I think we have stumbled on something that actually works. And there is a reason for it: there has to be. We can't go about investing without a method, and the method must be more than guesswork, luck or serendipity. It must have a legitimate link to reality and have a probabilistic relation to actual market performance, and it must work more than 50% of the time, assuming we have bifurcated the decision tree into two parts: up or down. But it also involves distance up or down. So it may be difficult to quantify, but some statistical method such as correlation should apply. In Peter Lynch's book http://en.wikipedia.org/wiki/Magellan_Fund Beating the Market http://www.hotbooksale.com/p761/Beating-the-Street.html, he argues something that is perhaps counter-intuitive. He says that you and I should be able to beat his performance as one of the most successful major fund managers in recent history. And there had to be a reason: a solid, tangible, real reason. And that was this: investing in a closed market is a game between players. Each player's behaviors affects all others plays. What is not required is objective standards, but relative ones. As an investor, a participant in the game, my goal is relative to the others: I must achieve a better position via information, analysis, strategy or execution. Or perhaps add another, perseverance in the game. If I can do that, I will win the game. I do not need to achieve perfection, only relative position. As a professional fund manager, he had institutional and fiduciary responsibilities that slowed down his processes. And very simply put, we do not have those. And yet, we can gather the same information, or very nearly. And we can achieve parity or more with him in analysis, strategy or execution. I am not interested in arguing whether or not this statement is true or can be proved one way or the other. The concept is valid. Restated, we could say, "If ..... if I can do these things, then I can outperform him." And as a large fund manager, he is the market, him and those like him, because they constitute enough of it to determine its significant moves. Therefore, we have our goal and our potential: we gather, analyze, strategize, execute and persevere with the potential of beating the market. And we can realistically expect to beat the market because we can simply move a little more adroitly, more quickly. That’s it.
Investment
Advisor: What is the function? It
should not be a mystery. If the advisor performs a legitimate function, he
should earn his customers’ business. It can be measured in two ways; 1)
performing a function the investor needs, and 2) producing measurably better
results for the customer. I would propose to perform a legitimate business
function in both respects. What I am doing at present time requires about four
hours a day. First I use the method indicated*. An investor is well-advised to
perform this function but does not have the time. So he employs the advisor.
Second it produces a positive result. Therefore the customer is interested in
continuing the service.
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*
Method: The best way for me to get
a handle on a new day is to scan the news wires 2-3 hours before the market
opens. The Asian markets have closed and the European markets are still open.
Then there are the market futures to look at. But by looking at four
things: breaking economic news, the
Asia and Europe stock markets and the U.S. market index futures,
already trading before the market opens, it has been pretty easy to
see which way the market is likely to go!
Result: Yes, it seems to be fairly predictable, that is,
the broad market, as indicated by the major index, given these four
indicators.
Application:
(1) If the broad market can be predicted or
forecast with a greater than 50% (one out of every two) accuracy, then it is,
at least theoretically beneficial to trade, given a small allowance for
expenses, and given we could invest in an index fund that exactly duplicated
the forecast index. I n this case, we would want an index fund that
duplicates the ^DJI.
I was working with FAMRX, which is a large cap equities with holding
similar to those in the ^DJI. At this point it might be nice to stop and take
a look at what exactly the ^DJI is.
Application
(continued) (2): We must apply this
macro-economic and broad market analysis to our specific investment
decisions, because we can simply buy the ^DJI.
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A
Dow Jones index measures success across the stock market.
A stock market index is a measurement of the average price
of shares of many different companies. A number of indices are a part of the
Dow Jones group, including the oldest stock market index, the Dow Jones
Industrial Average. Investors often seek capital gains that are equivalent to
the overall stock market or a particular index. You can buy into funds that
track a Dow Jones index. The returns of such a holding will approximate the
profit or loss of the Dow Jones index during the same period of time.
Read more: How to Buy a Dow Jones Index Fund | eHow.com http://www.ehow.com/how_6781732_buy-dow-jones-index-fund.html#ixzz1RUZjmjGE
The DJIA Represents Only 30 Stocks
To be chosen for inclusion in the index, a stock must be a
leader in its industry and must be widely held by both individual and
institutional investors (i.e., pension plans, mutual funds, etc.). Together,
the 30 stocks in the average represent about 20% of the market value of all
U.S. stocks, so although the DJIA is not the whole stock market, it is
certainly representative of the stock market as a whole.
The DJIA is not really an "Average"
A simple average is calculated by
adding up a value for a number of items, then dividing by the number of
items. The Dow reflects the value of stock prices, but a simple average
cannot accurately reflect the value of stock prices.
Here's why. When stocks become pricey, companies routinely announce stock splits to make their stocks more appealing to individual investors. For example, a company may have 100 shares outstanding priced at $100 per share, for a market value of $10,000. If the firm announces a 2-for-1 split, the price is cut in half, and the number of shares is doubled, so there would be 200 shares outstanding, priced at $50 per share. The market value is still $10,000, but the price point is now more attractive to smaller investors.
To take into account the changes
in price associated with stock splits, the Dow Jones Industrial
"Average" is adjusted to account for any stock splits in each of
the included companies. Here is a table of recent milestones in the average.
Who is Dow Jones?
Charles Dow and Edward Jones are
two-thirds of the team that founded Dow Jones & Company in 1882. Charles
Bergstresser was the "& Company," but by 1889 he was joined by
47 others as the company grew. They specialized in newsletters (the precursor
to The Wall Street Journal) focusing on financial news. When Dow died
in 1902, Clarence Barron,
originally hired as a correspondent, purchased a controlling interest in the
firm.
Read more: Dow 101 — Infoplease.com http://www.infoplease.com/spot/dow1.html#ixzz1RU0Jz3Jt |
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