Investing for stable, steady growth


When people are interested in improving their investment results, what do they want more of? Typically, they want more of two things: stability and total gains.

Stability means that the total value or account balance will consistently rise with only very small declines. (That is also known as “wealth preservation” and the most common strategy for preserving wealth is diversifying across the most stable trends and markets.)

Total gains of course means that whenever you choose to withdraw money from your investment accounts, there is a lot more money there then what you put in. So, in summary, we value gains that are not just consistent, but also large.

Now, for some added perspective, let’s look quickly at the best-performing group of stocks in the US stock market last decade: the HUI sector. Note that most investors and even investing professionals have never heard of that group of stocks (because most people including financial professionals have not been focusing on the best results that are easily available to them- they either try too hard or not hard enough).

The above chart shows the performance of the stock prices of that group of 15 US companies. From a low of $35 in late 2000, the price of the HUI sector increased tenfold by 2006, gaining over 1600% by 2010.

Did your stock market investments grow that much last decade? Most investors (including in the US) experienced little or no gains overall in their stock investments last decade. In the case of US investors who had been heavily concentrated in US high tech companies such as are found on the US NASDAQ stock exchange, typical returns for the decade were losses of 50% or more. (See chart below.)

In other words, rather than witnessing consistent gains, many investors experienced continuing losses. Still, many of them continued to stay invested in losing methods and strategies for most or even all of the decade.

In fact, you may even be one of them. Whether or not you experienced disappointing investment results last decade, you may be quite interested in producing investment results that are both more stable and more profitable.

However, you may not know how to produce the results that you would value enough to alter your investing method. That is why you are reading this, right?

Before I say more about a simple strategy to consistently produce large gains (while maintaining a stable balance), let’s combine the two charts above to make something very clear. Here are the two charts shown together:

While the large gains of HUI (the tan line) are obviously far better than the large losses of the NASDAQ composite index (“COMP”), we can notice periods when HUI did quite well and periods where it did not gain. In the years 2000, 2004, & 2008, HUI lost value for the year (especially in 2008).

Why do I emphasize this? Because even when investing in 15 companies (which might seem like a lot more diversification than investing in only 1 or 2), there can still be long periods of no gain or even large losses (just like when investing in a bundle of 100 or more stocks like in the US NASDAQ).

Diversification itself does not provide for stability or wealth preservation. The specific method of diversification must fit the goals of the investor, or else that method should be discarded or at least revised.

So, if you want a stable balance or market value (with only very small declines), that requires WISE diversification. Further, that may even mean avoiding illiquid markets like real estate (markets that can be very hard to quickly sell, often taking weeks or even months to exit from the investment).

Wise diversification means having a group of investments that are all consistently increasing in value. If one or two of them briefly fall a few percent or even more than that, that still will not effect the total balance much. Why? because the majority of the investments are still making consistent gains!

Imagine a real estate investor who loses even 10% or 15% in a particular year. If that investor is also investing much more net worth in other investments that are all making large gains (like the best stocks, the best commodities, and the best currencies), then even losses as large as 10% in a year in one investment will not produce an overall net loss. Why? Because that investor was wise enough to diversify in ways that profited from consistent trends in other markets besides real estate.

Now, let’s review my personal background a bit. Then I will reveal the other issue besides diversification that is essential for vast improvements in your investment results. Let’s read a paragraph from an investment commentary published in 2003 on March 3rd:

“Yes, we can profit from the collapse of the credit bubble and the subsequent stock market divestment. However, real estate has not yet joined in a decline of prices fed by selling (and foreclosing). Unless you have a very specific reason to believe that real estate will outperform all other investments for several years, you may deem this prime time to liquidate investment property (for use in more lucrative markets).”

I wrote that. Here is the link to the full article: http://www.gold-eagle.com/editorials_03/hunn030303.html .

Is it interesting to you that in early 2003, I was referencing that real estate markets would eventually decline in price because of an increase in foreclosures? Is it intriguing to you that I was referencing a collapse of the credit bubble (which means a decrease in the total amount of borrowing and lending, like for mortgages)?

