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I have been doing well with the couch potato for the last couple of years and have been interested into branching out into stocks.

Norm Rothery articles “A simple way to get rich” and “So simple it works” plus his other writing regarding picking value Graham stocks have really caught my attention as the potential blueprint that I would use to begin investing in stocks.

My game plan would be to contribute $5000/year to a Questrade TFSA and follow The Simple Way plan exactly with some research and due diligence on the filtered companies.

I am hesitant, although this is The Simple Way, it just seems too simple to me.  However I have read various materials to exhaustion now and feel that the greatest learning will now come from experience – it is time to get off the pot.

Norm’s website is excellent and to me his theory and arguments are well put together, I am also considering for beginning perhaps I should subscribe to the Rothery report for additional assistance/guidance.

I am interested in any discussion for or against this plan, or if I am completely missing anything.
 

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If making money was as simple as a following a set plan, then computers would be programmed to go all the trading, and they would do the trading and make money, until enough computers were trading that the plan was no longer profitable because the market prices would adjust.
 

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i heard more than 50% of the trading volumes are already done by computers. of course i do not believe the number but certainly there is some trading being done by the machines...
 

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ottomy i'd believe that 50% of exchange transactions carried out by program & black box trading is a modest under-estimate ...
 

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If you are interested in formula type investing, take some time and read The Little book that (still) beats the market by Joel Greenblatt. He also has a website: http://www.magicformulainvesting.com

In the book he describes the root problem of investing by a formula. You have to expect times of under performance relative to the market. Sometimes these periods could last for 3 years.

His formula over the last 10 years has returned 14.5% compounded(not included transaction fees)

If you look at the returns there were two years with massive drops. 2002 a drop of 21% and 2008 a drop of 36%.

In a nutshell say you have a 100K portfolio you have to be ok with a 1 year drop of 36K. I.e a portfolio now worth 64K, and still believe in the formula.

I mention Joel Greenblatt because he has done amazing work and is probably one of the elite investors out there. I would guess the simple way would also have periods of under performance and big 1 year drops.

I personally believe formula investing based on value principles can work for the long term investor, but it requires the investor to believe in the formula. That is real tough to do, when your portfolio drops by 36%
 

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Sometimes, I visualize these large firms, with their massive trading floors and blocks of computers and huge research staffs etc. and contrast that against one lone trader, sitting in front of his or her computer, trying his best to buy a few stocks at a bargain and best all the big guys.

What chance does he have?:(

That is one reason that I mainly invest in a diversified portfolio of broad-based ETFs and be done with it.
 

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Sometimes, I visualize these large firms, with their massive trading floors and blocks of computers and huge research staffs etc. and contrast that against one lone trader, sitting in front of his or her computer, trying his best to buy a few stocks at a bargain and best all the big guys.

What chance does he have?:(
Better than you imagine. The lone trader isn't encumbered by the bureaucracy.
 

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How about the formula of buy in October and sell in May?

I took the data from the TSX index for the last 53 years and 42 were were positive 6 month returns for Buying end of Oct, selling end of April., and only 29 for the reverse.

If you bought $10,000 in the TSX/S&P Comp. on Oct.31-1956 and followed the buy/sell pattern, it would be $323,897.36 today. Average period return of 7.4%.


If you bought $10,000 in the TSX/S&P Comp. on apr.30-1957 and followed the buy/sell pattern, it would be $6080.25 today. An average period return of -.3%

Ironically the 2 worst 6 month periods of buying Apr./selling in Oct. were the recent crash in '08 (-30%) and the first year of data available 1957(-24%).
 

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How about the formula of buy in October and sell in May?

I took the data from the TSX index for the last 53 years and 42 were were positive 6 month returns for Buying end of Oct, selling end of April., and only 29 for the reverse.

If you bought $10,000 in the TSX/S&P Comp. on Oct.31-1956 and followed the buy/sell pattern, it would be $323,897.36 today. Average period return of 7.4%.


