I recently read Nick Radge’s book “Unholy Grails”. I highly recommend that every investor read this book.
I repeat these quotes here because I am in total agreement with the concepts and principles discussed in Nick’s book. I also do so in an effort to add further evidence to assist readers of this blog to take the step to break away from the brainwashing of the big end of town. It’s not just “time in the market”, it’s also, as Nick puts it, “reacting to the current market,” but not perfectly.
Reaction time doesn’t need to be perfect, a long way from it, to massively outperform the market. Don’t believe the standard academia statements or the hundreds of millions of dollars spent on advertising about Modern Portfolio Theory (MPT) and diversification as the panacea of risk management. It might apply to a half billion dollar, or greater, fund but it doesn’t apply to a $1.0M, or less, DIY portfolio that can be entirely removed from the market in a day. Modern Portfolio Theory was devised as a theory before the internet era since which brokerage costs have fallen 20 fold for private investors, or more in the USA, and liquidity has grown hugely. However, the industry still uses MPT theory to prey on the fear of the unknowledgeable.
Here are a smattering of quotes from Nick’s book to give you a flavour of what’s contained between its covers.
“You do not need a financial planner or stockbroker to beat the market. You need fresh ideas that offer proof-of-concept.”
“…. a hard-wired yet robust strategy that has been statistically and robustly proven on past data before directly committing funds to the market.”
“Momentum investing is a form of active investing. Active investing refers to making specific investments with the goal of outperforming the benchmark.”
“Momentum investing refers to buying securities that have shown higher returns over recent history compared to the broader underlying market ….. and attempt to balance their exposure accordingly.”
“Being fully invested when the market is rising and reverting to cash during a sustained bear market is not about predicting or timing the market. It’s about reacting to the current market trend and then positioning oneself accordingly. We don’t take a position because we think a stock will travel higher or because we’ve valued a stock at a higher price (a form of prediction), but because it is travelling higher.”
“By the end of this book you will grasp the critical distinction between predicting and reacting.”
“As we can’t predict the future we can therefore never know whether the current market will continue or whether it will reverse. …. We don’t need to know, or predict, the future. What we need to do is react when a trend, either up or down, has established and we need to do so in a methodical, repeatable fashion.”
“By refraining from predicting and instead reacting to current events in a methodical and repeatable way, we are able to add significant value to our investments over the longer term.”
“Indeed the stock market is not an exact science. It’s a game of probabilities in an ever-changing world of human emotion.”
“Unfortunately the win rate is where most novices, and indeed many experienced market professionals, come unstuck. It is human nature to think that a high winning percentage of trades equates to higher profits, yet, as these examples show, nothing could further from the truth.”
“Sports men and women of all calibers go through cycles of being in form and out of form. When it comes to investment strategies the same holds true.”
“Accept that you cannot predict the future, that you can’t time the market, and also accept that you cannot control the market. However you can control how much you win when you win and how much you are willing to lose when you lose. In other words you can control the win/loss ratio but not the winning percentage.”
“Using a systematic approach to buy, sell and manage positions ensures nothing is left to chance, specifically leaving our emotions out of the decision making process, especially during critical points of market activity. Understanding what the strategy can and can’t do before it’s applied with real money can remove a significant amount of angst for investors.”
“There is a school of thought that every strategy is doomed to fail at some stage. That line of thinking is wrong. … The market has always trended. Stock markets trend because of investor fear, greed and expectation. Human emotion is constant.”
“Skeptics will argue that in order to generate positive returns you must use fundamental variables and ratios, you must intrinsically understand the business you’re investing in as well as the economy and that you should not time the market. …. Section 3 will conclusively prove that we do not need to know what a company does in order to generate positive returns.”
“The following chart [not provided in this blog] offers a graphical representation of all the tested strategies plotted by CAGR and Maximum Drawdown. …. The worst performer? Buy & Hold as measured by the XAOA [All Ords Accumulation Index].”
“A key element of failure is discarding a strategy experiencing short term difficulties. Amateurs want a strategy that’s always working, always profitable, and are very quick to jump from one strategy to another chasing performance. In professional money management circles the term ‘style drift’ refers to a manager changing strategy during a poor performance period. It is considered taboo by institutional investors. A manager with style drift is a red flag.”
“We’ve seen strong evidence throughout this book that the addition of an Index Filter greatly enhances the risk adjusted returns on most strategies.”
“As discussed previously, momentum strategies will not be involved in companies that go into administration.” Examples such as Babcock & Brown, HIH Insurance, ABC Learning, OneTel, Great Southern Limited are provided.
“…..that to be a successful investor you must:
- Find a strategy that works
- Validate it
- Do it.”
Nick provides proof of these statements using simple to understand strategies supported by lots of pictures and arithmetic. I commend you to read “Unholy Grails, A New Road to Wealth” by Nick Radge. It is applicable to anybody that has an interest in growing their investment capital at a faster rate than cash, bonds, the market index (and hence all managed funds) or any other unleveraged asset class.
Our SPA3 product, first released in Australia in 1998, prescribes exactly to all the principles described in Nick’s book.
You can order a copy of Nick’s book here: http://www.thechartist.com.au/articles/unholy-grail/