What hope can there be for motivated stock pickers - no matter how much they sweat and toil - to outperform the low-cost index funds that simply mechanically track the market? Well – in spite of the absurd rise of the Nobel-acclaimed, and highly promoted, Efficient Market Hypothesis that claims that individual investors can’t beat the market – it turns out there is plenty! Just ask Warren Buffett, for one. [Let me explain.]

So says Stockopedia (www.stockopedia.co.uk) in edited excerpts from his original article* which Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

The article goes on to say, in part:

The Claims of the EMH Concept

The Efficient Market Hypothesis (EMH) was first  proposed in University of Chicago professor Eugene Fama’s 1970 paper Efficient Capital Markets: A Review of Theory and Empirical Work.  To beat the market, stock pickers need to discover mispricings in stocks but the EMH claims that the market is a ruthless mechanism acting instantly to arbitrage away such opportunities, claiming that the current price of a stock is always the most accurate estimate of its value (known as “informational efficiency”).

The EMH has evolved into a concept that a stock price reflects all available information in the market, making it impossible to have an edge. There are no undervalued stocks, it is argued, because there are smart security analysts who utilize all available information to ensure unfailingly appropriate prices. Investors who seem to beat the market year after year are just lucky.

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A Dismissal of the EMH Approach

Despite still being widely taught in business schools, it is increasingly clear that the EMH is not help in high regard by the likes of Shiller, Buffett and Peter Lynch who have had this to say about it: 

What’s So Bogus About EMH?

1. EMH is based on a set of absurd assumptions about the behaviour of market participants that goes something like this:

All of these assumptions are clearly nonsensical the more you think about them but, in particular, studies in behavioural finance initiated by Kahneman, Tversky and Thaler has shown that the premise of shared investor rationality is a seriously flawed and misleading one.

2. EMH makes predictions that do not accord with the reality.

a) Both the Tech Bubble and the Credit Bubble/Crunch show that that the market is subject to fads, whims and periods of irrational exuberance (and despair) which can not be explained away as rational.

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b) Furthermore, contrary to the predictions of EMH, there have been plenty of individuals who have managed to outperform the market consistently over the decades.

• Many… investors, such as Buffett or Benjamin Graham, have followed the value discipline, aiming to buy stocks for less than their intrinsic value, stubbornly refusing to get caught up in fashions and market whims, and sticking almost puritanically to their creed.
• Others, such as George Soros or Bill O’Neill, have been nimbler, believing the market acts in predictable cyclical fashion from under to over exuberance, testing investment theses by pyramid-ing their trades and swinging for the fences when entirely confident in the outcome.
• It is not only these professionals, recent publications have shown plenty of small private investors that have been consistently beating the market year in and year out.

Of course, it can be argued that these track records are merely the product of chance, that those beating the market are statistical “outliers” reflecting the sheer number of investors playing the market. However, Warren Buffett has countered this argument in a brilliant 1984 lecture entitled “The Superinvestors of Graham & Doddsville” in which he used the analogy of a national coin-flipping contest to explain the point, saying: 

Imagine that tomorrow, 225 million Americans (or even orangutans) wakes up and are asked to put a dollar on a coin flip. Each day the losers drop out of the competition. And the stakes build as all previous winnings are put on the line. After 10 flips on 10 mornings, the 220,000 players left in the competition would have won over $10,000. In another 10 days, the 225 left in the game would have turned their initial $1 stake into over $1 million.

It is true that, in this scenario, the group of coin-flippers will likely think themselves investment geniuses, whereas, in fact, they are the product of chance. Buffett pointed out, however, that there is some critical differences between this scenario of 215 lucky coin-flippers and the reality we face, namely the existence of shared characteristics of many of those successful money managers that cannot simply be explained away by chance…a common intellectual heritage, namely [that] they are value investors inspired by Benjamin Graham who search for discrepancies between the value of a business and the price of small pieces of that business in the market. [Buffett went on to say:]

In this group of successful investors… there has been a common intellectual patriarch, Ben Graham, but the children who left the house of this intellectual patriarch have called their “flips” in very different ways. They have gone to different places and bought and sold different stocks and companies, yet they have had a combined record that simply cannot be explained by the fact that they are all calling flips identically because a leader is signaling the calls for them to make. The patriarch has merely set forth the intellectual theory for making coin-calling decisions, but each student has decided on his own manner of applying the theory.

