March 9, 2015
An Investing Anamoly That Could Save You From A Market Crash
By Dr. Thomas Carr
Nobel Prize-winning economist Eugene Fama is scratching his head at my system. According to his research, you have to take big risks if you want to reap big returns.
So I'll be the first to admit: what I'm doing runs entirely counter to what Mr. Fama -- and most other investors -- have been taught about investing.
But the principle that underlies my system is one of the oldest ideas in investing. Its very existence has been traced back 214 years to the Age of Enlightenment.
No wonder it's considered the most powerful force in investing.
I'm talking about momentum. In my last article, I showed you how it allowed me to literally "sidestep" the great recession of 2008.
Recently, one of my subscribers wrote in to say: "Employing just my 'lunchtime trading strategy' I find myself closing my 3rd profitable month with you. My account is now $23,879 in the black since starting!"
There's little question that the system can produce phenomenal results. But you might be asking, "Why start with momentum?"
The answer is simple: momentum stocks move the furthest in price in the least amount of time. Further and faster than value stocks. Further and faster than growth stocks.
According to Mr. Fama, "The premier market anomaly is momentum. Stocks with low returns over the past year tend to have low returns for the next few months, and stocks with high returns tend to have high future returns."
In short, if you want to know what stocks will be moving strongly next week, look at the stocks that are moving strongly this week.
That means replacing your old investing mantra with a new one. Instead of "buy low and sell high," momentum investing tells us it's better to "buy high and sell higher."
By investing this way, you won't have to cross your fingers in the hope that your bargain stock will rebound. Why? Because you'll have chosen ones already in the midst of a solid upswing.
Let me give you an example of what I mean.
Back in January of this year, a position I'd been holding for barely a month (since December 12) had already returned a profit of more than 20%. Meanwhile, the S&P had gained only 2.8% over the same period.
Analysts loved this stock. Everyone who covered the company was giving it either a "buy" or "strong buy" recommendation. This is exactly the kind of thing that keeps price momentum sustainable. And, of course, analysts were only pointing out what investors already knew: that the company was growing like crazy.
This small-cap company competes in the same industry as giants like Exxon and BP. But look at this chart to see how it fared against these larger competitors.
Over the past few months, this stock has crushed its much larger competitors, delivering a near 60% total return.
Now, I'm sorry to say, I can't give away the name of this stock to you today. You see, I'm still recommending it to my Trader's Edge subscribers. And they pay good money for access to my system, which delivers three long trades and three short trades each week. Simply put, it would be unfair to them if I revealed such a profitable play for free.
But what I can tell you is this. This company boasts the strongest price performance for the past month, quarter and half-year of any stock in the oil and gas industry. And it's still trading at only 13 times forward earnings, so there is a lot of room to grow.
Of course, no investment system is going to win every week or every month. But by piling more winning trades than losers like this week after week, the results we can achieve are nothing short of impressive.
So is the key to successful momentum trading as simple as identifying the stocks with the strongest price momentum at any given time?
Hardly.
Increasing returns is just one side of the equation. Most investors (myself included) want to reduce risk as much as possible. Unfortunately that leads a lot of us into one of two scenarios. We either accept more risk than necessary for a small increase in returns, or we give up on high returns altogether in order to feel safe.
Momentum investing, by itself, can't solve that problem. In fact, while they can deliver huge gains, the dirty little secret about "pure" momentum systems is that they often lose money over time... sometimes a lot of money.
That's not what I wanted with my momentum strategy, and I was determined to find a way around it. So after a lot of hard work and sleepless nights, I found exactly what I needed to make my momentum strategy stand above all the rest.
Unfortunately I don't have time to give you all the details today. But if you want to know more about what I found -- and why Trader's Edge is now producing the highest returns for the least amount of risk I've ever seen in any system -- I encourage you to read my free research report. In it, I describe exactly how I'm harnessing the incredible power of momentum to help everyday investors earn market-beating returns in a matter of weeks... while taking on a fraction of the usual risk. To find out how to put your money to work today, read the report now.
Good investing,
Dr. Thomas Carr
Chief Investment Strategist
Trader's Edge
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