"Stocks on the Move" by Andreas Clenow Book Review: Profile Traders
Beating the markets isn’t difficult, and Andrew brings you a worthy read in managing your assets.
“Stocks on the Move” takes you behind the scene with a Momentum strategy for equities that can beat the funds at their game.
So what are you waiting for? Let’s get in for a sneak peek into the book.
Mutual Funds, can I Trust Them?
Andreas says Mutual funds have become an alternate and logical solution for an individual to invest in equity markets. Even if you don’t invest in equities directly in individual stocks, you could do the same by investing in Mutual funds, which usually invest the collective fund into a basket of stocks.
Mutual funds are hailed by the government, universities, and banks as a perfect solution for individuals to participate in the equity market. Well, Mutual funds look to replicate the performance of an index the same way you would aim to do when you invest in the financial markets.
The author, however, warns that you should be very cautious when investing in Mutual funds. Taking a close look at their past performance will show that not all of them have done a great job in the long run. Past performances can be easily accessible over the internet.
The kind of fees that you unknowingly pay when investing in Mutual funds can be mind-boggling at times. These are the times when Mutual funds fail to beat the benchmark index.
Trend following and the pain in equity for the common man
The author claims that most people invest in companies that they feel they understand them. You may like having a cup of coffee at Starbucks or that new iPhone that’s launching.
However, investing in them is a different ball game. You cannot invest in a company because you use its products. That’s an illusion.
Investing in publicly traded companies is a more difficult game than just liking a company's products. Driving your investing decisions requires you to go deeper to analyze its fundamentals and future growth prospects.
The effort and study that you need to put into studying a company probably push you to choose an easy way out, Mutual funds.
Andreas claims that trend following is a dumb strategy. Yes, you read it right, dumb. The reason he claims it to be dumb is that it does not take into a large number of factors or complex strategies. He, however, agrees with the fact that trend following has shown strong results in the past 30 years.
If a strategy is as simple as buying when the prices are moving higher and selling when the prices are moving lower are yielding good returns, what is the harm in using it? You may still have to look at the overall market sentiment to take that call though.
The core premise of trend following, therefore should be based on diversification. By trading different asset classes at the same time, the probability will be high that something makes enough money to compensate for losses in other asset classes.
The author discusses some trend-f