Q&A With Dave Fry of ETF Digest.com

by on April 20, 2009

Founded in 2001, Dave Fry’s ETF Digest was among the first Web sites to cover ETFs. Mr. Fry began tracking these securities in 1996, and his trading programs are based on his technical analysis of their intermediate and long-term price movements. He has been featured and quoted in leading financial publications, including Barron’s, Investor’s Business Daily, Forbes, CBS MarketWatch, and Yahoo! Finance, and has also written a book about ETFs (available here from Amazon.com). Mr. Fry was gracious enough to discuss the ETF industry, technical trading and more in an exclusive e-mail interview with ETF Database.

ETF Database: You’re a big fan of technical trading and trend-following; you’ve called this style of investing “a more humble approach”. A lot of hobbyist investors have trouble staying disciplined enough to follow a solid technical strategy. What’s the key to being disciplined–and having longevity–in trend-following?

Mr. Fry: The key is to be willing to accept small losses and a give back of some gains. You can’t make every dime on every move just enough to make a decent return. Too often investors try to wring-out every inefficiency, and while that’s a noble effort, it’s often futile since there is no perfect system. It’s important that once you have an established system, you stay with it since as the maxim goes: a bad system properly implemented is better than a great system improperly so.

ETF Database: Speaking of longevity, ETF Digest was one of the first publications to focus solely on ETFs (founded in 2001). The past eight years have treated ETF Digest well. Where do you see ETF Digest going in the next eight years?

Mr. Fry: Onward and upward hopefully.  We’re undergoing a massive redesign that we hope to be completed by June.  It will feature more intra-day blogging along with dynamic charting for more aggressive traders.  At the other end of the spectrum will be portfolios designed for very slow approaches meeting the needs of less transaction oriented investors.

ETF Database: In an essay last year, you described the rush by ETF issuers to get in first into as many sectors as they can as as “akin to a game of Risk or Hollywood Squares”. Do you see foresee any unintended effects occurring from the ETF “gold rush”?

Mr. Fry: Well, some ETFs will fail and/or be consolidated with others. That’s inevitable. We’ve already seen some of this. I’m happy for all the issuance since among the tailings there may be some gems.

ETF Database: In your book, Create Your Own ETF Hedge Fund: A Do-It-Yourself ETF Strategy for Private Wealth Management, you describe how an individual investor can, in effect, create a personalized “hedge fund” using ETFs. What type of investor will have success using this method? Are there any investors whom you wouldn’t recommend use this type of strategy?

Mr. Fry: Given the carnage of the past year clearly many investors have been hurt with buy and hold investing. It’s always been my belief that there’s a time to be in the market and a time not to be. So, while market timing is often denigrated by those conflicted promoters, nevertheless there are some simple hedge fund strategies that are suitable for even conservative investors. There is not an investor who wouldn’t have wanted to exit the market in late 2007/8 even if that meant sitting in cash or not shorting. It’s always important to protect your nest egg and I believe our strategies can help those with that goal.

ETF Database: Any words of wisdom–perhaps an unconventional investing tip–you could share with our readers?

Mr. Fry: You have to have confidence in what you’re doing and nerves of steel sometimes. If you can’t do that don’t invest in stocks or other securities where risk exists. Therefore, you must know yourself and risk amounts only you can sleep to. People are afraid to short an index but sometimes, as long as you have appropriate risk management systems, it’s just as risky as being long an index. There are unleveraged short ETF products that allow investors the ability to profit or hedge their risks. Investors should investigate these to ascertain if they’re suitable to their needs and tastes.