Academics Now Beginning to Debunk EMT

Reflecting the irony of Keyne’s observation that “practical men… are usually the slaves of some defunct economist“, there’s actually plenty of evidence debunking the EMT circulating now even amongst academic circles…[such as]:

• Robert Shiller showed back in 1981 that stock price volatility is far too high to be attributed to new information about future real dividends
• Research by Abarbanell and Bernard at Michigan University has shown that companies that surprise with higher than expected profits do not instantly get repriced. 25 to 30% of the repricing happens up to six months after the initial news.
• Even the father of efficient market theory, Eugene Fama, has cast doubt on its validity by showing that small cap stocks and low price to book stocks outperform the efficient market model
• Josef Lakonishok, Joseph Piotroksi and David Dreman in many different studies have shown that value stocks based on low price to book, low price to earnings and other metrics significantly outperform glamour stocks.
• As just one of several identified momentum effects, research by George and Hwang found that stocks near their 52-week highs tend to be systematically undervalued(investors use this level as an “anchor”, so they tend to be reluctant to buy a stock as it nears this point regardless of new positive information).

Why the EMH Became So Popular 

Again, quoting Buffett, in his 1988 letter:

Amazingly, [EMH] was embraced not only by academics, but by many investment professionals and corporate managers as well. Observing correctly that the market was frequently efficient, they went on to conclude incorrectly that it was always efficient. The difference between these propositions is night and day.

The reason that EMH theory has caught on despite its clearly absurd underlying assumptions is that:

• it explains away…the persistent failure for the average fund manager to beat the market.
• [it reveals the extent of] incompentence of most fund managers
• [it bares]… the institutional imperative aka. herd behaviour of almost all fund managers.

[In addition,] institutional managers can be at a huge disadvantage to a motivated share-owner with less capital [because of:]

• the vast size of many funds,
• the uncertainty of the timing of investment inflows and outflows,
• the fees/commission they charge and
• other factors discussed here.

Conclusion

We would argue that, if you don’t overtrade, have the discipline to hunt where others don’t look, invest time and money in good tools, and have a self-critical learning process that allows you to overcome your natural behavioural biases, then the market can be beaten. Of course, that’s certainly not the same thing as saying it’s straightforward…

We’ll leave you with another inspiring quote from Warren Buffett in Business Week:

“If I was running $1 million today, or $10 million for that matter, I’d be fully invested…It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”

*http://www.stockopedia.co.uk/content/is-the-stock-market-always-efficient-63775/ 

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4. Size Does Matter: A Look at Market Capitalization and What It Means for Investors

Benjamin Graham, known as the father of value investment, is famous for his simple, yet powerful, valuation method as first explained in his 1973 book, Intelligent Investor, and later updated in his book entitled Renaissance of Value. His “Graham Number” approach has been adapted and applied to all 30 stocks listed on the Dow Jones Industrial Index to determine which of the stocks have above average safety factors – of which only 10 do. Below is an explaination of the approach, the formula and the results for all 30 stocks. Words: 1220

U.S. stocks are trading at their cheapest levels since at least 1990, according to such commonly used valuations as price-to-earnings and price-to-book ratios as well as dividend yield…but [we ask,] cheaper than what? Different “investments” are valued differently at different times during the artificial central-banking business cycle that we must function under. In this case, we would argue, stocks are more likely reflecting potential chaos to come than a buying opportunity. Sure, there may be rallies during this fiat bear market but they should be considered within the context of the larger trends. [Let us explain further.]

So says an article* posted at www.TheDailyBell.com that I encourage you to read.

*http://www.thedailybell.com/3534/Stocks-Are-Poisonously-Cheap

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[While] I do not prescribe to the 2012 end of the world or end of an era phenomenon, my recent fractal (pattern) analysis of the Dow suggests that it is forming a similar pattern to that which was formed in the late 60s to early 70s and if this pattern continues in a similar manner…the Dow could indeed have an annus horribilis (horrible year) in 2012. Let me explain. Words: 1416

So says Hubert Moolman (www.hubertmoolman.wordpress.com) in edited excerpts from his original article*.

 Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The report’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Moolman goes on to say, in part:

Below, is a long-term chart of the Dow:

I have highlighted two fractals on the chart. I have also indicated five points on both fractals to illustrate how they could be similar. Point 1 on both fractals was the exact point at which the Dow gold ratio made a significant peak. This is an important marker, and it gives credibility to the comparison of these two patterns.

