JaiH's Blog : Don't pick stocks, stay diversified with index funds

It all depends on one view points
ETF averages out a basket of stocks
Stock pickers can beat ETF like QQQ or XLK Example AAPL beat the ETF for a time frame.
For last few months other stocks have been beating AAPL

XLK
Top 10 Holdings (64.21% of Total Assets)
Company Symbol % Assets
Apple Inc. AAPL 17.54
International Business Machines IBM 7.12
Microsoft Corporation MSFT 7.08
AT&T Inc.T 6.70
Google Inc. GOOG 6.60
Oracle Corporation ORCL 4.40
Verizon Communications Inc. Com VZ 4.34
QUALCOMM Incorporated QCOM 3.72
Cisco Systems, Inc.CSCO 3.65
Intel Corporation INTC 3.06

Rjm

Stocks are not deterministic, they behave randomly, but index funds follow the market.

"Stocks are not deterministic, they behave randomly, but index funds follow the market."

Well, Well, Well.

Why would random picks not follow the market? Already for 51 years, such equally weighted weekly random picks are outperforming any ETF, Index or registered hedge fund, and most if not all of the services that use technical and fundamental analysis.

17%/year, including transaction costs. Is anyone making that here consistently, year after year, including the historical recession dips?

JohnTheWizard

Wiz,

Any large group of stocks will follow the market, not precisely though as an index fund, since index fund is the market. I am trying to make money everyday, not over time.

"Any large group of stocks will follow the market, not precisely though as an index fund, since index fund is the market".

Why is it that 500 weekly random equally weighted picks did 100x better during the past 50 years than the market of the 500 stocks of the S&P500?

Wiz

Maybe your random stocks were small caps, try it with large cap random stocks.

The market environment is constantly changing, often in ways that diminish stock-selection strategies that once may have been effective.

Seriously, does the individual investor really believe he can execute old stock strategies and has the tools and resources to compete with the multi-million dollar computer stock trading systems and research stock armies employed by fund companies?

Really, almost any strategy works in a raging bull market. Following conventional wisdom in bull markets will tend to make one a winner .

The key is what strategy, what methodology, what type of trading does one employ in an on-going volatile market, a sideways market, a whipsaw market,a bear market, a market that sways based on global economies and not necessarily the economy at home.

Buying only index funds/etfs will net you a profit in a bull market and likely a bigger loser in other types of markets.

RTMB (Rob the Markets Blind) has proven to be a strategy that works in all markets but especially the market conditions and environment indicated above.

Just follow RJM.
76 pct accuracy, yes indeed !
follow follow follow the golden road.

BlindMo

You buy inverse ETF in bear markets, but you still diversified.
What do you suggest to do.

Mo,

Big investors usually combine forces so that the market will move in the direction of their investments. They make the trend to be their friend. That game is easy to back test. As a small investor, I stay far away from it.

Making small investments and back testing them is a very different ball game. Including transaction costs, the proven strategy with your suggestion of 85 safe stocks now almost two years ago (there are presently 81 left) made exactly 20%, last year, nothing to be ashamed of. 500 Random picks also just outperformed the S&P500, including transaction costs (16%).

When you use personal judgment and/or charts, fundamentals, and/or forward looking statements, there aren't that many people that prosper in this world. Your prediction for Apple did not come through by the end of last year. That doesn't mean you are a bad investor. I programmed a lot of your wisdom in my screens, and I am benefiting from it. So yes, you can program some of the past and use it profitably for future investments. Aren’t you using your 30 years of experience to help you win the game?

I took your collection of 89 RMBL stocks and calculated its potential last year, using two scenarios: one with only longs and one where I let my program select the hedged pairs. Only longs generated 35% during the year with a maximum drawdown of 15%, all including transaction costs and weekly let my program select the "best" 12 before the beginning of each holding period of one week. That is a very good result, and you should deserve credit for designing such a good Watch List of 89 stocks (one of which, PEET, is not actively traded anymore). Pairing these 12 stocks with another 12 that my program selected from your list and that I shorted still generated 16%, including transaction costs. I used a hedging ration of roughly 70%, so that my maximum drawdown just dove under 5%. I genuinely believe that you picked the right stocks at the end of 2011. Congratulations!

Good Luck,

John

I just can't see how to get significantly ahead without some stock picking

Fattibutt,
I think Jaih's concern is how quickly the market can turn down and if one is holding a number of stocks, the majority of them will also slid down. That's why my number one rule (that I use) is 'Never let a Profit turn into a Loss'. If one is holding a nice paper profit in an equity and then it drops, the tendency is to 'wait' and see if it comes back. It's hard to do but I always sell in those conditions. Some profit is better than no profit. In the event I really like the stock, sometimes an exception is made, then one can hedge, ie with buying index option puts.

Lookin fo yet anudder historical n hysterical MoBro momento. GOOGums GRRREAT errrnuns out. Can OtherBlindMo equal the previous "GOOG jacks off da bears!" spew that went down in infamy? Let's see ya do it agin, OhterMo...BlindMo? Mr Bs? ...NE!? :-) 3J

GOOG jacks off da bears

Thank you, Mr Bs. We'll find out tamarrah ifn you are qualimafied to be one o'da MoBros. I sssthink ya is...even ifn it doan werk out fer ye. *-) Butt!...ifn it do werk out I will call ya BsMo from tamarrah until eternutty *-) 3J

AAPL jacks off the bulls.