SCOTT WELSH TRADING BLOG

Yes, Virginia, Random Hunches Can Beat the Market

Yes, Virginia, Random Hunches Can Beat the Market

Dec. 2, 2020

“Now in his 80s, here’s what [Jack Bogle] has to say about successfully beating the market: ‘I’ve been in this business 61 years and I can’t do it. I’ve never met anybody who can do it. I’ve never met anybody who’s met anybody who can do it.’ Neither have I.”

That’s a quote from a self-help investing book I just finished.

And, um, with all due respect, WHAT ARE YOU TALKING ABOUT?!?

Where do these people get their research? Are they trying to avoid common sense? Have they been bribed by the Index Fund Industrial Complex?

What is going on?

Here are a few examples that anyone can use. These are from 2020. They include no optimizing. And I’m using random ideas that I actually had in my own head or talked about with someone else. Here we go.

When the pandemic hit in March and the sky was falling, I was looking at charts. And I thought, “You know, something like BUD (Budweiser) will probably go up.”

BUD is not a high-flyer. It’s not even a very good stock. But I thought people might stay home and drink adult beverages.

So let’s put a basic breakout system on my random thought from March. We’ll buy if our idea breaks above a 48-day high (not sure where I got that number, but it’s kind of Turtle-ish and I’ve used it for years). I’m not smart so I’ll hold it until it breaks below the 20-day low (again, like the Turtles). And I’ll use a 7% stoploss (like IBD recommends), which is $700 on a hypothetical $10k account.

Here’s BUD using that simple “strategy”:

On a $10k account, I would’ve made 17% on that first trade and would be up 10% in my current trade.

Guess what? That beats the market in 2020.

No need for six decades of alleged academic research. To do better than 96% of the funds out there, all it takes is hunch and a way to time the market.

Also during the pandemic, I was talking to a former tennis student who was interested in PENN. What would have happened if we traded PENN?

We’d be up 68% for the year.

Also during that time, I was looking at stocks that had big names but had been beaten down by the pandemic. My student asked me for a hypothetical pick, so I said Tupperware (TUP). I don’t even remember how I found it, only that we talked about it. Here’s how TUP did:

We’d be up 940% so far, and, as you can see, we’d still be in that trade that began back in May.

It would take an Index Fund 85 years of trading to match one random idea executed by a simple trading system. 

So, as it turns out, any one of those random picks would beat Jack Bogle and friends’ precious market.

Remember, that’s with no research and no optimizing.

Just random thoughts and a breakout method.

Did I personally follow any of these picks? Nope.

Ninety-nine percent of my money is in Forex, and, because of that, I’ll have to settle for a 90% return so far this year.

But, for crying out loud, stop telling people they can’t beat the market or can’t time the market.

It’s a ridiculous thing to say.

And it may cost innocent people millions.

We’ll look at another system in our next Newsletter.

Talk soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.