Bests & Worsts Reviews from Amazon

As an avid stock investor for 15 years, I can testify that these are treacherous times for individuals in the market, and it's getting worse. There are many factors working against mom and pop in the stock market. One is globalization. Yes, I can invest easily in the economy of Vietnam if I wish. But the downside is that my position in a manufacturing company located next door to my home has somehow become sensitive to a debt crisis in Greece or Portugal. These destabilizing factors make it less relevant which stocks or ETF's I pick. A second development working against the self-managed IRA is computer trading, which today accounts for 70% of all trades and soon may be 99%. It used to be that the market was made of human beings; now it's you against inscrutable robots running computer algorithms. In this environment, absolutely no one - none of the highly paid so-called experts - has been able to plot a rational course for success in equities. Otherwise, the endowment funds of Harvard, Princeton and Yale universities, which hire the most highly trained full-time professionals in the world, would not have plunged in 2008 along with my IRA and yours. If the head of the Harvard endowment, supported by the best available advice and analysis, can't figure it out, how can an ordinary civilian? The truth is that depending on the stock market for your retirement through a self-managed IRA has become highly dubious. Most folks, especially those with limited time to devote, would do better buying CD's even though the yield is low. At least you won't lose your money. Against this dismaying background, there are nevertheless hundreds of books, websites, newsletters, and TV shows which purport to offer hot advice on how to invest successfully. The existence of so many diverse approaches to one problem tends to suggest that there is little agreement and no sure path. And there isn't. Ask about proof of efficacy for any of these principles or algorithms, and one tends to hear a deafening silence. So now comes Mr. Masonson. His recommendations sound cautious, sensible and rational, and he seems like a nice, fatherly sort of man. His main point is that the classic advice of buy and hold is no longer tenable in today's crazy market. He believes we should invest in ETF's instead of individual stocks, and above all guard our principal by selling out of the market when certain bear market warning indicators light up. He then introduces two technical components; the first is the use of 'relative strength analysis' to rank ETF's. Fine. It all seems conservative and intelligent. And the second innovation is eight technical bull/bear signals, including Moving Average Convergence-Divergence and seven other technical indicators, which he calls his "Dashboard" suite which will predict when the market will go up or down for a long period. Wait a minute. What was that? He has discovered technical signals that PREDICT when the market is entering a prolonged bear phase?? Wow, the holy grail of stock investing? This guy has done it! Or has he. Folks, please remember this: all theories sound good. The only meaningful question is: Do they work? And not everyone agrees with the "Buy - Don't Hold" approach. The main sticking point is the accuracy of the buy/sell indicators. Many stock analysts will say it is impossible to time the market accurately enough, and that jumping out to cash when sell indications cross thresholds will also mean missing upward moves, which can happen in hours. So we have the usual dueling theories in one of those ongoing debates which are more like theology than engineering. Is it obvious which approach is correct? No, it is not obvious. This is quantitative; if the eight indicators give perfectly reliable signals, then yes, such a system will work - as will many others. But results very quickly deteriorate if the signals are off by even a little bit. Somewhere in the middle, there is a crossover point vis a vis buy-and-hold. So where, Mr. Masonson, is the statistical data that supports your strategy? How exactly did you identify these eight signals versus others? How did you verify they should have equal weights? Where is your proof? Is your book a report of painstaking research, or just a 'feeling' you have? I would be so much more impressed the author offered not anecdotes but evidence. The book should at least have shown this was effective by back-testing. This means that the author would pick a date (say in 2005), use his relative strength rules to select a portfolio of ETF's, and then propagate the simulated portfolio forward using his stated sell and buy indicators at every stage. All the hindsight data is publicly available, and the analysis, although tedious, is not hard to carry out with a few big spreadsheets. The results should then be compared with buy-and-hold for the same portfolio, and perhaps other slightly variant strategies. Also, Masonson would then have a computer model and could study variations as well as the all-important question how sensitive the results are to the accuracy of the 'Dashboard.' (No doubt the answer is: very sensitive.) Without this research data Masonson has nothing. He is just a kibitzer, like all the others. If I sound irritated it's because I am irritated. We are now five hundred years into the scientific revolution - and have learned that progress comes not from 'holding philosophies' however plausible they may sound, but from testing our ideas objectively and mathematically. And the whole subject of financial strategies is riddled with failure, serious failure causing great personal pain - even the Harvard Endowment Fund can't get it right. Even the CEO of Lehman Bros can't get it right. Even the Chairman of the Fed can't get it right. In this environment, investment advisors who offer philosophies but not real research, not even minimal back-testing studies, are just plain lazy. Two stars. Personally, I am skeptical whether in today's environment an individual can succeed with any 'system.' Investing is about predicting the future, for which there can be no system. There is a universal mathematical truth about trading strategies; because the market is constantly scrutinized by large numbers of participants, any 'edge' which is discovered will over time become ineffective because it will be arbitraged by the market and washed out. In other words, if it works, everyone will soon be doing it and it will come to equilibrium and stop working. The time constant over which this can be expected to happen varies from days to months in most cases. I don't see how any short or medium term rules found in a book can carry meaningful 'secrets.' Personal investors have only one edge over computers; long term judgement. Use your personal human judgement to identify long term trends and promising companies, and then - buy and hold. (Note added later: After posting this I noticed that Masonson has a blog or website where he does report some preliminary back-testing (with mixed results). That's good but where I come from, people do the research BEFORE publishing the book.)