What is the root cause of the foreclosure crisis? In the popular imagination, it is rapacious mortgage companies making irresponsible loans to a bunch of naive borrowers. So government policy now addresses that scenario and tries to modify loans so that people can stay in their homes. Yet, data shows that the biggest single foreclosure risk is someone who never had equity in their home-the no-money-down crowd.
Data is funny like that. Often a thoughtful analysis of the data reveals something unexpected. We have found this to be true repeatedly as we’ve done research for our Systematic Relative Strength accounts over the years. At least once a week, we get a call suggesting that if we handled stops or rotation or something differently, our results would be better. We are always open to improvement, so I always ask for their data so we can take a look at it. “Data? Well, I don’t have any data,” is the inevitable response.
Data, in fact, is critical to distinguish between something that has worked recently and something that has worked consistently over a decade or more. I ask for the data so that we can compare it to the testing we have already done. (We’ve already tested for everything that we normally get inquiries on-usually in multiple ways. I’m not always sure callers generally realize that.) We have two hurdles: 1) the method has to be capable of being applied in a systematic way, and 2) the method has to have consistent success over a long period of time. When both hurdles are met, we may have something useful that can be applied to accounts in a rules-based way over many years that will give clients a shot to build real wealth.
