Investing strategies

A strategy tells you what stocks to buy, sell and when.

We should match one of the past strategies that match the current market conditions. It is not an easy job nor an exact science. You will never match them exactly. However, when it does or it is close, it will be firework in display and your pocket will be stuffed with dollar.


The following strategies are for illustration only.

1. Side way market like March to July 2012 (as of today).
Buy at dips and sell at temporary highs like 1.5% to 3% from last. The holding period could be 1 day to 2 weeks. It takes advantage of the fluctuations of good news and bad news scenario.

2. The market is up or down steadily.
Momentum profits better. Buy high and sell higher. Use contra ETFs for down market. Avg. holding period could be 2 to 6 months.

3. Buy value.
Avg. holding period could be more than 1 year. You're buying against the tide, so it will take longer time for the value to be 'discovered'. Buy low and sell high. It seems to be easy. The retail investor do not buy when the market is bleeding, and vice versa.

4. Buy from bottom.
2009 is one bottom. Bottom fishing strategy buying value stocks that have been beaten is the best profit maker. Average holding time is about 1 year and the average one year return from the bottom is about 35%. My best returns are from the last two bottoms in 2003 and 2009.

I try to guess what the current market conditions are. When the market is up or down steadily, you will lose money in using side way strategy.

There are some testing variations:

* Holding periods.
* ETF. Some small blend ETFs could be better than SPY.
* Use contraETF to guess the other direction to boost total return.
* Try to make it automated for other criteria such as holding periods, different ETFs...
* Do not play data fitting.
* If the testing period is long, break it down into smaller ones like one for each stage of the market cycle.

You may find some strategy works great like annualized to 60%.  Do not be too excited. When you play with real money, you expect 30% at best. Review your test procedures when the return is excessive like 60%. However, when you find one strategy yields 60% and another one yields 20% with same testing conditions, stick with the winner for real money.

There is no holy grail in investing as the market changes and is not rational otherwise there would be no poor folks. Investing with a  good strategy is better than investing without one.