Beating the FTSE
The ME way
+18% pa average returns in last 22 years compared to the Market of +9% (+beat the market 18 out of 22 years)!
This is my personal blog on investing.
Traditionally I have been a growth investor generating decent returns. As an active growth investor my returns have been very respectable compared to the market but not compared to my Mechanical Trading Strategy – The ME way!
Traditionally the choice has been between Tracker Funds and Active Funds. The trouble with Tracker Funds is you can never beat the market and with Active Funds they involve human judgment and humans make mistakes, such as taking profits too early and letting losses run (emotions get involved).
The alternative is a Mechanical Trading Strategy. Buying and selling according to a screen based criteria. The strategy consistently applies the same criteria time after time. No emotion, full discipline and back test to prove strategy.
- Strategy must have clear stated rules and you stick to those rules through thick and thin.
- Strategy rules must be simple and logical with a sensible method of selection.
- Strategy must be reliable through historical backtesting.
Other advantages include low costs and minimal time investment.
3 Key Elements of the Mechanical Trading Strategy:
- Which shares to buy?
- How many shares to buy?
- When to buy and sell?
The most famous Mechanical Trading Strategy is probably Michal O’Higgins Beating the Dow. The logic is simple; markets over-react to bad news and the aim is to exploit the gap between reality and the markets distorted view.
The ME strategy is very similar in the opposite manner; markets under-react to good news and the aim is to exploit the gap between reality and the markets distorted view.
ME is a very simple and very successful Mechanical Trading strategy.