It appears that the Dow is currently searching for that point 5. Point 5 could already be in, or it could be a little higher than the recent high (of 12,928). However, from a timing point of view, it is likely that we have reached point 5 already (a retest could still be possible).

If the current fractal continues its similarity to that of the late 60s to early 70s fractal, and if it stays exactly true to the past fractal (fractals do not always stay exactly true), the Dow could drop to 6,000. Since my other analysis suggests that we are at the end of era (an era of the corrupt debt-based monetary system) my worst-case scenario is a possible drop to 1000 (not necessarily in 2012), even though it appears highly unlikely.

The Dow vs. Gold

The Dow’s inflated value, relative to the value of gold, was brought about by this debt-based monetary system. It follows naturally that in the event of the debt-based monetary system collapsing (it will eventually); the Dow:gold ratio could go back to levels prior to the introduction of this system. This level could be anywhere between 0.2 and 1, in my opinion. Therefore, it is possible to have a gold price of $5000, with the Dow at 1000. I do not say that we will have these levels, but it is certainly possible. All I am saying is that we have to be prepared for extremes never before seen in our lifetime.

I have written before of how similar today’s conditions are to that of the Great Depression and, based on that analysis, today’s economic fundamentals certainly support the theory of a massive drop in the Dow, relative to gold and even the US dollar.

Now, if you think that gold cannot rise when the Dow has a massive drop as suggested above, then you should look at the following chart and think again:

I have compared the gold chart (top) from 1970 to 1975 to the Dow chart (bottom) for the same period. From the beginning of 1973, the Dow started a massive drop, while gold started a huge rally. Furthermore, the beginning of 1973 happens to be the same point as point 5 in the first chart.

Dow: Gold Ratio

From a short-term perspective, the Dow:gold ratio is “overbought”, and could drop significant lower over the coming months. Below is a 3 year chart of the Dow:gold ratio:

On the chart, I have drawn a possible blue support line, which now could be resistance. It appears that the ratio broke down from that support in July this year, and is now in the process of retesting that break-down point. The RSI seems to be at a three-year extreme, and suggests that upside potential from here, could be limited. If the ratio turns around now or closer to that blue line, it could fall very fast.

Gold

Gold appears to be at a very critical point of the bull market. See the chart below:

The gold price is currently holding just above the upward sloping line. Based on my long-term fractal analysis, this line is a critical area, and should price rebound form this line; it could rally like it did in late 1979.

*http://hubertmoolman.wordpress.com/2011/12/23/2012-the-dows-annus-horribilis-and-golds/

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If you are tired of spending hours each week surfing the net or even visiting your up-to-now favourite financial site looking for articles that are extremely informative, relatively brief and very well-written, then go no further than munKNEE.com. Here is a sampling of articles posted on the site this past week related to what is happening in the economy and the gold market and what the future holds for its price.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) searches for the latest articles of substance to be found on the internet each day and then presents them in an edited and abridged fashion to provide the reader with a fast and easy read. Also of major merit is the “Related Articles” section under each article that provides titles, introductory paragraphs and hyperlinks to such related articles to provide for as much additional insight into the topic of interest as you have time for without having to search elsewhere.

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Below are introductory paragraphs and links to the articles posted on munKNEE over the past 7 days just on investing and the economy.

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So much has been written over the past 4 months about why the price of gold has be misbehaving that I think you will appreciate having links to all the best articles, as posted on munKNEE.com, that explain the situation from a variety of perspectives. In addition to a greater understanding of what is happening to the price of gold and why I am sure you would like to have some insights into just where the price of gold (and silver, by extension) is going in the weeks, months and years to come. To that end I have again posted links to the most enlightening articles on the subject for your review. Frankly, virtually nothing more can be written on the current and future pricing of gold than you will find in this summary article so read on and take action according to the conclusions you come to as a result of being fully informed. Words: 1975

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I am increasingly confident that the consequences of fragile sovereign debt, precious metals market manipulation, insufficient physical supply, and the need for a safe haven investment refuge, will contribute to rampant price inflation and drive precious metals bullion and mining stock to a parabolic peak price of $10,000 sometime in 2012 or 2013 at the [...]

