Wednesday, January 18, 2012

The Best Stock Advice In The World

At the beginning of the high tech bubble in 1997 you could have bought Apple Computer at $5.00 a share. It went to $37 at the high-tech peak in early 2000 then dropped back to $10 at the 2002 market bottom. By 2008 it was over $200. At the market lows of early 2009, back under $100. Three years later, as I write these words, Apple Computer is trading at $420 a share. Let's throw out the riff-raff, in 15 years AAPL went from $5 to $420.

I bring this to your attention to illustrate just how much wealth is available for the taking in the stock market. Real estate? You bought a house for $100K in 1985 and sold it for $500K in 2000. That's a 400% return in 15 years. Donald Trump is calling. When Apple rose from $5 to just $25 you had that same 400% return. Sorry, Donald, I can't come to the phone right now.

Knowing that there are opportunities to make money, big money, in stocks is a starting point. Few people understand the very basic tenant of investing. The illustration above of Apple is an outlier, an extreme example of good investment fortune. Or is it?

You can look at Apple as one huge 15 year long-trend. But, AAPL got cut in half in 2008-2009. Who has the grit to stay with a stock that has a 50% haircut in the midst of a scary bear market? Or asked another way, who can forecast the future direction of Apple or for that matter, any stock price?

Take another look at the chart above and note that there are red and blue bars. The red bars are when my trend algorithm said to get out of AAPL, it was going down. The blue bars represent those times when my trend algorithm said to hold AAPL LONG, it was in an uptrend. The algorithm wasn't perfect. It was late a bar or two every time the trend changed. But it did catch 95% of the movement of the stock, both up and down.

The best stock advice in the world is to buy stocks that go up and sell stocks that go down. It used to be a Will Rogers joke:
"Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it."
Rogers had the right idea, Harris has the right algorithm. Buy stocks that go up and sell stocks that go down. Listen to the math, its the best stock advice in the world.

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