Sunday, March 27, 2011

Passive, index investing

During a crisis event, I've noticed the best place to be for the rebound is the index. I don't usually recommend passive investing; However if you realize that all stocks are trending up, why waste time. Later you can pick out the extraordinary finds and hidden gems.

Have you noticed how the stock market in Japan has rebounded? What about the U.S. equities 9-12 month recovery last year?


  1. At what moment do you switch from index investing to stock picking? Do you use any objective criteria to define this moment?

  2. In my initial foray into stocks I found I was having success using a trading range. Buy on a 8 day low and let it go up until it falls for 7 days. If the stock doesn't rebound after 5 to 7 days it's usually going to go down to another relative low. Many years later I found that this system was a close approximation of the teachings from Darvis. If a stock doesn't trend up after 3 - 5 days I try to sell at the point of entry. I also use a stop-loss order range between [atr * 1.1 to atr * 1.5]. I use a draw-down of 2% per stock.

    I have since increase this to buy an 8 week low and 7 day out cycle. After many attempts at trying to automate this process, I think there is a lot of subjective analysis that I do unconsciously that allows me to determine if the stock is really rolling over or it will bounce back from a consolidation. I try to bail at the top in the range of [1R to 2R] unless the stock is on a continuous run. I try to let the stock go 10%-20%, and I have found my expectancy rate is close to 10% wit a risk of 4%. [but if I were to use some sort of method to measure peak high points, in the short-term, I have found that parabolic SAR works best for me]

    To answer your question, if most stocks are going up investing in an etf or index would be easy for any beginning bull market or bear rally bounce. The fact that I have increased my time period to 8 weeks, allows me to ignore many head fakes and hold my stocks longer than I did. The holding period for an 8 day range system is from 1-3 days up to 60+ days, with the average of 16 days, in a bull market. With the longer range the system goes from 1-3 days to 40 weeks. Oh, and sometimes it not the length of the holding period but the maximum distance between the high and the low.

    But then it will vary if your in a bull, bear or sideways market. Maybe the most important thing about any system is the watch list your generating your ideas from. They must match the market you are in. Everyone has their own system and there is no right or wrong way.

  3. Lessons From Nicolas Darvas | The Kirk Report