Warren Buffett and Ben Graham: momentum players, NOT value investors!

Tens of millions of individual investors worldwide took the step of setting up their own brokerage accounts to actively manage their portfolios. Unfortunately, most of them lose money: an 11-year study published by the UK regulator FCA found that 82% of them lose money. The data published by many of the retail brokers corroborate this.

This is quite a staggering set of statistics given that we’ve just enjoyed the longest bull market on record – so where’s the disconnect? Part of the problem could be that in preparing themselves for hte challenge, many investors look for education from the likes of Warren Buffett and Benjamin Graham.

Both investing legends are for some reason regarded as “value” investors. But a closer look at the way they actually achieved their results reveal that they owed their outperformance entirely to momentum plays – their value picks underperformed. Thus, if it wasn’t for their momentum plays (a different word for trend following), they both would have underperformed the benchmarks like the S&P 500 or DJIA.

A few months ago I posted an article summarizing these findings: “Why trend following beats value investing.” The article received quite bit of attention (and much feedback from readers who had already recognized this) so I decided to update it and turn it into a short video report (11 min):

I have to say, I’m quite a bit bothered by the fact that most people lose money in the markets and that many or most of them are regularly told that trend following is superstition and nonsense by the mainstream press and academia who seem to still worship at the altar of Burton Malkiel and his patently wrong “random walk” theory.

I’m not sure why trend following is so consistently disqualified by the expert class – it’s almost like trend following is to investing as Ivermectin / Hydroxychloroquine are to the pandemic – reliable and effective but must not be mentioned in polite society. A few months ago, listening to a Michael Covel podcast, the following words caught my attention:

“Trend following takes away the power of certain market players. If you accept trend following you accept that so much of the financial industry is nonsense; is worthless; is simply people using their position – broker, analyst, whatever – to skim from the accounts of everyone. That’s how they make their money – and [they] make a lot of money that way…”

Michael Covel

Something tells me that Mr. Covel was on the right track with that statement…

Helping the retail investor with real time CTA signals

This state of affairs ultimately led me to develop more affordable decision-support products for retail investors and today I can propose two such products, summarized in the below exhibits, which I’ll be offering at a 50% discount: the USA and the USA PLUS! portfolios (see below). In hte near future I’ll also add one or more FX portfolios.

This will be something of an experiment on my part. I’m not exactly equipped to support large numbers of subscribers, but let’s see where the challenge leads: my objective is to get more people to look at trend following: it has the power to set them on the path of long-term success at managing their investment portfolios, rather than being statistics, predictably sheared by the financial industry.