Let's say you had a crystal ball, and timed the bottoms and tops of the three best trades in the last 15 years perfectly...
1) Stocks 2003 - 2007 Housing Bubble
2003, the Iraq war is about to begin, the great "Tech-Wreck" of the Dot-Com bubble is still on everyone's mind as well as 9/11 and what that means for the "new normal", living in a world with terrorist extremism.
But you got this shiny new crystal ball and its saying: Buy Stocks!
(Using proper risk management of course)
You put all your money (let's say $50,000) into the S&P 500 index, timing the bottom almost perfectly.
Good job one of the best trades of the decade.
Unknowingly, or with your crystal ball, you've just caught onto the great bull run of the next five years as money flows into the housing market and stocks fly high.
But the easy money policies of the Federal Reserve pumping out the cash have you concerned, and as stocks soar into 2007 and your crystal ball says that all those houses suddenly for sale in your neighborhood can't be a be a good sign, so you sell.
You nailed the top of the stock market almost to the tick!
And...you didn't make that much money...read on.
2) Gold 2007 - 2011 Gold Bugs Unite!
The crystal ball is signaling caution in 2007.
Stocks are looking shaky. "Something is rotting in the state of Denmark," and you're thinking it's time to play it safe.
Crystal ball says: Buy Gold!
Taking all your profits from the fantastic run in stocks from 2003 to 2007 you dump all your money into Gold as the world economic crises washes over the markets and the housing bubble implodes.
Nice job, you just caught the low in Gold for the next four years!
3) Stocks 2011 - 2018 Current Bubble?
But now, the crystal ball is saying "the yellow metal is too damn high!" and you bail.
Right at the top!
Stocks are looking good again, and you accumulate the S&P 500 after reaping the rewards of Gold Bug fever.
Somewhere around the 2011 lows, you get in.
And baby, your crystal ball nailed it again!
From 2011 to 2018 US stocks have been one of the best trades in recent memory.
Seven years into holding stocks and after the Trump rally, the crystal ball starts to blink red:
Danger Will Robinson!
Are stocks overpriced?
Is this another new normal and maybe another run like the Dot-Com era?
Nah, your crystal ball is a super amazing trader and seeing that stocks are making all time extreme highs, you sell.
It nailed the top AGAIN!
And now you are all in cash.
Now, let's review how your crystal ball really treated you...
Looking Under the Hood at the Best Trades in 15 Years
Your crystal ball nailed the bottom in 2003, the top in 2007, 2011 and 2018.
Your $50,000 is now $538,462.
Well, that's damn good you say to yourself.
My crystal ball is working! I'm going to be rich!
Not so fast there Sparky.
Let's look at your "amazing" best trades record from the respect of the Compound Annual Growth Rate (CAGR) which is the universal standard by which all Hedge Funds, Pro Traders and Top Brass like Warren Buffet measure their performance.
Compound Annual Growth Rate:
CAGR = [ ( Final Investment Value / Initial Investment Value ) ^ ( 1 / Years ) ] - 1
Now, NO ONE is going to say you did a lousy job over that 15-year stretch.
I mean, come on.
You turned $50,000 into $538,462! (Not accounting for taxes, commissions or slippage).
But on closer inspection, what was your CAGR?
[ ( $538,462 / $50,000 ) ^ ( 1 / 15) ] - 1 ------> 17.2%
17.2% per year, really?
That's all you were making per year by timing the markets absolutely perfectly?!?!
(Crystal balls don't work FYI)
It's No Wonder 95% of Newsletters Lose Money
It's EXCEEDINGLY hard to make money in the markets year after year.
I hope I've proved that to you with examples of the best trades possible above.
I keep slamming the table on this one, anyone that claims they can make 1000% per year is an absolute crook and a liar.
Old Warren has a pretty good track record of around 20%, and he's one of the best investors on the planet!
95% of self-proclaimed, self-important gurus and the so-called "professional" stock pickers telling you what to buy and sell have the nasty, infuriating reality of having NEGATIVE returns!
You need a proven "edge" if you are going to come even close to 17.2% returns per year, and the for-mentioned spin-masters don't have a clue because they don't have an edge, just a fancy suit, haircut and good marketing.
My advice -- turn off the tube and don't listen to anyone that can't back up their trading with science.
How many times have your turned-on CNBC to listen to alleged experts announce that everything is excellent with the Goldilocks economy, only to see the stock market collapse?
How many of those analysts and Wizards of Oz characters told you about the market top in 2007?
Truthful, maybe one in 1,000 would be my guess.
You need a proven edge, not a yes-man, feel good financial planner or guru-newsletter.
Ask your current financial planner or market guru what their Exact Rules* are for the investments decisions they make and then ask to see all their back-tested data.
My guess: You'll see a big dumb blank on their faces, get a rambling reply or sadly no response at all.
*If you hear "technical analysis" or "fundamental analysis" run as fast as you can in the opposite direction!
- CAGR is a universal measure of performance, ask yourself and current guru what their's is today
- Making consistent profits is ENORMOUSLY difficult
- Anyone that claims they can make 1000% per year is a crook and a liar
- 95% of "professional" stock pickers have NEGATIVE returns
- You need a proven edge to make the big bucks in the stock market