Investing with the Trend provides an abundance of evidence for adapting a rules-based approach to investing by offering something most avoid, and that is to answer the “why” one would do it this way. This book explains the need to try to participate in the good markets and avoid the bad markets, with cash being considered an asset class. The book is in three primary sections and tries to leave no stone unturned in offering almost 40 years of experience in the markets.
Part I – The focus is on much of the misinformation in modern finance, the inappropriate use of Gaussian statistics, the faulty assumptions with Modern Portfolio Theory, and a host of other examples. The author attempts to explain each and offer justification for his often strong opinions.
Part II – After a lead chapter on the merits of technical analysis, the author offers detailed research into trend analysis, showing how to identify if a market is trending or not and how to measure it. Further research involves the concept of Drawdown, which the author adamantly states is a better measure of investor risk than the oft used and terribly wrong use of volatility as determined by standard deviation.
Part III – This is where he puts it all together and shows the reader all of the steps and details on how to create a rules-based trend following investment strategy. A solid disciplined strategy consists of three parts, a measure of what the market is actually doing, a set of rules and guidelines to tell you how to invest based upon that measurement, and the discipline to follow the strategy
The goals for this book are numerous, Understand . . .:
- How markets work and how they have worked in the past.
- The host of misinformation that exists in finance and investments.
- The tools of modern finance and their shortcomings.
- That as a human being, you have horrible natural investment tendencies.
- What risk really is.
- That markets trend and why.
- That there are techniques to managing money that reduce risk consistently and offer hope for long-term success.
- Fictions Told to Investors
- Flaws in Modern Financial Theory
- Misuse of Statistics and Other Controversial Practices
- The Illusion of Forecasting
- The Enemy in the Mirror
- Market Facts: Bull and Bear Markets
- Market Facts: Valuations, Returns, and Distributions
- Why Technical Analysis?
- Market Trend Analysis
- Drawdown Analysis
- Popular Indicators and Their Uses
- Measuring the Market
- Security Ranking, Selection, Rules, and Guidelines
- Putting It All Together: The “Dancing with the Trend” Model
- Putting Trend-Following to Work