Mike Harris (here on Stocktwits) has an excellent blog post up on his excellent blog entitled ‘1000 Posts‘.
I love them all as they are so true, but these three ring home the most:
10. Fully automated systems for retail traders are like giving a racecar to a 16-year old kid to go to school. Many accidents can happen along the way. If one cannot profit placing trades manually, the chances of profiting from automated trading are very low or 0.
11. The markets reward discipline and proper risk management more than intelligence.
12. Trend-followers are engaged in a very risky game unless they can maintain a high win rate during periods of choppy markets, but unfortunately few do.
It’s been over 25 years since I bought my first stock.
It’s been about 10 years since I settled on trend following as a strategy that works for ME.
I am still unconvinced of the best way to invest which is why I only like to disclose what I am actually doing when it relates to individual stocks. Telling you what to do is not my style.
All that said I believe everyone should own individual stocks and everyone should also be dollar cost averaging on a regular basis into low cost, tax efficient ETF’s.
AND, do NOT be cheap when it comes to a trusted advisor if only as a second eye to a quarterly or yearly rebalance of your protfolio.
“All that said I believe everyone should own individual stocks and everyone should also be dollar cost averaging on a regular basis into low cost, tax efficient ETF’s.”
Dollar cost averaging is a way of beating low win rate/profitability but it takes patience, conviction and some analysis. But for most people it pays to have a good professional to do that.
Thank you for the mention.
Michael, I think your advice is right on. Dollar cost averaging is what everyone does when that 401K contribution comes off their paycheck. Dollar cost averaging is how you encourage the “saver” to move to “investor.”
There is a joke that if you save a little money every month, at the end of the year you will be surprised by how little you have actually saved :) In a way, dollar cost averaging might be put in the same category.
The comment you quote about “trend followers having to have a high win rate” is a complete BS. Most successful long-term followers are right less than 50% of the time, but they are still making serious money. The reason is simple – the size of winners is a lot bigger than the size of losers. Take for example the SL50. Since June, its average winner has been 3x bigger than the average loser and due to the great bull market, we’ve had 61% winners. The winning number goes under 50% during more volatile market years, but it still remains profitable.
I’m not even going to comment on the mechanical vs manual system. Every good manual approach could be replicated properly by a computer. What you have to realize is that no system is profitable during every market environment.