The Stock Market Made Easy
This is the world’s simplest investing method.
- This is also possibly the world’s least sexy investment method. If investing was baseball this would be the singles hitter mentality. Just make contact, get small results and if anything amazing happens that’s great but we’re going to be the guy that never strikes out and that can be counted on to make contact in a hit and run. We’re going for the batting title, not the home run crown.
- The essense of this investment method is very simple; riding the 200 day moving average. If the average is below our securtiy (I highly recommend an index for this method, since volitility is reduced) then we are in, the day the security crosses below its 200 day average we go into safety mode and switch to a money market fund (something with zero risk).
- Let’s take a look at the chart of the last 5 years of the S&P 500 index.
- I’ve marked it up a bit. The arrows up represent buying the index (you can buy it in any form you prefer including mutual funds or exchange traded funds) and the arrows down represent selling the index and switching to a money market fund. The red/blue line across the bottom is the timeline for the buying and selling; red is holding the index, blue is holding the money market fund. You can see right away the beauty of this system as it carves almost all the loses out of holding the index.
- So if I had purchased $5000 worth of the S&P 500 index in February 2000 and held it until today I would have $4367 in my account at this moment. Let’s see how my singles hitting system would have done.
- Timespan A (buy at 1375 sell at 1440) would have been +236. Timespan B-C-D (I skipped C but in reality that would have been a very short trade in and out of the index) would have been 2% per annum for 2.5 years on our 5236 from section A, or a net gain of $14. In section E-F-G (we’ll call F a wash and lump them together for the sake of this example) we take the $5250 that we have to this point and buy back in 880. This will take us to the current day where the price is $1201. If we sold today, we would cash out at $7438.
- This represents a 48.7% gain over five years, two and half of which were a very intense bear market. This compares to a 12.6% loss if I had stayed invested over that time. That’s a hall of fame difference if you ask me.
Now if you want to step it up a notch, and if you’re a more experienced and knowledgable investor you could, rather than going into the money market funds, short the index when it’s on the way down. Another alternative is bonds for the down stretches, since they often trade contrary to stocks. I’m not going to go into detail on these ones today.
The toughest part of any investment is alway do actually follow the system. There are many systems that work, this one is for a long-term timeline. It will make more money if the market is going up, since you’ll be spending less time in the money market account. So the really joy of this system is that it allows you to only play when the wind is at your back and when the wind is blowing in you just sit on the sidelines.
- Your results may vary dramatically, including the possibility that you could loose all your money. Also I didn’t take into account trading fees for this demo. Also there can be fees incured if you exit a mutal fund before a certain amount of time (usually 90 days) so take this into account as well.