How To Avoid Being A Retail Bag Holder

Featured in Zero Hedge

Daniel Drew,  10/10/2016


Every single boilerplate disclaimer out there says past performance does not predict future returns. They then proceed to tell you about their magical formula, their genie in the lamp, their fibonacci retracement, or their fund manager from Harvard who hasn't blown up his first trading account yet.

What if past performance actually does predict future returns, and it just so happens to be something as simple as mean reversion in weekly price performance?

One chart shows exactly why weekly price performance matters. This is what happened to anyone who only bought after the market was up for the week.

Buying When The Market Is Up

Anyone who buys when the market is up has the odds stacked against him more than he realizes.

An investor who only bought the S&P; 500 after it went up and held for a week ended up losing a total of 4% since 1990.

Conversely, anyone who bought the index when it was down between -3.00% and -0.50% for the week nearly matched the market's return without having a major drawdown.

Buying When The Market Is Down

Buying whenever the market was down more than 3.00% for the week was not a good idea. When the market was down that much, something was seriously wrong with the market, and more losses followed.

If the astute investor wanted to leverage his returns, the low volatility of this strategy would certainly allow him to.

Buying When The Market Is Down