Introduction

Do you believe we are better investors than we were 20 years ago? Yes? Well, today we have internet and e-mail, a myriad of financial news channels, newsletters, forums, blogs, twitter, RSS feeds, – certainly much more information at our fingertips than in those days. Then again, we now experience overkill in information, available ‘anytime, anywhere’ (Bloomberg). Indeed, much of it could be classified as irrelevant noise creating the illusion of knowledge and control. Rather than discovering the essential message, we are left feeling more confused and exhausted.

Statistically, about 80% of stock investors do not even outperform average markets, no matter how much smarter we hope to be than other ‘information hunters’.

Scientific and empiric observations suggest that we all follow the same emotional pattern and suffer the same behavioural bias. One common drawback of note is ‘heavy trading’ which produces high costs and not necessarily better results. Secondly, we are often unable or unwilling to accept when an investment decision we made turns sour, and miss the right time to sell. Conventionally, we have been taught to follow a Buy & Hold Strategy. After the recent crisis it may be apt to rename it ‘Buy & Hope Strategy’.

Most of us are learning very fast that we are living in a complex world with complicated financial systems. However, this is when simplicity could offer the key to success.

Born out of believe in simpler solutions, I wish to introduce to you one such strategy:

We are viewing a market over 8 months and then work with an 8-monthly Moving Average (SMA). Every end of the month we watch whether the market we are observing is trading above or below this SMA. If it is trading above, then we can stay invested or buy more. If the market is trading below than we propose to sell and – stay out.

As you can see, this simple strategy works in many different markets, especially the Asian stock markets.

Comments are closed.