Continuation from yesterday…….(The Future Of Nasdaq)
Trade #6 (Anticipated): Exit your long position at 4,300 and go short. Anticipated move gain 2,950 points. Anticipated net realized gain up to date 12,780 or 1,675%.
To quickly summarize, our three investment strategies yielded the following returns between November of 1994 and September of 2014.
- Buy & Hold: 525%
- Most Likely Outcome (Average): 425%
- Buy Low, Sell High, Go Short & Cover: 1,675%
What’s more, by the time a bear market of 2014-2017 completes itself, the first two investment strategies should see their ROI slashed to approximately 300% while the Buy Low, Sell High, Go Short & Cover investment strategy should see its return zoom up to approximately 1,900%. A return on investment that is more than six times higher when compared to what others were able to achieve. Finally putting to rest the question of what general investment strategy is the best.
Is it really possible to achieve this 16% annualized rate of return without taking on any additional risk?
What most people don’t realize about the proposed investment strategy is that it minimizes risk, not increases it. Think about it in the following fashion. What was more risky, remaining fully invested on the Nasdaq at 2000 and 2007 tops or going short when the tops were confirmed?
Contrary to a popular believe it was exponentially more risky to remain net long at both tops for the following reasons. First, the markets were extremely overvalued and speculative at the time, assuring that any future gains would be miniscule. Second, the risks associated of major declines and even crashes were too great at both tops. Finally, the Nasdaq’s cyclical composition clearly showed that dangerous sell offs were just ahead. Just as it does today.
The best part about Buy Low, Sell High, Go Short & Cover is that this investment strategy works on all time frames and on most commonly used financial instruments. For instance, while the Nasdaq example above uses long-term market developments, the same strategy can be applied to daily trading of any individual stock. For as long as the trader knows exactly where they are in the cyclical composition of the underlying security.
How is this different from Long/Short investment strategy?
If you are not familiar, Long/Short investment strategy is most commonly associated with hedge funds and other professional investors who play on both sides of the market. It involves buying long equities that are expected to increase in value and selling short equities that are expected to decrease in value. And while it might appear similar to Buy Low, Sell High, Go Short & Cover, it is anything but. Here is why.
To Be Continued Tomorrow………