I referenced it being “prime time” to liquidate (sell) property. I emphasized that other markets might be “more lucrative” (more profitable).

What investment markets were I emphasizing in early 2003 as more lucrative than real estate? If you click the link above and scroll down to the end of the article, here is the last image you would see:

That is a chart of the performance of the HUI sector in the two years prior to March 2003. That sector, which went on to gain over 1600% last decade, is the one that most investors ignored in favor of things like real estate and stocks from the US NASDAQ (both of which had their worst decades in a very long time).

I strongly recommended against real estate. I emphasized the gains of over 200% in the prior two years in HUI (which I knew would accelerate if commodity prices continued to outperform most stocks).

What else did I recommend? I noted the multi-year rallies in commodities like Gold and Oil. I also emphasized why I expected most US stocks to do less well than commodities.

“easy credit fed the stock market hysteria…. Many even rushed to refinance homes again (trading equity for cash) to create the final wave of the 90s stock mania.”

Of course, that wave of real estate borrowing did not end in 2003. As it continued, many US stocks eventually recovered from their declines- but not all.

Except briefly before crashing in 2007, the high tech sector of the US NASDAQ exchange was down more than 50% from it’s 2000 peak almost the entire time last decade. The housing sector plummeted in 2005 (“HGX”) and the financial sector (“XLF”) plunged in 2007 (shown below).

So, that is a little background on why you might be especially interested in what I personally can tell you about extraordinary investment strategies. In addition to diversifying, the other simple key to consistent profits is to analyze trends and exit from trends as soon as they weaken.

As an example, let’s look at HUI in 2003. First, here is the “raw” chart:

Here I add one trendline:

 

hui w trendline

Inline image 1

Here I add another:

hui with trendlines (trendchannel)

Inline image 3

The two lines are obviously parallel, right? That is called a trendchannel. They form very frequently in many price charts, including for bundles of stocks like the HUI sector of 15 US companies.

To a trend analyst, I would notice that when HUI rebounded in early October, that rebound was at a parallel slope (angle) to the three weekly highs from mid-August to mid-September (the green line). So, I would buy HUI and hold it as long as that established uptrend continued.

I would buy between 190 and 200 in early October, then hold and watch very closely in the first week of November for a possible exit at 200. That was the second test of the lower (red) trendline.

In late November, I would exit between 245 & 255 when HUI “broke” out of the trendchannel. I might sell “conservatively” when HUI reached the green line (depending on what other opportunities I noticed in other markets). Or I might hold on while HUI surged up above the trendchannel briefly and only exited when HUI penetrated back in to the trendchannel.

In any case, that would be a gain of over 20% in several weeks. That is better than most people do in a year. Are you interested in results like that?

Then, in December, when HUI reached the lower trendline again, I would be looking for buying in again- but ready to exit with a small gain or even small loss if prices did not continue the upward trend. Here is the same trendchannel plus the next two years of HUI:

hui with trend channels

Inline image 5

Depending on what I saw in other markets, I might not be interested in HUI again until mid-2005 when HUI fell toward 160 (a prior low) or even in November 2005 when it broke above 250 (the brown line).

Maybe you understand the trend analysis referenced above. I picked a relatively simple example, but the point is that there are lots of trends happening all the time. If I find a few of them and trade them conservatively, I will keep my account balance growing steadily. Any particular day or week, there could be a small loss in one or two of the positions, but with several positions all in clear uptrends, the account balance would consistently increase with occasional slight declines (triggering “trailing stop orders” to protect the prior gains).

Why don’t more investors do this? Because it is unfamiliar to them- even complicated and stressful. The research of comparing several markets can be time-consuming and tedious.

Why don’t more professionals offer this? Most investment professionals earn commissions from selling investments, not a percentage of any gains. They have no vested interest (profit-sharing), so their motivation to perform well is minimal if any. They do not suffer any great loss when their clients lose money. They are salespeople, not business partners.

What is different about me? I am open to offering you access to being a partner in my trading business. I am so confident in my results that I only ask for a share of the profits that I will consistently generate for you. Contact me if you are interested in partnering with me so that you can watch your investment account balances consistently multiply.

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