Investing, at its core, is a simple process. You need to determine if the train is going north or south, or just sitting on a track siding doing nothing. Once you’ve found a train going north, you need only to hop aboard. If the train starts to go south, you need to jump off.
The concept is simple, but sometimes investors make the execution more complicated. For us, relative strength and trend following provide the tools and methodology to find the northbound trains. The same tools and methodology can be used to tell you when the switch engine has come along and started to move the train south.
The problems happen when investors deviate from the simple goal-directed hobo mentality and get too clever for their own good. Can you imagine how irrational some investor behavior must look to a hobo? Here are the top six dysfunctional hobo sayings:
1. I wanted to go north, so I hopped on an out-of-favor southbound train, hoping it would go north eventually. (value hobo)
2. I got on a northbound train, but it only went north a few miles. A switch engine came along and started to take my boxcar south. How embarrassing! This train owes me. I’m not getting off. (ego-attached hobo)
3. There are so many trains going north. I want to hop on one eventually, but I’m afraid it will go south right after I get on it. (failure to launch hobo)
4. This northbound train is picking up speed. I’d better get off. (premature ejection hobo)
5. I want to go north, but my train pulled on to a siding and stopped. Maybe I’ll just sit here and see what happens. (buy-and-hold hobo)
6. There are so many trains going north without me. Eventually they will all have to go south, and then I’ll have my revenge! (bitter hobo with economics background)
If you want to go north, get on a northbound train. KISS really applies here. On our good days, we all know this, but it’s so easy to forget.
[...] “Investing, at its core, is a simple process.” (Systematic Relative Strength) [...]
Ok, but I have to buy a ticket to get on and to get off. Once I was travelling with my friend who fell asleep on the train we were on. Meanwhile, the train we were on stopped and started to go south so I thought I’d suprise my friend by beating him to our destination by hopping on a different train moving north. I thought it would be a fun joke to play on my friend. Anyway, I paid to get off and then paid to get on the other northbound train but for some reason it stopped and then started to head south. Then when it started to head south I paid to get off right away because I wanted to beat my friend, and found another train heading north at a fast pace. I was happy for a little while but then for some reason it stopped and started to head south really fast. I had to wait a bit to pay to get off of that one because there were so many other flustered passengers in line ahead of me to buy their ticket to get off as well. I looked for a train that guarranteed to go north until I reached my destination but I couldn’t find even one train that guarranteed it would go even one mile in a northern direction…so I had no other choice but to pick a nice looking train where everyone seemed satisfied that it would travel north for a long time. I talked with other passengers who all seemed to agree we would be going north for a long time. Unfortunately it started to head south but many passengers assured me it would soon start to head north. Some nervous passengers got off right away but I decided to wait for awhile because these important looking passengers with suits seemed to know what they were talking about. They had very good reasons why it would soon continue heading north, which seemed to make sense. I relaxed and kind of laughed a bit at all the nervous passengers that left the train looking for another one. After awhile longer the train was still heading south and more people started to leave the train, even some of the people who seemed to have good reasons for staying on it decided to get off. Finally I got off and as soon as I paid to get off it started to head north again. I was now further south than when I started, so this time I watched a south bound train until it stopped and hopped on it. It started to head north and I was hopeful that I finally figured out the best way to navigate the trains. There were a bunch of people on that train looking at charts and stuff, looking kind of nervous but also seemed to have some kind of plan that was working for them. Anyway, one guy said that he had a a very good system and would let me follow him for a price. After following him for awhile I wasn’t sure if his system was much better than mine but I was confused and desperate for answers, and he seemed so confident. Before I paid him my money he made me sign something that said there was no guarrantee of success. I thought that was kind of odd, but because he seemed to be a nice guy and confident he could get me to where I wanted to go, that I paid him the fee and followed him. I wasn’t sure I was doing better following him than on my own, since his system involved a bunch of train hopping and ticket fees, but he was such a nice guy I was sure he had my best interests at heart plus it felt good being with someone who seemed to be so confident. He had a nice big smile and wore an expensive suit. The next day my cell phone rang and it was my friend asking me where I was. He said he had a great sleep and when he woke up he was at our destination. I told him I would probably be there in a day or two.
During the conversation he mentioned there was a train wreck. It was one of the trains we almost decided to take…”good thing we didn’t take that one”, he said….just dumb luck, I guess.
Very clever-
No one said it would be easy! And, by the way, always check the train schedule yourself-never take the other passengers’ word for it!
[...] most noteworthy of all is to note that investing or trading at its core is supposed to be a simple process. Over complication reduces the robustness of the [...]