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Assessing the relative levels of greed and fear in the market at a given point in time is an effective way of timing the market. This article outlines the 6 most popular momentum indicators and concludes that trading gold using just 3 of the indicators would have generated an annual return of 39.6% compared to the YTD buy-and-hold return of only about 13%! Let me explain how, why and where they should be used and examine their specific application relative to the price movements in gold and the HUI. Words: 1450

5. Your Portfolio Isn’t Adequately Diversified Without 7-15% in Precious Metals – Here’s Why

The traditional view of portfolio management is that three asset classes, stocks, bonds and cash, are sufficient to achieve diversification. This view is, quite simply, wrong because over the past 10 years gold, silver and platinum have singularly outperformed virtually all major widely accepted investment indexes. Precious metals should be considered an independent asset class and an allocation to precious metals, as the most uncorrelated asset group, is essential for proper portfolio diversification. [Let me explain.] Words: 2137

6. Gold Bullion, Stocks or Bonds: Which Have More Long-term Investment Risk?

In proclaiming buy-and-hold investing to be dead, the pseudo-experts masquerading as financial advisors have abandoned the fundamental principle of investing: buying undervalued assets – and then giving those assets the time necessary to mature. Instead, these charlatans have forced their clients to become short-term gamblers. Worse still, they are now consistently steering their clients toward the worst possible asset-classes, stocks and bonds, rather than the best ones [simply because they do not] understand the fundamental conceptual difference between risk and volatility. In a market populated by panicked lemmings, we cannot avoid volatility. However, we can and must reduce risk – which begins by building an allocation of history’s true safe haven asset, precious metals. [Let me explain more about what risk and volatility are and are not.] Words: 1080

7. Don’t Invest in the Stock Market Without Reading This Article First

History has shown that investors who stick to disciplined, fundamental-focused strategies give themselves a good chance of beating the market over the long haul and James O’Shaughnessy has compiled data that stretches back to before the Great Depression…back-tested numerous strategies, and has come to some very intriguing conclusions. [Let me share some of them with you.] Words: 1325

8. Where are Gold & Equities in the 3 Phases of Bull & Bear Markets?

Have you ever thought about when to get into an investment and when to get out? Nearly all bull and bear markets have three distinct phases, and if you learn to recognize them you will significantly increase your chances of getting in while the market still has room to go up, and getting out before the bull market is over and people start to sell en masse. Words: 1200

9. Update on Dr. Nu Yu’s Views on Gold ($1,400?), Silver ($24?) and China/India (Perfect Storm Developing?)

The Chinese and Indian stock markets have dropped over 20% in the last 6 months meeting the common definition of a bear market. Last week both of them tumbled further to below their lows of more than two years ago contributing significantly to the recent major sell-off in gold. In fact, elevated risk of housing and credit bubbles in China and India is creating the next financial perfect storm – which does not bode well for gold or silver. Words: 632

10. Get Ready for Financial Crisis 2.0 in 2012 – It’s Inevitable! Here’s Why

This analyst sees the perfect storm of converging criteria almost perfectly timed and aligned with the 2012 election cycle. When the moment arrives, the financial earthquake will rapidly demolish the existing highly precarious financial system. Government will stand by helpless, unable to shield itself, much less its vulnerable citizens or private financial institutions from the tsunami of debt and currency destruction. 2012 is shaping up to be the blockbuster main event of the ongoing financial crisis. Massive amounts of new debt, vast quantities of additional digital dollars and the spark of higher interest rates will set off version 2.0 of the credit-driven financial implosion. Let me explain. Words: 1443

11. What is Money – Really – and Why Do We Need to Own Gold – Really?

Have you ever wondered what money really is [and why we need to own some gold as a result]? You’ll notice that everyone you read has a strong opinion , but who’s right? [Let look at the situation and see if we can come to an answer that we both can agree on.] Words: 3086

12. Will This Hypothetical Outlook and Imagined Resolution of America’s Financial Crisis Occur in 2012? Let’s Hope Not!

As economic and political matters become more desperate in the U.S., so will what the government considers acceptable. If a debt default cannot be engineered via continuous inflation as the Fed’s current money-printing is attempting to do, it will occur via a direct repudiation of obligations or a quasi-surreptitious one such the hypothetical one I present in this article. Here is… a look (not a prediction) at a series of not improbable events that could develop [and which] would change our economic world overnight[ - and your financial well-being too]. Words: 1365

13. It is Imperative to Save in Physical Gold Not Stocks or Bonds! Here’s Why

This article clearly demonstrate how the millions of investors who invested in the stock market over the past decade actually fared when their performance was measured in gold instead of dollars. You will be shocked at how poorly they (and you?) have really done and you, too, will come to the consclusion that – investing in the stock market is for losers. Words: 790

14. 2012: More Money-printing Leading to Accelerating Inflation, Rising Interest Rates & Then U.S. Debt Crisis! Got Gold?

