BIG MONEY little effort

It should be the simple goal of every investor to concentrate their cash in assets as they rise in value and to stay well clear when they're falling and in my opinion, a basic strategy that aims to force you to do just that by measuring price momentum is all you need.

During my career running my own hedge fund management company up until my retirement at the grand old age of thirty-three, my staff and I tested numerous strategies for participating in the markets. Most of these were concentrated upon market price movements as we found pure fundamental analysis too subjective to include into a disciplined methodology.

One very useful benefit to using market prices as the sole input in our testing was the ability to then "back-test" our ideas across a broad selection of asset over decades of performance. For sure, the future is never going to be like the past but it is the best indication we have and if you can satisfy yourself that your investment strategy has survived all previous financial crisis and continually steered you towards profit then this is an enormous advantage, both psychologically and financially.

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Back in 1993, I hit upon a very basic but extremely successful system. This simple approach, that took my research staff and I no more than five minutes a week to operate without the use of a computer, had been tested and validated on over nearly forty years of stock market price movements back to 1951. Applied to the stock market its two rules instruct you when to invest in a stock market index such as the S&P 500 or FTSE 100 and when to liquidate that commitment and place your money in an interest-bearing account.

Its performance was so successful, I immediately allocated some of my own personal cash to this system and when I retired from public fund management in 1996, I increased that allocation. And in 2008, Im still using this method to control some of my personal wealth.

With a successful track record now dating back over fifty-five years, I thought it would make an excellent subject for my new book, Big Money, Little Effort . The reasons being not only the outstanding returns my method, which I unimaginatively named "The Long-Term Investment System", has returned over the past few decades but also the simplicity of its application. You do not need any prior experience of the financial markets or investing in general to operate and follow the system. And I've also proved with a couple of friends and relatives that even if your personal computer knowledge doesnt stretch beyond turning your PC on and off, you will still be able to operate this method in less time than it takes to boil a kettle. And youve only got to do this once a week!

The system provides a disciplined way of monitoring price movements and helps investors to adhere to the time-honoured investing maxim of "running your profits and cutting your losses".

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Momentum investing, which equates to buying high to eventually sell higher might go against our natural instincts to identify a "bargain" but in truth you need to ignore what many well-meaning but ultimately misguided experts say about "value investing", "bargain hunting", "bottom fishing" or "buying at a discount".

Unless you're Warren Buffett or Anthony Bolton investing in an asset that's falling in value is dangerous to the health of your wealth. How cheap can a stock get? Well, just ask investors in Enron or some of the other high profile corporate crashes. A stock can drop to zero!

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Mark Shipman
14 May 2008 © Moneyextra.com

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