Dow Theory Update for August 10: Two interesting articles which may help investors

Trends unchanged

The Industrials remain below their secondary reaction closing highs, and hence no primary bull market signal has been signaled. More about this here

The first article clearly shows that making money in the market is not so easy. Even for buy and hold, and assuming the very lenient US stock market for investors in the last decades, there are very large periods of underperformance. In other words, if the average return is on the vicinity of 8% p.a., one is very likely to undergo long and rough periods of underperformance. Of course, market timers (the Dow Theory is market timing) are not immune to underperformance both against the buy and hold benchmark as well as against our own average return (that is, is, i.e., the Dow Theory averages 11% p.a., there will be periods of time where returns will be well below its own average or buy and hold average to boot).

The “Systematic Relative Strength” blog of Dorset Wright in its article "Managing Lumpy" says it all.

 

The second one, which brings me reminiscences of my post “Why Drawdowns matter” has been posted by Barry Ritholtz in Bloomber View. It bears the title “Invest like aBillionaire (if you are one)”. Barry clearly explains that there is no “one size fits for all” investment approach and that the individual circumstances of each investor determine the appropriate investing approach. What suits billionaires may not be suitable to other investors.

 

My takeaway from the two articles: Nobody said investing is going to be easy in real time. We must get psychologically and financially  prepared to endure drawdowns and underperformance. Furthermore, we have to know who we are, both mentally and financially, and thus blindly mimicking the trades that billionaires make may be detrimental to our interests.

Sincerely,

The Dow Theorist