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Here's a magic formula to put a spell on you

April 03, 2006

Over the years I've come across plenty of "magic" stock-picking formulas. From Jim Slater's Zulu Principle, to Michael O'Higgins's Dogs of the Dow and David Dreman's Contrarian approach, they are a staple of investment book publishing.

To the wishful-thinking investor looking for profits without pain, they can seem like the holy grail. Unfortunately, these methods can gain widespread currency as they lose their edge. Either fashion moves against the approach, leaving you swimming against the investment tide, or the market cottons on and the opportunity disappears.

I've experienced both of these. Ten years ago, I edited a book for Slater in which he tested O'Higgins's high-yield approach on the UK market. It had worked here as well as in the US and Pep Up Your Wealth was the trigger for several high-yield funds.

Perhaps unsurprisingly, these launches coincided with a shift in investment fashion to growth stocks in the late 1990s and the method has since had a patchy record. I still believe it is one of the simplest and safest ways for relatively inexperienced investors who want something more exciting than buying a pooled fund but, as with any stock-picking method, you have to be prepared to go through a few lean years.


Rating: 2.8/5 (4 votes)


Soso809 - 11 years ago    Report SPAM
I have always felt that what worked for one person may not work for another. If a certain method realy made that much money then why would the person even bother sharing it? It would just be less money in their pocket. But then again I am not an expert on different trading methods. I prefer to make my own instead. While trying to avoid the band wagon effect that follows a lot of methods once released to the public. I think the opportunity disappears the moment the books and articles are released. The real big gains and money are in finding the gems that know one else has discovered yet and sticking to what works best for you. And being a leader while everyone else is being a follower. One thing my parents always told me is "nothing in life is free" which I believe is very true when it comes to the stock market. Their realy is no such thing as easy money. Nothing can replace research and knowledge of the stock market.

Maybe slightly off topic and not sure if anything I just said makes any sense. What do you think?
Vooch - 11 years ago    Report SPAM
The reason people like me, and Geoff Gannon, talk about our ideas is because it reinforces our own learning and helps us improve. Of course, I'm speaking of myself, but I would imagine Geoff feels the same way.

By teaching someone, you are motivating yourself to improve. When you go in writing, you are making a time-flagged opinion - you talked about something at such-and-such date/time.

If you screw up, you learn from your mistakes.

Writing a book has helped me more with investing and trading than anything else. It causes me to focus on content and reflect about what I've written. I'm five years into the development process. I imagine I've got another five years to go.

Keeping track of what you learned also helps. If you keep repeating the same mistake over and over, you'll keep reading about it in your notes, and then say to yourself, "Damn! I need to change my ways."

Lottery ticket buyers never keep track of what they've done in the past. If they did, they'd see a logfile similar to this: "I lost, I lost, I lost, I lost, I lost, I won a little, I lost, I lost, I lost... (ad infinitum)".

- Vooch

Soso809 - 11 years ago    Report SPAM

I in know way see anything wrong with writing books. In fact I love reading them. It does give me new ideas that I might have not thought about myself and then I put my own twist on them. I also enjoy sharing stuff with people also. Mainly the people I was referring to are the people who view the stock market as a get rich quick scheme. Instead of reading books,learning etc. and then forming their own opinions and taking the time to read into it further. They follow certain things like a religion thinking if they do they can get rich also and then end up years later wondering why other people are making money when they aren't. I have met many people who think you can just pick stock names out of a grab bag sit on them quite a few years and retire rich. I just wish more people would take more time learning about the markets and not assume everything comes easily. Some naive people sadden me.

Yes learning from your mistakes is very very important since history always has the potential to repeat itself.

Vooch - 11 years ago    Report SPAM
I agree 100%.

Even if you start out writing a book and have no intention of ever publishing it is A LOT better than never attempting to write down what you've learned.

By writing goals... by writing what you've learned about investing... you become better.

Soso809 - 11 years ago    Report SPAM
I agree also. Life in gernal is a constant learning process and no one can ever know it all. The people who are willing to constantly learn and have an open mind in my opinion tend to do better in life then people who are stuck in their ways and aren't willing to learn from their mistakes as well as others. That's what makes this site so great. Is the ability to share opinions as well as read about mistakes other people have made in order to avoid making them yourself. It's never to late for anyone to start a journal.
Vooch - 11 years ago    Report SPAM
Once again, I agree 100%.

Great post.

- Vooch

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