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Investing Strategies Take the Guesswork Out of Making Money - Part 2

Stocks in this article: SPY DVY NEM ABX

NEW YORK ( TheStreet) -- Thursday, I started a two-part series about investment "systems" and why they are receiving a considerable amounts of attention.

As we continue I want to remind you that Americans need to make progress in preparing for retirement or we'll have to keep working much longer than planned.

One comedic writer, when asked, "What's the best way to have sufficient money for retirement?", had the following unorthodox answer: "There are basically two ways to have enough money for retirement -- save a lot more money or die younger. The easier one by far is getting people to die younger."

My hope is I can help us take the more challenging choice, to save more and to get a better rate of return on our investment capital. With that in mind I recently interviewed a PhD in Finance and a PhD in Applied Mathematics who've developed an investment "system" that's made quite a name for itself.

In my interview I asked Dr. Steve Sjuggerud and Dr. Richard Smith some hard questions to challenge these authors of "True Wealth Systems" and to help our readers gain some useful investing insights. One question I asked was, "With the major U.S. stock indices hitting new all-time highs, isn't it dangerous for investors to own stocks right now?"

I requested the answers be based on the computer models and criteria that their "systems" are founded upon. Dr. Sjuggerud, who is the editor of DailyWealth and co-authors "True Wealth Systems" each month tried to keep his answers as down to earth and uncomplicated as possible.

Sjuggerud explained, "We tested which strategy works better: Buying near 52-week lows... or buying at 52-week highs. We looked at nearly 100 years of weekly data on the S&P 500 Index, not counting dividends. Here's what we discovered that has surprised so many investors.

"After the stock market hits a 52-week high, the compound annual gain over the next year is 9.6%. That is a phenomenal outperformance over the long-term "buy and hold" return, which was 5.6% a year. On the flip side, buying when the stock market is at or near new lows leads to terrible performance over the next 12 months. Specifically, buying any time stocks are within 6% of their 52-week lows leads to a compound annual gain of 0%. That's correct, no gain at all 12 months later."

He shared the following information to illustrate his points:

1950 to 2012

  • All periods: 7.2%
  • New Highs: 8.5%
  • New Lows: 6.0%

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