technical view only. In other words the charts were showing support. Yesterday one of those stocks reported earnings, Verizon (NYSE: VZ [1]). This was one of the stock on my watch list within the telecom sector and the chart already had support, resistance, breakout points, entry, stops, etc. already mapped out and drawn on the chart. In other words there was a strategy in place for how to play the stock should the opportunity present itself. This is what I mean by have a different approach to looking at the market. Map out a plan of you how and why to play a position according to the risk of the current environment. Will Verizon be a good play? The market will determine that. What I do know is how to get into the stock (entry), how to exit the stock (stop), and what I would like to accomplish by owning the stock (target). See the chart below. The research was already done I just needed it to follow my script. When you have discipline in how you approach the market and investing in the market, it doesn't matter what is happening, it matters if you have a plan and strategy of how to manage your money.

My way of investing is my strategy. The point being you need to develop your own strategy. It needs to take into account the current market environment. Measuring the risk of both the asset and the market is key. As the clarity of the market develops you can make further adjustments. And most importantly when confidence in the market returns you can make further adjustments. Portfolio construction happens one day at a time. Managing the risk of your portfolio takes place everyday all day. Be smart as this market volatility unwinds and some sense of normality returns to the broad markets.