One change I plan to make in the ITA Risk Reduction (ITARR) model is the following. When an ETF is out of the buy zone (priced below its 195-Day EMA), instead of waiting for it to cross from below to above the 195-Day EMA, pay attention to the Relative Strength Indicator. Take a look at the following example.
Let’s step back a moment and examine some facts. One of the longest bull markets of my life occurred from August of 1982 through 2007. Some may say the bull market ended in March of 2000. Blackstar Funds studied all common stocks that were traded on the NASDAQ, NYSE, and AMEX during the longer period (actually 1983 – 2007). The universe of stocks numbered over 8,000 or stocks that qualified for the Russell 3000. During this period (1983 through 2007) the Russell 3000 rose nearly 900%. How did the individual stocks perform?
1) 39 percent of the stocks had a negative total return.
2) 18.5% of the stocks lost at least 75% of their value. Nearly one in five stocks was a bad investment.
3) 64 percent of stocks underperformed the Russell 3000. Probability was not on the side of stock selection.
4) A small minority of stocks significantly outperformed their peers.
Conclusion: Following the laws of probability, this is why I prefer to use non-managed index vehicles such as ETFs. Over a 40-50 year investing life span, very few active investors outperform the market. Granted, some beat the market, just as there are winners in Las Vegas.
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Thirty-two days rolled around and it is again time to review the Schrodinger Portfolio, our best representative of passive investing. The Dashboard and Performance information are published below for Platinum members to view.