Evidence shows that the U.S. money supply trend is in the early stages of hyperbolic growth coupled with a similar move in the price of gold. All sign point to a further escalation of money-printing in 2012…followed by unexpected and accelerating price inflation, followed by a rise in nominal interest rates that will bring a sovereign debt crisis for the U. S. dollar with it as the cost of borrowing for the government escalates…[Let me show you the evidence.] Words: 660

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History has shown that investors who stick to disciplined, fundamental-focused strategies give themselves a good chance of beating the market over the long haul and James O’Shaughnessy has compiled data that stretches back to before the Great Depression…back-tested numerous strategies, and has come to some very intriguing conclusions.

So says John Reese (www.validea.com and www.theguruinvestor.com) in edited comments from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The report’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Reese goes on to say, in part:

Given that his earlier work inspired one of my best-performing “Guru Strategies” on Validea.com (a 10-stock portfolio picked using the strategy has generated compound annualized returns of 9.9% since its July 2003 inception vs. just 2.6% for the S&P 500), I wanted to share some of his new findings with you.

One of O’Shaughnessy’s key points is…[the need to take a] broader investment approach…[rather than] the tendency to focus on recent events…[recalling] how some began calling the “abysmal” returns of the past decade the “new normal,” even though it wasn’t that long ago that commentators were declaring that the Internet had ushered in a “new era” of perpetually rising stock returns — a declaration that proved to be horribly wrong…While many investors are assuming that the poor performance of stocks during the 2000s is the start of a new era of poor returns, O’Shaughnessy says history shows something entirely different…

Looking at the worst rolling ten-year returns for equities [from] 1900 [through the end of 2010] (and the period ending in February 2009 was the second-worst over that span, with 10 other 10-year spans ending in 2008, 2009, or 2010 cracking the top 50)….[he found] that equity returns following those awful 10-year periods tended to be outstanding;

Since stocks bottomed on March 9th, 2009, that pattern has again played out, to an even greater degree:

• the S&P 500 gained 68.57% in the first year after its March 9, 2009 bottom;
• it averaged 39.68% gains in the first two years.

The S&P figures are before inflation is factored in, but the main idea — that bad periods are followed by strong rebounds — holds true.

O’Shaughnessy explains that, “historically, we have always seen reversion to the mean. After stocks have had an unusually great 10 or 20 years, they typically turn in subpar results over the next 10 or 20, and after bad 10- to 20-year stretches, the next 10 to 20 tend to be above average.” Why is that? O’Shaughnessy astutely notes that it’s largely about valuation — stocks get overvalued after good decades, and undervalued after bad decades - and disciplined investors who are willing to invest in stocks following bad decades, like the one we’ve recently had, can take advantage of that.

Using Raw Return Measurements to Analyze Stock Performance

In O’Shaughnessy’s updated version of What Works on Wall Street, he looked at how stocks that were in the top decile based on a number of valuation metrics fared from 1964 through 2009 and found that, when it comes to valuation, the price/sales ratio (PSR) was nolonger the best predictor of future performance as was the case in his original edition. Here are the average annual compound [raw, i.e. excluding the risk factor expanded upon below] returns for some of the more popular measures for the top decile based on:

(Enterprise value is equal to common equity at market value, plus debt, minority interest, and preferred equity at market value, and minus associate company at market value and all cash and cash equivalents. EBITDA is earnings before interest, taxes, depreciation, and amortization. Buyback yield is the change, percentage-wise, between the amount of shares outstanding now and a year ago. Shareholder yield is buyback yield plus dividend yield.)

