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Investing in Market Trends

Last update on: Jun 18 2020

The best way to profit in the markets is to latch on to a trend and profit from it. No matter what is happening with the market indexes, there almost always is a bull market some where in the investment universe. All you have to do is find it. That’s the theory behind my Aggressive Portfolio trading system called Invest With The Winners.

The portfolio is working out very well. It generated strong returns through the bull market. Even better, it held most of its value through the bear market and recently began generating high returns.

In the IWW system, I track 300 to 350 no-load mutual funds and rank them by performance every month. These funds represent most of the different asset classes and investment styles. The rankings, along with my buy and sell rules, weed out short-term performance and emphasize intermediate-term performance. That is the type of performance that has gathered momentum and is likely to continue a while longer.

Like most aggressive systems, IWW did well in the bull market, returning 390% from January 1995 through February 2000. Unlike most aggressive systems, IWW held most of its value through the bear market. The loss for 2000 was only 2.64%, and for 2001 it scored a gain of 3.68%. So far in 2002, it has back to its winning ways. A purchase of gold stock funds was triggered last December, and we rode those to strong profits before a sell signal was given in mid-March. The result is that the portfolio was up over 25% for the year at the end of February, giving it a cumulative return of 451% since January 1995 before fees and taxes. Its worst month was a 7.26% loss in March 2000.

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IWW is not for every investor. Trades are made every couple of months on average. That means all gains are taxed as ordinary income. The system is best followed using a tax-exempt or tax-free account (such as a traditional IRA or Roth IRA) through a mutual fund discount broker. Because of the trading frequency, you will pay brokerage commissions on most trades. Some funds also will charge redemption fees. I don’t recommend following IWW with the bulk of your portfolio. It should be about 5% to 20% of the portfolio for investors who are willing to take the time to follow the system.

The current rankings and investment moves are on page 11 of each issue.

Details of the system are explained in the report How To Get The Most From Retirement Watch, which is sent to new subscribers. Here’s a review.

To begin the system, invest an equal amount in each of the two top-ranked funds – but only if they meet my purchase rules. Don’t purchase a fund that has a negative return for the most recent four weeks or when its price is more than 5% below its recent high. If a fund doesn’t meet the purchase rules, keep that fund’s share of the portfolio in a money market fund until the next issue arrives and a top fund is eligible for purchase. The only times to go down the list below the top funds are when a top fund is closed to new investors or it has a load or redemption fee you don’t want to incur. About half of mutual funds, including some on my list, have redemption fees for those who don’t invest for a minimum time. Redemption fees are added almost daily. If you don’t want to risk paying the extra expense, check with a fund about its redemption fee before investing.

You hold a fund until one of my sell signals is triggered. Here are the sell signals:

  • Sell a fund when it drops below rank 15.
  • Sell a fund when the return over the latest four weeks is negative.
  • Sell a fund whenever it drops more than 5% from its recent high. This signal requires you to act when there are major market changes between the monthly issues, and it is especially important to preserving gains and cutting losses. When you sell between issues, keep the proceeds in a money market fund until the next monthly issue arrives with the new rankings.

The system will follow the markets and take care of generating gains as long as you keep track of when funds need to be sold. It doesn’t call tops and bottoms but does catch trends. If you are not able to take a few minutes each day to check the performance of your funds, then don’t use this strategy. The sell signals are key to limiting losses and making the system work.

If you want an automatic system that requires a small amount of your time, then consider putting part of your portfolio in this strategy.



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