THE THING THAT

attracts me most to the investment world is its objectivity. There are a million opinions about the best book, restaurant or movie, but a quarterly account statement is either in the red or in the black. There's little room for opinion or spin.

Yet even the most talented investors go through losing periods. Eddie Lampert, Bill Miller and Jim Simons, for example, are just a few of the highly regarded and successful investors who have posted severe losses in recent months. Although I don't much believe in their respective styles, I can empathize with the reality of volatile markets: We'd all love an investment that always beats the averages and never has a losing month, but to my knowledge, it simply doesn't exist.

Whether you pick your own investments or allocate to a number of managers, from a portfolio perspective one solution to dealing with the inevitable losing spell is to stagger your exposures and strategies over several months. I call this diversification by time. By trickling out capital over an extended period instead of at one particular moment, you can essentially limit your risk to any one particular market cycle. As some ideas, like precious metals, are starting to wilt, others, like Japan, are just beginning to bloom. Your entire capital reserve isn't allocated based on one day's analysis.

That analysis should be primarily centered on the price action of the securities themselves. To that end, I look at a lot of charts, not for obscure mathematical calculations, but simply to get a broad sense of the market's major directions and trends. So I'll pull up motion-picture stocks like Regal Entertainment Group and Cinemark Holdings to see how they're weathering the storm (not well) or check in to get a sense of how the utilities like Nicor, NSTAR and Northwestern are performing (much better). It's my belief that, at least for new money, attention should be focused on areas of the market that are outperforming. Essentially you water the winners and let the losers die in the vine.

Box-Office Flops

1-year performance of Regal Entertainment Group (RGC) and Cinemark Holdings (CNK)

Frequently this means doing nothing at all. We'd like to think that XYZ leaps the moment we buy it, never ticks below our purchase price and conveniently obliges us with a quick double-digit gain, but rarely is that the case. Oftentimes a stock will mark time for months before making the move we were insightful enough to foresee. To that end, rather than constantly shuffling money into new bets, investing can come down to waiting on the positions you've already taken.

In today's environment, even more than energy, financials have become the definitive do-or-die indicator of the market's underlying health. Whenever stocks attempt to rally, falling financials seem to bring the entire house down. The high-profile write-downs, along with management change such as we've seen at AIG, are encouraging signs, although the onus is still on the financials as a whole to stabilize. It's difficult to see the market being able to enjoy much upward momentum otherwise.

Up in Smoke

In early June, New York instituted a $2.75-a-pack cigarette tax, meaning that a pack of smokes in the Big Apple can now cost as much of $10. Adding insult to injury is a local government that seems to revel in making it prohibitively expensive for adult citizens to enjoy a perfectly legal product, even in the privacy of their own homes.

"Today is a great day in New York because this tax increase will save thousands of lives," said Commissioner Richard F. Daines. "At a pack a day, smoking is now a $3,000 a year habit in New York City. Quitting now will not only improve your health, but it will save money you can use for yourself or your family, whether it's your kid's college fund, a summer vacation, or whatever else you want."

Forget for a moment that if the commissioner wants to help pay for his constituents' summer vacations or college funds, then reducing, not raising, taxes on cigarettes would save smokers significantly more money. Instead, Daines seems downright oblivious to the proper role of government: not to penalize citizens into making healthy decisions, but to protect individuals' right to make their own choices. What's next, a surcharge on refined sugar and breakfast sausage?

As I wrote awhile back, the anti-smoking movement is a direct assault on property rights, both of the bar or business owner who might want to cater to a smoking clientele to the individual smoker himself who, in a free country, has every right to light one up without an onerous burden specifically designed to punish the pocketbook.

Also See:

• No Values to Be Found in Airlines, Financials

• Far East Banking Stocks Look Attractive

• Despite Market Doldrums, Some Sectors Shine

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.