Using the Sortino Ratio Measurements to Analyze Stock Performance

Of course, raw returns aren’t everything; risk is also a big factor to consider, so O’Shaughnessy looked at factors like standard deviation of returns, biggest annual declines, percentage of years in which returns were positive, and consistency of returns. One measure that takes into account both risk and return is the Sortino ratio. Here’s a look at how the various valuation metrics [for the top decile] stacked up…[based on the Sortino ratio]:

• Enterprise Value/EBITDA –0.50
• Shareholder Yield –0.47
• Price/earnings –0.46
• Price/operating cash flow –0.45
• Buyback Yield –0.44
• Dividend Yield –0.31
• Price/book value –0.30
• PSR –0.29

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Combination of Raw Return/Sortino Ratio Measurement is Best Way

So, which valuation does O’Shaughnessy recommend? None, in a manner of speaking. As the data above shows, the higher-returning strategies aren’t always the best when you factor in risk. On top of that, different approaches fare better in different environments. [the aforementioned being the case,] O’Shaughnessy… [analyzed] how stocks that had the best composite valuation fared based on a number of metrics [and] found that combining value metrics could produce even better results. [He found that] an approach that incorporated the:

• price/book,
• price/earnings,
• price/sales,
• EBITDA/EV, and
• price/cash flow ratios as well as
• buyback yield

was a top performer… To do this, he ranked all stocks by percentile in each of those categories, with those with the worst of a particular ratio (say, the PSR) getting 1, and those with the best getting 100. Then he simply added up the six scores, and split the results into deciles. He found that stocks in the top decile based on those six factors historically averaged a compound annual return of 17.30%, with a Sortino ratio of 57 — much better than any of the individual metrics.

Key Tenets

Finally, O’Shaughnessy also lays out some of his broader investing advice in the updated version of his book. Here are some of his keys to success:

1. Always Use Strategies:

You’ll get nowhere buying stocks just because they have a great story. These stocks usually come with huge price tags, and usually go down in flames. You must avoid them and always think in terms of overall strategies and not individual stocks.

2. Ignore the Short Term:

When you look only at how your investment portfolio has performed for the last quarter, year, and three- and five-year period, you are looking at a tiny snapshot of time and that snapshot can be very misleading. He recommends focusing on rolling returns vs. a benchmark over time.

3. Use Only Strategies Proven Over The Long Term:

Make sure you use an approach that has proven its worth over several different market environments. Short-term performance, or even the fact that a strategy might make intuitive sense, are no match for a long-term track record. Stocks change and industries change but the underlying reasons certain stocks are good investments remain the same. Only the fullness of time reveals which are the most sound.

4. Invest Consistently:

If you use even a mediocre strategy consistently, you’ll beat almost all investors who jump in and out of the market, change tactics in midstream, and forever second-guess their decisions.

5. Always Bet With The Base Rate:

Base rates are essentially the odds of beating the market over the time period you plan to invest. If you pay attention to the odds, you can put them on your side.

6. Never Use The Riskiest Strategies:

Always focus on strategies with the highest risk-adjusted returns.

7. Always Use More Than One Strategy:

Combining strategies that focus on different types of stocks (i.e., growth, value, large-cap, small-cap, geographic regions) can allow you to do much better than the broader market while not taking on more risk.

8. Use Multifactor Models:

Always make a stock pass several hurdles before investing in it.

*http://theguruinvestor.com/2011/11/25/new-data-on-what-works-on-wall-street/

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1. Size Does Matter: A Look at Market Capitalization and What It Means for Investors

[We have determined that] the current cyclically adjusted real yield of 5.28% is telling us that the stock market is expensive, at least by historical standards. [In addition,] …we have also determined that, relative to bonds, the real spread between stocks and bonds is 7.2% in terms of yields, i.e., stocks relative to bonds seem cheap. If stocks are expensive, and stocks relative to bonds seem cheap, this implies that bonds are also expensive. Everything is expensive! [Let me show you the math that confirms just that.] Words: 1590

4. Protect Your Portfolio By Including 15% Gold Bullion – Here’s Why

We are reading a lot of hype these days about gold and the necessity to own it but only about 2% of ‘investors’ actually have gold in their portfolios and those that have done so have insufficient quantities to offset the future impact of inflation and to maximize their portfolio returns. New research, however, has determined a specific percentage to accomplish such objectives. Words: 1063

