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%
Sjuggerud pointed out that when buying investments at new highs many investors "feels risky." But when it comes to the broader markets, "...history shows you'll do better than average. Or you might want to "catch a falling knife" and buy when stocks are at new lows. But if you do, realize you are fighting against more than 220 years of historical precedent." Instead of fighting these facts he encourages us to embrace them.
You may remember the old bromide when it comes to investing that "the trend is your friend." I asked both Sjuggerud and Smith whether that is really true and also about some of the latest finding of the "System" they've developed. "Over the past few months, we've focused our research on one of the most important -- yet difficult to analyze -- tools in investing. We've concluded and results show the "trend" is the most important tool for making investment decisions. "Based on history, finding the trend and sticking with it has been the best way to make money. And the trend is easy to quantify. Our "True Wealth Systems" databases are some of the best in the world. And we have decades' worth of data to determine when a stock or sector is in an uptrend." They went on to discuss how to determine "value" in relation to the trend. "We also have plenty of data for determining value. Our databases give us just about any value measure we would need. History shows that buying a cheap country or sector when it's in an uptrend is almost always a good idea. Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements. After recently having purchased shares of Newmont Mining ( NEM) and Barrick Gold ( ABX) I swallowed hard, wishing I had utilized this system of theirs before making my investment decision.