John Lohmeier of Enterprise Advisory, invites you to reprint this
article in your publication, ezine, or on your website.|
This is a Free-Reprint article. The only requirements for publishing this article
You must leave the article and resource box unedited.
You are not allowed to change our recommendations, nor are
you allowed to change the context of the article.
You may not use this article in UCE (Unsolicited Commercial Email).
Email distribution of this article MUST be opt-in email only.
You must forward a copy of the ezine or newsletter that contains the
article inside to the author at:
If you post this article on a website, you MUST set any URL's
in the body of the article and most especially in the Author's
Resource Box as hyperlinks. You must also send us a copy of
the URL where you have posted this article.
If you find any of the rules to be unsavory or unacceptable, please
do not publish this article. While we are happy to make the content
available to you for your own use, we must insist on having our rules
and *Terms of Reprint* honored in full.
Thank you for adhering to these four very simple rules.
The Importance of Trend Following in Stock Market Investing|
Copyright © 2006, John Lohmeier
"It is the direction of the price movement that counts. It is
always probable, but never certain, that the direction of the
price movement will continue. Soon after it reverses is time
enough to sell. You should sell when you wish you had sold
sooner, never when you think the top has arrived. That way you
will never get the very best price - by hindsight your individual
transactions will never look daring. But some of your profits
will be large; and your losses should be quite small. That is
all that is necessary for a satisfactory, enriching investment
What Edgar Genstein is talking about is the core of investment
strategy - trend following. While he explains it in an academic
sense, I prefer to be more visual.
Picture a beautiful sun setting over the mountains; let's say
there are three of them and one is bigger than the other two.
Now pretend that you are hiking in these mountains, (not me
because I am afraid of heights) and you are scaling the first
one; it's not the tallest but you get to the top and the view is
nice but you see the second taller mountain. You start to hike
down the mountain and then jump across a ravine to the next
mountain. It's a steeper climb but you get to the top. The
views are stunning until clouds roll in and fog distorts your
view. You see that it is clear over on the next mountain so you
climb down the steep terrain and take a flying leap across to the
next mountain where it is a smoother, easier climb to the top
where you reach a flat area where you can get refreshed, rest,
eat and prepare for the next part of your journey.
This is the journey of a trend follower. You don't stay on a
mountain forever, and you know that you have to go down sometimes
to get to the next trend. Climbing mountains can be exciting,
but trend following is a very disciplined style of unemotional
investing - boring yet effective.
The key with trend following is relativity to the market. You
want to ride the trend to beat the market indices. If you put an
absolute return goal on your stock investment performance, you
will be disappointed most of the time. Following the trends will
work in bull and bear markets. Neither lasts forever and the
more flexible and realistic you are, the less emotion you will
have to enable you to make better decisions. That's why trend
following works; it eliminates the emotion in investing and
creates the necessary discipline for success.
When you look at a chart on the S&P 500 for the end of 2005,
stocks were banging their heads on resistance at a triple top
that, yes, does look like a mountain range. It held the market
back but eventually broke above it in early January so a longer
rally upward could be unfolding here. Watch the trend as the
first quarter unfolds and follow it to improve your chances of
beating the market.
Writer's Resource Box:
John Lohmeier is President and Chief Investment Officer of
Enterprise Trust Co., http://www.EnterpriseAdvisory.com, a
Nevada-based trust and investment company. He employs several
different quantitative long-short models that follow trends
to provide market-beating performance for his clients.
He can be reached at 1-877-ENTER01 (1-877-368-3701).
The article on this page is Copyright © 2006, John Lohmeier
[an error occurred while processing this directive]