Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

This Simple Investing Formula Is All That Most Investors Need

InvestorEducation / Learning to Invest Feb 22, 2019 - 10:13 AM GMT

By: John_Mauldin

InvestorEducation

“Buy and hold” is a great, time-tested investment strategy. It works on two conditions, though.

You have to allow it sufficient time. And you have to stick with it. The problem is very few investors can stick with it.

They see their net worth shrinking, get scared, and bail out. And they do so at the wrong time. Then they re-enter at the wrong time. And the cycle repeats.

Asset diversification doesn’t help here. Because it still leaves you at risk of making a mistake on emotions.


Emotional decisions aren’t effective risk control. You need a quantifiable, non-emotional decision process.

Here’s what I do.

Escaping the Emotional Trap

One method I’ve been suggesting to my readers for some time is to diversify investment strategies—or advisors—instead of asset classes.

If you are running your own portfolio, another approach is to embrace your emotional human nature. Then counteract it with a disciplined risk-management process.

In other words, you have to remove emotions from the equation. But how?

There are all kinds of methods, but here’s one very simple one as an example.

The 200-day moving average identifies an asset’s long-term price trend. You can use it to stay on the right side of the trend.

Stay exposed when the current price is above the 200-day MA, get out when it drops below.

Is this perfect? No.

It will make you miss opportunities and occasionally keep you in the market through a quick-developing plunge. But it doesn’t have to be perfect to improve your results.

It just has to be better than what you would do on your own.

The lower part of this chart shows the Dow Jones Industrial Average total return going back to 1900 (blue line). The red line shows the same Dow if you had entered and exited using a 200-day MA rule.



Source: Ned Davis Research

Note this is a log scale so the difference in dollars is even greater than it appears.

Better yet, the difference in your mental state would have been incalculable. You would have missed the major bear markets and then got back in when the uptrend resumed.

Doing Something Is Better Than Doing Nothing

Now, there are much more sophisticated versions of this strategy. Some are better than others.

But again, I think even something this simplistic is much better than going it alone. This is especially true as we enter the 2020s. I suspect it will be a period of unprecedented, never-before-seen conditions.

The one thing we can be pretty sure about is the trends will change periodically. And every such change will be an opportunity for profit or loss.

Get one of the world’s most widely read investment newsletters… free

Sharp macroeconomic analysis, big market calls, and shrewd predictions are all in a week’s work for visionary thinker and acclaimed financial expert John Mauldin. Since 2001, investors have turned to his Thoughts from the Frontline to be informed about what’s really going on in the economy. Join hundreds of thousands of readers, and get it free in your inbox every week.

John Mauldin Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in