If you bought $10,000 in the TSX/S&P Comp. on apr.30-1957 and followed the buy/sell pattern, it would be $6080.25 today. An average period return of -.3%

Ironically the 2 worst 6 month periods of buying Apr./selling in Oct. were the recent crash in '08 (-30%) and the first year of data available 1957(-24%).
That'a a silly comparison, you should compare the first example to someone who just held throughout. Who would continue to buy in April all those years, they'd have to be the dumbest investor of all time. :D
 

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That'a a silly comparison, you should compare the first example to someone who just held throughout. Who would continue to buy in April all those years, they'd have to be the dumbest investor of all time. :D
Not necessarily; the buy in April scenario every year won't be that far off of the experience of the typical RRSP investor who made their contribution at the deadline every year.
 

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Not necessarily; the buy in April scenario every year won't be that far off of the experience of the typical RRSP investor who made their contribution at the deadline every year.
That made me think... what if someone was retiring this year after 30 years of working/investing and followed this method. Either buy may/sell oct or buy oct/sell may.

From 1980 to 2009, $10,000 initially invested either Apr-30-1980 or Oct-31-1980 and following the above patterns returns similar results:

Buy Oct, sell May, investor is left with $55,091.

Buy May, sell Oct investor is left with $10,591.
 

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If you are interested in formula type investing, take some time and read The Little book that (still) beats the market by Joel Greenblatt. He also has a website: http://www.magicformulainvesting.com

In the book he describes the root problem of investing by a formula. You have to expect times of under performance relative to the market. Sometimes these periods could last for 3 years.

His formula over the last 10 years has returned 14.5% compounded(not included transaction fees)

If you look at the returns there were two years with massive drops. 2002 a drop of 21% and 2008 a drop of 36%.

In a nutshell say you have a 100K portfolio you have to be ok with a 1 year drop of 36K. I.e a portfolio now worth 64K, and still believe in the formula.

I mention Joel Greenblatt because he has done amazing work and is probably one of the elite investors out there. I would guess the simple way would also have periods of under performance and big 1 year drops.

I personally believe formula investing based on value principles can work for the long term investor, but it requires the investor to believe in the formula. That is real tough to do, when your portfolio drops by 36%
I'd highly recommend Greenblatt's other book "You Can Be A Stock Market Genius," sans the cheesy title, it's easily one of the best investment books i've ever read...
 

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That made me think... what if someone was retiring this year after 30 years of working/investing and followed this method. Either buy may/sell oct or buy oct/sell may.

From 1980 to 2009, $10,000 initially invested either Apr-30-1980 or Oct-31-1980 and following the above patterns returns similar results:

Buy Oct, sell May, investor is left with $55,091.

Buy May, sell Oct investor is left with $10,591.
What about the portfolio volatility? Total return isn't the only measure you should be concerned about. What about max drawdown, variability of returns, etc.

It seems like a very simple minded strategy. Oct 2008 - April 2009, for instance, was a recipe for slaughtering your portfolio. There are more reasonable timing strategies out there.
 

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That made me think... what if someone was retiring this year after 30 years of working/investing and followed this method. Either buy may/sell oct or buy oct/sell may.

From 1980 to 2009, $10,000 initially invested either Apr-30-1980 or Oct-31-1980 and following the above patterns returns similar results:

Buy Oct, sell May, investor is left with $55,091.

Buy May, sell Oct investor is left with $10,591.
That's just data mining. The really interesting comparison would be adding to the portfolio every April when you are supposed to be selling and then calculating the CAGR as a buy and hold over the 30 year lifespan of an RRSP.
 

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Warren Buffett once said that the small investor should trade by the number of fingers on his hands in their lifetime. In other words, not very often.

Trying to time the markets is a mug's game.

In general women are better investors than men because they do not trade as often.

If there was a magic answer, everyone who followed it would be rich. All that we would need to do was to buy the right book.

Ya, right!!!
 
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