With one finger swipe on my Facebook feed I see an attention grabbing headline of either doom and gloom or gold and boom in the market. Sometimes I’ll even get one of each, from the same publisher back to back, When I turn on the TV I’ve got some loud mouth telling me to buy or sell. Every day you and I are plastered with this stuff from the latest Guru or some intern who landeda gig as a freelancer. Who’s right? Guru or intern, it doesn’t matter. It’s all bullshit anyways. No one know what the market is going to do. The numbers don’t lie, most guru insight is worse than a coin toss.
Despite the evidence I’m shocked at how many people fall for it and make trades based on what ‘they’ or some ‘expert’ says to do.
I truly don’t give a fuck what the talking heads are saying today, or where that article told me to invest my next dollar because I’m systematic investor. A hunch is
bull shit. So is a tip. Those things can’t be measured, or quantified. I only act on systems — things that can be tested time and time again and shown to be reliable over the years. This takes the emotion out of it and keeps focused only on what works consistently over the long run.
Factually speaking, the average equity investor does quite poorly. Horribly. For the 20 years ending 12/31/2015 the S&P 500 Index averaged 9.85%. The average equity investor did just 5.19%. Anyone with a basic understanding of compounding returns know just how horrible that is. And it’s largely the result of emotion. Just think back to not even 2 years ago. 2015 was a go no where year for the stock market with 2 drops. After that year, bearish investor sentiment was over 45%, at one of its highest points ever. Bullish sentiment was below 25%. The consensus was the that the 7 year bull run had come to an end and things were head down. Here’s just one headline from December 2015.
… In the roughly 20 months since the fear of 2015, the S & P 500 has gone on to return 23%.
Back to systems; they don’t need to complicated. Simple is better in many aspects of decision making and just the same in investing. Simple, systematic investing takes the emotions out of it.
Here’s the deal, systematic investors and strategies don’t make the headlines. They don’t make it to your Facebook feed. They’re boring. Can you imagine how much attention a systematic investor would get on TV? Here’s something they would say:
Investors should keep investing right now… because erm, thats what you should do based on the simple rules that have been shown to get the risk adjusted return we’re looking for.
… and cut. Career as a pundit ended.
Here’s a systematic investing strategy:
It will keep you from wasting time reading pointless articles and worry about how your portfolio is doing.
Dollar Cost Average Into A Diverse Portfolio (preferably low cost).
Just take a percentage of your monthly take home pay and contribute it to a diverse portfolio and never look back. That’s it. When investing systematically like this you’d be surprised at how quickly you set your emotions aside, as the dollar cost averaging avoids a psychological anchoring to a lump sum investment.
Many will advocate a low cost index portfolio through Betterment or a Vanguard Life Strategy fund, and quite frankly that is statistically likely to outperform most alternatives, but a mutual fund portfolio will work (just make sure the manager has over $1,000,000 personally invested), or a smart beta portfolio. Either option you go with will have have you substantially outperforming the average equity investor.
Want To Avoid Market Bear Markets & Volatility?
Trend Follow Using A Simple Moving Average.
My investing life hasn’t been long enough to have me ride through a 50% drawdown as we seen in the the late 2000s, but I know I don’t want to. For that reason I’m a trend follower. It’s real simple… just use a simple moving average. 10 month, 12 month, 200 day, no matter which of these time frames you use you’ll get similar results. If the market is above the is above the simple moving average I am invested. If it’s below I go to a low risk asset such as cash, Tbills or bonds. That’s it, 2 rules. There’s no emotion involved. No need to read the headlines. No need to listen to the bullshit. No need to play guessing games.
A study of trend following in 235 markets, has shown that trend following over the long term results in near market returns (sometimes a little above, sometimes a little below) applied to near. Net of taxes and trading fee’s, you’ll probably underperform market beta a slight bit, but if it keep you money in the market, and keeps you investing systematically, its a win for your portfolio.
Now do yourself a favor, and stop reading the headlines. Turn off the TV. Start investing systematically. Don’t use fancy verbiage as your system. Keep it simple, quantifiable, and non emotional. Your future self will thank you.