How to Trade Stocks in Any Market

Housing Market

Did you read about the dirty little secret of the investment world the other day? I did. If you didn’t catch it, the Australian Financial Review ran a story on some of the models professionals use in the market. Most, at the end of the day, are trying to figure out which stocks are a buy or a sell, and why. This is based on lots of different metrics depending on the program.

This is what I found interesting. Take a read of this:

The dirty little secret is that the professional models don’t work, says Jean-Pierre Fenech, lecturer in the department of banking and finance and course co-ordinator for the Master of applied finance course at Monash University.

As crazy as it may sound, all such models are not empirically validated. We award Nobel prizes to authors of the Black-Scholes model (an options-pricing model) and the efficient market hypothesis, etc, and guess what, we have a financial crisis, and none of them work. That’s why retail investors probably throw in the towel and trust their broker for investment decisions.

Just to get that clear, the so-called hotshot investors have no idea how the economy works. As a share trader, you’d love to know what’s coming next for the economy. But who the hell knows? Well, there ARE people who do know what’s coming next for the economy. By and large these people are not share traders, and they’re certainly not politicians, economists, financial advisors, investment analysts, fund managers or brokers.

The problem with the fancy models like the Efficient Market Hypothesis is the inputs and assumptions are wrong, so of course the output is going to be off. But how do you get it right? Well, the people who know what is coming next for the economy understand the land market.

I bet you didn’t expect that. Nobody talks about land in the world of hedge funds, private equity and business news. But that’s why listening to their advice is financial suicide. Most of them dress fancy, but like Paul Keating quipped once, they’re all tip and no iceberg.

Pioneering writers who studied real estate in the US, such as Homer Hoyt and Roy Wenslick, observed that the economy simply repeated in a set sequence and timeframe. Wenslick got rich by using this knowledge to time when real estate was a buy and when it was a sell.

Mind you, this is just too challenging for some to accept. The cycle has been repeating the same way for the last 300 years in the UK and 200 years in the US. And it is staggering to me that it is not more widely known. It’s what allows people like author and economist Fred Harrison, who studies the land market, to call the timing of market peaks a decade in advance. Let me repeat that: a decade in advance. The US Fed, for example, hasn’t forecast anything correctly for the past ten years.

As a share trader, it’s important to know this, because not only does it give you sign posts for what lies ahead, but those land cycle extremes affect the share market in a big way.

The real estate cycle won’t tell you what is going to happen tomorrow, or next week for that matter, but it gives you the broad framework of the economy and what to look for, especially in stocks. This knowledge has been condensed into the 18 year real estate clock, which you can find here.

As a share trader, you will find its greatest benefit is that it allows you to filter out all the noise that the financial market throws at you and just trade accordingly, whilst everyone else is paralysed into inaction because they think the sky is falling.

Let me give you an example. I’ve recently profiled a number of constructions companies for The Daily Reckoning website.

Why? Because the 18 year real estate clock told me in advance that this sector would be the next to break up. And the charts are simply confirming that…before you read about it in the papers. How powerful is that?

Many of these stocks are into all-time new highs or making rolling year records. This tells you more about the economy than what you will ever read in The Australian Financial Review or the business section of whatever paper you may read. What’s more you could expect this sector to have several good years ahead of it.

Now a lot of people keep saying stocks are going up because central banks are pumping so much money into the system. Well, I follow what stocks are reporting every day, and a good many are reporting increasing earnings and healthy profits. Sounds like a good time to be buying stocks to me.

Now, here’s one thing you need to know about me. I’m a trader. I’m not looking to stick around for the long term in a lot of the companies I follow. I’m looking for the stock to break out so I can get on board and cash in on the upmove. It’s the fastest way to make money.

So if you want to know what lies ahead for the economy and the time to get on board a stock, then the 18 year real estate clock needs to be in your investment arsenal. It really is an unfair advantage. You can be ready by going here.

This is a devastatingly simple strategy. I’m not going to win a Nobel Prize for it, but I’m happy to leave those to the ‘experts’. You and I can just watch the charts. They tell us everything we need to know.


Terence Duffy

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slewie the pi-rat
slewie the pi-rat
1 year 6 months ago
in order to make a “model”, one must make some “simplifying ass-u-mp-tions”. we all know that, don’t we? this is why “the map is not the territory”. predicting the future does seem to come easily, to a select few, though. good luck! the idea that some dip-stick lecturer may not have presented THAT part, while apparently thinking “we” award Nobel prizes, seems pretty quaint, academically, though… Black-Scholes [1973] isn’t perfect. it IS a “map”! Black died in 1995, before his work had been recognized, and Myron Scholes got the Award [with Robert Merton, i think], in 1997. so, someone thought… Read more »
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