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Stock Wealth Safely has more than 25 years of scientific research in developing a unique approach to stock investing. After providing private investment advice for years, we are now offering this service to the public.
Problems with Existing Investment Strategies
If there was a strategy that was consistently successful, there would not be so many different ones promoted: value, growth, momentum, technical analysis, macroeconomic, and behavioral finance to name a few. All of these strategies work some of the time, but none work all of the time. For example, there are years when a value approach does well until mean reversion occurs and the value strategy underperforms a different approach such as growth stocks the next year. The same can be said for any of the above investment styles. Yet most investment funds proudly announce that they follow a single style and try to convince you that it is always going to be successful.
Using a scientific analogy, stock market strategies are at a pre-paradigm stage, with many competing approaches and none shown by the evidence to be clearly superior over time. A new method is needed to move the field forward.
The Stock Wealth Safely Approach
Our research has shown that it is necessary to assess the usefulness of each of the above styles to each stock being considered. The key to our success is to be able to give a different value to each approach when evaluating a specific stock, depending on its particular environment.
Our competitive advantage is our ability to determine the optimal weighting of the coefficients for each variable, as these are constantly changing depending on the circumstances existing at the time for each stock. Stocks that meet the criteria established by this analysis are posted on our website. We can identify an average of 2 new stocks each week that meet our criteria for selection. Quality is more important that quantity.
Our approach will not be the best performing every year as single strategies (ex value, growth etc) will always have some years in which they shine. However, our research has shown that over time, our strategy will give consistently better results than the others.
We focus on an intermediate investment time horizon of 6 months to provide safe, consistent returns. We define success as a 5% gain in the stock price during this interval. Although some stocks will gain more, accepting this moderate capital gain locks in the profit and repeating this 2-4 times per year gives a 10 to 15% annual profit.
Check out our long term results page to see how we have done since going public December 31, 2018.
Possible Trading Techniques
1. Conservative: sell as soon as stock gains 5%
For the conservative calculation below, we will assume 80% success for 6 months and 85% at 12 months, and an average of 3 months for the 5% gain.
For this example, all stocks cost $100, a stock is sold as soon as it has gained 5%, capital gains and dividends are not reinvested and commissions are ignored.
Start: Buy 100 stocks @ $100 each = $10,000 invested.
3 months: 80% have gained 5% and are sold = $400 profit
- Another 80 stocks are purchased to replace the 80 sold
- 20 stocks have not reached 5% and continue to be held
6 months: 80% of the 80 stocks (64) purchased at 3 months from start have gained 5% and are sold = $320 profit
- Another 64 stocks are purchased to replace the 64 sold
- 16 stocks did not reach 5%
9 months: 80% of the 64 stocks (51) purchased at 6 months from start have gained 5% and are sold = $256 profit
- Another 51 stocks are purchased to replace the 51 sold
- 13 stocks do not reach 5%
12 months: 80% of the 51 stocks (41) purchased at 9 months from start have gained 5% and are sold = $165 profit
- 25% of the 20 stocks (5) purchased at start that did not reach 5% at 6 months will have gained 5% by 12 months and are sold for $25 profit
Total capital gain in 12 months: 400 + 320 + 256 + 165 + 25 = $1166
100 stocks are held for 1 year with average dividend yield of 2% = $200
Therefore total annual gain = $1366 on $10,000 investment
2. Conservative strategy using Stop-Loss
A variation on this approach is to place a stop loss when the 5% increase is reached, locking in profit but allowing for further capital gain.
3. Aggressive strategy: allow winning stocks to continue to increase in value
A more aggressive strategy is to allow winning stocks to continue to climb.
Our results page shows how this could work over different time periods since selection. We list the average maximum price rise since selection for all stocks (including those that did not reach 5% in 6 months) and compare that to the maximum rise of the SPX if it was purchased on the same day as the stock. The data below is from the period January 1, 2018 - August 31, 2020.
SWS selections SPX
6 months 17.9% 10.1%
9 months 24.0% 14.9%
12 months 28.6% 20.1%
15 months 30.2% 22.5%
18 months 41.4% 28.4%
For all time periods, SWS outperforms the SPX. This is potentially a more profitable approach, but has its risks, since not all stocks reach as high as the average return listed.
We are proud of our results and want to be completely transparent: all stock selections are listed on our Data Set page to allow you to independently examine and verify our results. This should increase your confidence that using Stock Wealth Safely stock selections as part of your investment strategy will be profitable.
Whether you choose a conservative or aggressive approach, our data shows that Stock Wealth Safely recommendations outperform the SPX over a 6-24 month period.
Stock Wealth Safely selections can add value to your investment returns.