5. Market -Timing Pays BIG Dividends for Income Investors – Here’s Why

Many income investors have been taught to believe that “market-timing” is anathema to their investment objectives and/or that it can’t be done successfully… I will argue that this piece of conventional wisdom is false – dangerously false. In a three-part series of essays, I will argue that market-timing needs to be incorporated as a fundamental component of income investing. I will demonstrate why market-timing is important, when it should be applied and how it should be implemented. [Read on!] Words: 1956

6. How the Dow 30 Stocks Compare According to Their Margins of Safety

Benjamin Graham, known as the father of value investment, is famous for his simple, yet powerful, valuation method as first explained in his 1973 book, Intelligent Investor, and later updated in his book entitled Renaissance of Value. His “Graham Number” approach has been adapted and applied to all 30 stocks listed on the Dow Jones Industrial Index to determine which of the stocks have above average safety factors – of which only 10 do. Below is an explaination of the approach, the formula and the results for all 30 stocks. Words: 1220

7. Check Out THE Number to Watch for Market Direction

While gold is slightly more volatile than the Dow 30, on average, all of the individual components are more volatile than gold and only half are less volatile than silver and platinum. [So much for] the prevailing myth…that they are risky investments due to their volatility. [Let's take a closer look at the specifics.] Words: 250

Stocks and commodities are under pressure from the rising dollar. We have already seen a sizable pullback but there may be more to come in the next few trading sessions. While my negative view on stocks and precious metals will rub gold and silver bugs the wrong way, I just want to point out what is unfolding so everyone sees both sides of the trade. Let’s take a look at some charts and dig right in.

So says Chris Vermeulen (www.thegoldandoilguy.com) in edited excerpts from his original article*.

Dollar Index Daily Chart:

SP500 Futures Index Daily Chart:

Silver Futures Daily Chart:

Gold Futures Daily Chart:

Crude Oil Futures Daily Chart:

Conclusion

Overall, the charts are starting to look very negative which the majority of traders/investors around the world are starting to notice…Now that the masses are starting to get nervous and are beginning to sell out of their positions, I am on high alert for a panic washout selling day…when everyone around the world panics at the same time and bails out of their long positions [causing] prices to drop sharply and volume to shoot through the roof.

Hold on tight as this could be a crazy few trading sessions.

*http://www.thegoldandoilguy.com/articles/

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Related Articles:

1. Dr. Nu Yu’s Views on Gold ($1,400?), Silver ($24?) and China/India (Perfect Storm Developing?)

The Chinese and Indian stock markets have dropped over 20% in the last 6 months meeting the common definition of a bear market. Last week both of them tumbled further to below their lows of more than two years ago contributing significantly to the recent major sell-off in gold. In fact, elevated risk of housing and credit bubbles in China and India is creating the next financial perfect storm – which does not bode well for gold or silver. Words: 632

2. These Charts Say It All: GOLD Is STILL a BUY

With what is happening with the price of gold these past few days it is imperative to take a look at the long and short of it all (the trends, that is). In doing so it shows that we are still very much in a long-term bull market but in a short-term (yes, short-term) bear market. Let’s take a look at some charts that clearly outline where we are at and where we could well be going. Words: 625

3. Will Gold Drop as Low as $1,200 Before Spurting to $2,000?

In the long run developments in the financial markets and around the world seem to conspire to whip up a perfect storm for the gold price, taking it up towards $2,000 and further. That new upleg, however, could very well start from a much lower level than now. There are quite a few developments that could easily send the gold price lower in the coming months. Is $1,200 gold in the cards? Words: 739

4. The Case for $1,390 Gold Soon – and $1,000 Gold Later

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5. Where are We Now in the Bull Market in Gold – and How Many Years/Months are Left?

Gold is in a bull market and, [believe it or not,] so are the gold stocks despite their struggle as a group to outperform gold… but [neither] is anywhere close to a bubble, nor the speculative zeal we saw in 2006-2007. Thus, it begs the question” “What lies ahead and when can we expect the initial stages of a bubble?” To figure this out we first need to get an idea of how long the bull market will last and then where we are now based on various indice analyses. [Below I do just that.] Words: 785

5. Why Is Gold Falling? Should I Buy, Hold or Sell?

 

Gold falls when a financial crisis worsens for 2 basic reasons which make total sense when looked at objectively. Resultant government intervention then creates the environment for a future rise in the price of gold. This article explains the causes of the downs and ups in the price of gold and offers suggestions on how and when to act. Words: 868