I recently read an article where the author was advising readers to invest in the equity markets for the long term. His suggestion was to buy for the long term of at least 15 years and he offered several criteria for selection of stocks to pick.
The criteria for a “proper” long term investment were:
Products that can endure and aren’t fads
A history of leaders who can adapt
A strong balance sheet
A benign competitive environment
A track record of innovation balanced by vigilance against taking on too much risk
A strategy that looks beyond the next year and certainly beyond the next quarter
I have often heard that old saying, “It isn’t timing the markets that makes for success, it is time in the markets.” This suggests that market timing for most investors is pointless or cannot be done and an investor that just stays long for a while will eventually succeed in achieving their financial goals.
Any of our students or any attendee of Online Trading Academy’s workshops knows that is simply not true. Famous hedge fund manager Paul Tudor Jones once said, “I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.”
The author of the aforementioned article also suggested seven “quality” stocks that fit his criteria for a 15 year investment. He said that you should look for an average annual return of 12%. They were: BA, WRE, NFLX,CMG, DIS, FDX, and WFM.
So I was curious to see how those stocks would have done if you invested in them about 10 years ago. In late 1995, the markets were very bullish but experienced a slowdown similar to the one we are seeing now. So how did the stock picker do?
BA was trading at about $70 and is now at $122. That is a 74% ROI or about 8% annually.
WRE was at $32 and is now $27, a 15% loss.
NFLX was a home run and turned a $29 investment into $455, a 1468% return and 168% per year.
DIS went from $26 to $86 and saw a 230% gain, about 25% per year.
WFM is nearly back to its $35 starting price at $37. This is a measly 5% gain and 0.6% annually.
FDX was in the red from its $104 purchase price for seven years before jumping to $155. This yielded 5% a year for a total of 49% return.
CMG gave you a whopping 1353% return, moving to $657 from its $45 IPO price in 2006. That is if you held on for three years as it moved sideways until 2009.
What you have to ask yourself is if you believe that these stocks can go through another meteoric rise as they have in the past. History shows that this is unlikely and if you chased stocks like NFLX, you would have probably been shaken out when it plummeted from its previous all time highs.
As you can see, applying Online Trading Academy’s core strategy to these investments would have been profitable and even turned losers into winners.
Even CMG offered a safer entry if you timed it using our strategy.
If you are not timing the tops and bottoms like the professionals, you need to learn how to do so as it will allow you to achieve a greater level of success in your investing and trading. It can be done.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD retreats to 1.0750, eyes on Fedspeak
EUR/USD stays under modest bearish pressure and trades at around 1.0750 on Wednesday. Hawkish comments from Fed officials help the US Dollar stay resilient and don't allow the pair to stage a rebound.
GBP/USD remains on the defensive around 1.2500 ahead of BoE
The constructive tone in the Greenback maintains the risk complex under pressure on Wednesday, motivating GBP/USD to add to Tuesday's losses and gyrate around the 1.2500 zone prior to the upcoming BoE's interest rate decision.
Gold flirts with $2,320 as USD demand losses steam
Gold struggles to make a decisive move in either direction and moves sideways in a narrow channel above $2,300. The benchmark 10-year US Treasury bond yield clings to modest gains near 4.5% and limits XAU/USD's upside.
SEC vs. Ripple lawsuit sees redacted filing go public, XRP dips to $0.51
Ripple (XRP) dipped to $0.51 low on Wednesday, erasing its gains from earlier this week. The Securities and Exchange Commission (SEC) filing is now public, in its redacted version.
Softer growth, cooler inflation and rate cuts remain on the horizon
Economic growth in the US appears to be in solid shape. Although real GDP growth came in well below consensus expectations, the headline miss was mostly the result of larger-than-anticipated drags from trade and inventories.
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