What Has Been Going on Behind the Scenes?
May 30, 2013
Regular readers will have noticed a lack of updates in this space for several weeks.
No, we have not folded our tent and gone home. Quite the reverse! Our small but expanding team has been focused on building two new investment aids due to be launched in June.
One is a membership program for tracking when to buy or sell exchange-traded funds. The other is online software for calculating returns and the profitability of stock and ETF holdings. We’ll talk about that separately.
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We have a number of programs for timing the buying and selling of stocks and ETFs but I have decided not to release them at this time. But I decided to make an exception for the initial ETF program. Many ETF holders are relatively inexperienced and are in significant danger when the next bear market eventually arrives. This program will help them to escape that danger,
On the stocks side, the average length of an investment is typically about 5½ years. We are normally almost fully invested within three or four months of a bear market low. To get maximum benefit from the other programs you would need to have been a subscriber before July 2009.
Need your input
And that brings up a debate that has been held within the company: Why limit subscribers to investing only when the program says to do so? Why not allow members to invest later, if that’s what their circumstances dictate? Your feedback on this suggestion would be most helpful. The argument has been made that stop loss protection would still be available regardless of when someone invested; they just would not get the full opportunity of the most timely buy.
The newest program, yet to be fully completed, will certainly not be released until some point during the next bear market. The reason is simple: It buys selected stocks between six and ten business days after the absolute low of a bear market every time. It uses never-before-seen technology to achieve this amazing feat.
Each of our programs uses close to 20 different parameters and each of them have to be tested and adjusted individually for each asset class and each market, a rigorous exercise that will be repeated during every bear market. ETFs in the U.S have 45 separate asset classes; Canada has 26, giving a total of 71 between the two countries.
Stocks will be reported on a country basis, rather than by indices. This is in response to feedback from beta testers. It makes sense; many investors pay little or no attention to which index a stock belongs.
Third week of June
Keep an eye on this page around the third week of June when we expect to launch the ETF program at a ridiculously low price.
One of the things I have noticed is that ETFs overall have a lower return than stocks overall. That may well be simply because ETFs have a much shorter history and for most of their history the markets have performed poorly.
ETFs have the advantage of lower fees than mutual funds yet they still have some of the features that are attractive to people who consider themselves savers rather than investors. Some diversification is built in.
The final change that has kept us busy – and will for a few more weeks – is that we have changed data suppliers and this means we will be using up to 45 years of historical prices for stocks – as we were more than 18 months ago. The reason for the change is that data we were using until April is designed for personal computers; we use a server and different programs to present information to members. A “bridging” program we built failed for a second time in April, perhaps due to a change to our supplier’s delivery system, and we cannot allow that to happen when our clients rely on up-to-date information.
Lots is happening. Keep an eye on this page for updates.
Completed trades to Friday, April 12, 2013
Please forgive our late statistics. We are in the process of changing data suppliers due to technical incompatibility.
| Index | Completed Trades | Win % | Loss % | Annual ROI | Avg Years Trade | % Avg Winning Trade | % Avg Losing Trade |
|---|---|---|---|---|---|---|---|
| USA | 1667 | 83.68 | 16.32 | 25.73 | 5.6 | 31.63 | -4.5 |
| UK | 618 | 80.58 | 19.42 | 33.75 | 4.96 | 43.12 | -5.11 |
| Canada | 367 | 86.1 | 13.9 | 81.74 | 6.36 | 95.64 | -4.36 |
| Australia | 322 | 77.95 | 22.05 | 97.62 | 5.81 | 126.91 | -5.9 |
| Hong Kong | 325 | 76.31 | 23.69 | 90.93 | 5.88 | 120.87 | -5.53 |
How do we get such high returns, far beyond others?
Quite naturally, people often ask: “Just how can you get the numbers you do when no one else does?” At the back of their minds they may be wondering: What tricks are they playing? Are their calculations correct? In some cases, perhaps: You must be scamming people!
We expect no less because we initially had similar reservations within seconds of seeing such seemingly outlandish numbers in the early days of our research. We happily accept the questions because they confirm a level of interest that vindicates all our hard work in bringing the system to the world, addressing all the negatives individual investors have faced.
A change no sane person would make
The Wealthy Investor system started many years before the company was established. Sydney Tremayne, who has developed the system and is company president, admits it was late one night when, in frustration, he changed some parameters that no sane person would have attempted, breaking all standard rules of technical analysis. Today, he insists “I am not clever enough to have done this on my own”.
So, is that it? Just pure chance? The answer is a clear NO.
There is obviously some ‘secret sauce’ (internal coded rules and our intellectual property) associated with how exactly we achieve such outstanding results. You will have most of the answers before you have finished this article.
Trends repeat
Our research clearly shows that stock price trends do repeat themselves and have done so for all 45 years of data with which we have tested. The best returns appear to take from five to six years to achieve. (The length of investment varies by geography and market composition.) The system advises users to sit on the sidelines during bear markets that typically last a minimum of nine months.
Here are the reasons this approach is so successful:
- First, though not so much technical analysis, we entirely agree with senior fellow Paul Woolley and professor Dimitri Vayonas of the London School of Economics discussing long-term investing versus the latest trend in momentum trading (Financial Times, August 16 2012). They repeatedly state: “Long term investors must rediscover their patience” and, after describing ‘momentum trading’, related market volatility and puny returns: “The long run (always) adds up to more than a succession of intervening short runs” and, “adopting these (better, more fundamental stock selection and timing) strategies will gain a private advantage in the form of higher medium to long-term returns.”
Getting the timing right for a single investment for an entire bull market is a lot less fraught with mishaps than trying to catch every little twitch along the way. It is more profitable and less costly too.
- Second, we believe it is in the nature of humans to always recover from bad patches and to gradually pile into something good, transient or otherwise, taking it to excess before realizing the enthusiasm has been overdone. There are plenty of examples of repeating trends. Window dressing is one. Nine in ten times, stocks rise when Wall Street fund managers need to adjust the appearance of their performance at end of year.
- Third, people have short memories that cause the same mistakes to reoccur. Very few investment professionals take sufficient note of these phenomena, especially the broker-analysts and the forecasting communities that are driven by short-term prospects and gains.
Private investors misled by Wall Street
- Fourth, private investors perform most poorly. They are often misled by Wall Street’s bewildering and often contradictory headlines, like sheep to the slaughter. They repeatedly fail to understand Wall Street’s motives and the compensation mechanisms. This encourages overly short-term investing by the individual investor. Deliberately or otherwise, private investors are kept fully invested when they should not be. Instead of being warned not to follow crowds, less well-informed and more vulnerable private investors pile into stocks late in any upswing.
- Fifth among our answers: Without getting too technical, our system is based on massive focused research, testing and re-testing the returns that can be derived from adjusting our program’s range of trend-direction and measurement rules. The system uses what we describe as flexible trend lines. These automatically re-set when certain rules are influenced in specific ways by price movements. The rules give a buy or a sell signal only when an actual change in market direction is detected. Normal corrections are ignored.
- Sixth, it is impossible to reach perfection but our approach has brought us to the stage where the system’s monitoring and interpreting of price movements gives it the critical ability to ‘know’ when bull or bear markets have ended. No person or machine can forecast the future. The system merely sets limits that, when breached, show directional boundaries.
- Last, the system has required many years of painstaking effort to discover optimum solutions and consistently replicate results. To a certain extent, pioneer customers will need similar amounts of patience and discipline
While there may not be any such thing as a free lunch, we believe our long-term investor luncheon will definitely keep you well nourished!