The Best Investment Strategy There Is?

Discussion in 'Trading' started by tradermike, May 27, 2012.

  1. I think I have come up with the simplest, safest, and most rewarding investment strategy....Do you see any flaw in this?

    Wall Street teaches us that if we "invest" all of our money in mutual funds we'll get rich. Or if we just buy and hold we'll get rewarded.

    Here is my investment idea. Let's say every year on average there is one opportunity to buy into a market or a sector at a super cheap investment price coming at out of a stage one base or in a panic bear market end that is now poised to start a bull market of its own and rally for several years.

    Instead of putting all your money into it, what you should do is make a simple ten percent investment position. If things work out the value of that position should at least double in two years and it can easily go up more than that. Based on what happens after most countries go into a default I believe the Greek stock market will go up by a factor of four within months of its final bottom, then consolidate sideways for a year and double or triple again.

    Sectors and markets do this when they end bear markets. When I first bought gold stocks in 2002 the HUI gold stock index doubled from when I first bought it in a manner of months and rallied over six hundred percent in ten years.

    I didn't hold it for ten years though because I was putting all of my money into it and didn't want to weather that much volatility in my account when it had its corrections as the gold stocks are doing once again now.

    That's one reason why I believe a ten percent targeted investment in a sector makes sense. That way you won't feel like you have to sell it once you get a return or because you are worried about losing money. At the most you'll be risking 50% on your initial 10% position if something truly catastrophic happens for a 5% potential loss for your whole account.

    Now if the position takes off and gives you such a huge return that it now takes up a large portion of your account it becomes prudent to sell it in order to maintain diversification and so you don't become at the mercy of it.

    For example let's assume we put ten percent of our money in Greek stocks and hold them for five years for a four hundred percent return. At that point it would make sense to trim the position size back down to ten percent and probably even sell some of the Greek stocks completely and keep only those paying dividends.

    This all sounds good so far and not out of the ordinary. We're talking about taking 5% risks on investment positions in the hopes of making 30-40% long-term capital gains with 10% of our money.

    Now here is where my thinking gets unorthodox.

    What if you did this only once a year?

    What if every year you simply waited for a big market correction that occurs just about every year before you took your 10% position. Once a correction happens all you'd have to do is look at what global markets held up and what US sectors held up to find a place to put a 10% investment position on.

    Time goes by fast. Next thing you know five years would go by and you'd have put half of your money in several wonderful investment positions that you had bought from cheap levels. You'd completely beat the stock market with a simple strategy that involves almost no risk.

    Of course odds are you'd be able to find more than one sector to invest in a year. My guess is we are going to see opportunities in the coming months in Greece, gold, shipping tankers, and possibly emerging markets this years over the next few months. Maybe some US market sectors too.

    But for discussion sakes I just want you to think about the power of one new investment position in one sector a year and what it could do for you.

    What would you do with the rest of your money? I don't know. If you trade then you trade it. That's what I'll probably do for now. If you like mutual funds you buy the mutual funds. Maybe it's CD. Whatever.

    What I'm trying to show you is how if you built an investment portfolio over a few years in several sectors how powerful it could be.

    I've never heard of anyone advocating this before.
  2. Works awesome unless you miss a bull market because you're waiting for a pullback.
  3. bmatthews


    I think you might have missed the point...

    The important thing with this particular strategy is to take no notice of a major uptrend in the market, because you cannot always predict when a downtrend is coming - making your position so much more risky and bringing out the stupid emotional decision making in every one of us.

    The key here as the OP is pointing out is to get in when pessimism is high and the markets have fallen to relative lows and where there isn't too much foreseeable downside.

    It is then you make your move. And you take no notice of the stock until the markets begin to rally and the stock picks up and starts to gather momentum.

    All you would need to do is ride it out till, selling off as you see fit with regards to proper money management, portfolio management and risk management.

    Fundamentally a good sound strategy, nothing new, patience required and famously used by some of the wealthiest stock investors of our age.
  4. Yeah that's the idea, I just never seen anyone really laid this out in detail anywhere as a strategy. Do you know of anywhere that has? Also the idea is to just invest 10% or so when you think the time is right in an individual sector...with that small of an investment you don't really need to worry about getting stopped out. You really only need to sell if the investment goes in your favor over time and becomes a big portion of your portfolio - but by then you'd probably see some other opportunity somewhere else anyway. I'm also not thinking of just investing in the us stock market, but looking at markets all over the world and different asset classes. But trying to figure out what is the flaw and has anyone laid this type of thing out?
  5. ocean5


    Review Commodity Almanac.That`s all in there.
  6. neke


    So on Year 1, you lay out 10% on beaten down sector pick. Year 2, the first investment doesn't pan out, and the bear hit another sector, you are in with another 10%. Suppose it doesn't pan out in one year as well. Over time you are fully invested in losers. Looks like averaging into losers. Works many times, but sometimes you could lose almost all you have. Any plan for exit if things don't work out?
  7. 1 year is rather arbitrary. Some sectors have bear markets lasting many years, if not more. What you are suggesting can work if you buy into a 1 year dip of a sector that's in a longer term secular bull market.
  8. As with many things that sound good in theory, the potential flaws will lie in the execution.

    For example, how will you define "beaten down" sectors? Remember that a market can nearly always go down more than it has already.

    It sounds somewhat like the "Dogs of the Dow" applied at the global level. Not that that is a bad thing because I think that strategy had a good run at beating the market, as I recall.

    I guess overall, it could work, but you'd need to actually quantify some of your definitions and then test them on historical data.
  9. GS19


    "what you should do is make a simple ten percent investment
    position. If things work out the value of that position should at least
    double in two years"

    I like to double every 2 weeks

  10. Wall street is the scum bag banksters.

    banksters teach you to give them your $ in return for worthless paper.

    scum bag banksters 1

    retail pawn -1

    rinse and repeat.


    #10     May 27, 2012