I'm not talking about picking highs, picking lows, spotting trendlines, moving averages, RSIs, MACDs, signs to buy here, sell here, etc. etc. Just very high level strategic, as opposed to tactical, thinking. So here are the rules that you need to beat the market in my mind: Rule # 1. You have to have buying power ready when the market falls. If you are 100% in when SP500 is at 4758, you are not going to have $$$ to buy in when the SP500 drops to 4400, or 3900, or 3500, or 3000 and you could otherwise invest at those much juicier prices. Rule # 2. You have to have some system to buy the dips. Even if you stockpile 50% of your cash (in an effort to comply with Rule #1), if the SP500 drops from 4758 to 4400 and you go all in, you are still toast if the SP500 continues to decline - you are burned on the down move and no capital to buy in at those lower, juicer prices. Rule # 3. This rule is at least as important, if not more important, than Rules # 1 and 2. You have to have some level of money working in the market at all times. I'm talking about the stock market, where long term it is almost always going higher (not like currency markets where they on average net out to zero or something like that). The more you are out of the market, the more you are going to lose in lost earnings over time. BUT, you cannot be all in, you need to worry about Rules # 1 and 2. Oh, and Rule # 4. Rule # 4. You should always protect yourself one way or another from the Black Swan events. You cannot just watch and see the market crumble day after day, telling yourself each day "oh it has to turn around tomorrow", only to have your account wiped out to the tune of 50% or more. That is too big a hole to dig out of. And while if can be done (as demonstrated in the market recovery following 2008/2009), much better to never sustain such a loss in the first place but instead have the money available to be buying at those super discount dip levels. So, anyone have any thoughts on how to best achieve all these rules? Here is my current thinking. You need to use a leveraged instrument, but one that does not decay that much. TQQQ is probably a good one. It lets you get 3x (or something very close to it) what the QQQ does, and decays very slowly over time. By having that 3x leverage, that allows you to be far more invested in the market for each dollar you have in ($3 for each $1), and having money on the sidelines to have ready to buy more when the market drops. So that can satisfy Rule # 1 and Rule # 3 right there. Of course, how much to have in the market as a general matter (with the knowledge that you will be buying more on the dips) needs some thinking. But, let's just say you have 20% of your money in TQQQs. That means you have the equivalent of 60% of your portfolio more/less in QQQs. Not a bad general number, knowing that that percentage will go up with the opportunity arises (market dips). But, anyways, as long as you don't pick a ridiculous amount, Rule # 1 and 3 satisfied. Now, Rule # 4. I propose that you use some of your money to buy far out of the money QQQ puts. Say 20% to 25% out of the money, which are typically very cheap. This will cover your Rule # 4 just fine. Now, you should be thinking ahead. So when the market is in full bull mode, VIX is super low, and it looks like nothing can go wrong, load up on these while they are cheaper than they are generally. Do not just buy enough to cover your CURRENT levels of TQQQ holdings, you buy enough to cover your FUTURE TQQQ holdings, i.e. the additional TQQQ you will be buying on the dips. And remember, if you buy a put 20% out of the money that covers exactly your TQQQ holdings (current and future (i.e. 3x the notional amount)), you will very like not even be close to 20% down, as when the QQQs are down 20% VIX will be through the roof and that premium on your QQQ puts will have gone up not only as the market fell, but also because the risk premium is so much more, and you benefit from that. That leaves Rule #2. Well, you just made it easy with those QQQ puts you bought above, because you have capped your loss with those QQQ puts. So you can do some math and invest the money you don't have in TQQQs (80% of your cash in my example where 20% is in TQQQs) based on how close the QQQs get to your puts' strike price. You could do it linearly (just making up numbers, QQQs at 100, your put strike is at 20, so you would invest equal amounts of your sidelined cash as the QQQs fall from 100 to 20 so that at 20 you are 100% invested), or exponentially or anything else (buy less on small dips, increase it more the bigger the dips go). Admittedly, there is much thinking (testing!) to do here, but its easy to come up with some proposed numbers and see what your max loss would be, etc. Then, the only thing that leaves is what to do with your spare cash, i.e. the 80% (in my 20% in TQQQ generally example) until you use it to buy more TQQQs when the QQQs dip. I would say, if interest rates are high, buy long term bond funds. But given where they are at, and that they are certainly going higher, at the current time I would say buy short or very short term bond funds. So you get that interest on 80% of your cash until the dips occur, then you are slowly selling those to buy more TQQQs. Although, the more that I think about it, gold/gold miners might be a perfect choice for some or all of that excess cash - as the market starts tanking, and you are going to be cashing out your non-TQQQ holdings to buy more TQQQs, gold and gold miners will likely be going up by a good amount, allowing you to sell those in the perfect selling environment to buy more TQQQs in the perfect buying environment LOL. Anyways, I've told you the rules to crush the market. I should pretty much write a book at this point. Sure, there are some details that need to be worked out, if anyone has any ideas or thoughts I'm all ears!!!
It seems the key rules to beating the market are these... ---> It seems the key rules to profiting from the market are these...
Buy stocks that are rising. Don't hold stocks that falling. Pretty well covers all the rules except rule #3. I don't care if I'm in the market at all times. If the market is in a decline why would I want to be in it.
Agree with 1 and 4 Maybe you could read some about Stan Weinstein #StageAnalysis #3 Cash is a position #2 Buying deeps isn’t necessary
Good luck with those ultra leverage ETF’s “not decaying that much” when the market isn’t going up daily for 12 straight years (thanks Fed!)