Book 1: Simple Techniques

For starters, just trade ETFs such as SPY (an ETF simulating the market), and you can skip the rest of the book. It only takes a few minutes every month. When the market is not plunging, buy or keep SPY (or any ETF that stimulates the market); otherwise sell it. Do the opposite when the market is recovering.

If you have less than $50,000 to invest, just buy ETFs. Improve your investing skills by reading investment articles from this book and your broker’s website. For example, Fidelity has a lot of information for investors.

Subscription to AAII is recommended. When your portfolio grows more than $50,000, invest on a subscription such as Value Line, GuruFocus, Zacks or IBD (more for momentum traders). Initially, use the information for paper trading on value stocks, which is usually available from brokers.

For the long term, knowledge is most important in your investing life and experience comes next. Retail investors have a lot of advantages over fund managers. However, I advise you NOT to be a trader. Hence, you should ignore the ‘fabulous’ trade systems that claim to be very profitable. Statistically most amateur traders lose money as they cannot compete with experienced, disciplined traders.

How to start

I recommend trading ETFs first and when the market is not risky. The very basic terms such as ETF are not fully explained here; try Investopedia for terms you need to know. Otherwise, this book would be doubled in size and it would bore most readers. Investopedia, your broker’s website (especially Fidelity) and AAII (requiring subscription) provide many excellent articles. Alternatively, buy a book for beginners. Here are some freebies:

Click here for Morningstar classroom.

http://morningstar.com/cover/classroom.html

Click here for Vanguard.

https://investor.vanguard.com/investing/investor-education

Click here for Investopedia’s Tutorials.

http://www.investopedia.com/university/

Click here for Yahoo!

http://finance.yahoo.com/education/begin_investing

Click here for Fidelity basic in investing.

https://www.fidelity.com/investment-guidance/investing-basics

1 Simplest market timing

Why market timing

Before 2000, market timing was a waste of time. However, after that, we have had two market plunges with the average loss of about 45%. It sounds harder to time the market than it actually is. We have a simple technique to detect market plunges and when to reenter the market. Our objective is reducing the loss to 25%.

Market timing depends on charts; the following describes how to use chart information without creating charts. Most charts will not identify the peaks and bottoms of the market as they depend on data (i.e., the stock prices). However, it would reduce further losses. It is simpler than it sounds. Just follow the procedure below.

The first part of this technique detects potential market plunges, and the second part advises you when to start reentering the market. It applies to individual stocks too. It also works to detect the trend of a sector (entering an ETF for the specific sector instead of SPY) and a specific stock.

Step-by-step procedure

When the market timer indicator (Death Cross) described next tells you to exit the market, sell SPY (an ETF simulating S&P 500). Do not forget to buy back SPY or similar ETF such as RSP, when the indicator (Golden Cross) tells you to return.

My experiences in 2000s

Basically I did the same as the above with some adaptations. I worked for a mutual fund company and they did not allow me to trade stocks effectively. However, I was allowed to trade sector funds offered by the company. Every two months, I switched to the sectors with the best performances for the last month. When most sectors were down for the last month, I rotated them to the money market fund. In March or April, 2000, I switched to traditional sectors from high-tech sectors (better to switch to market money funds). During that time, I bought stocks that had enough cash to last more than two years judging by their burn rates. The indicators should do a better job.

How to detect market plunges without charts (similar to Death Cross)

1. Bring up Finviz.com.

2. Enter SPY (or any ETF that simulates the market) or RSP, equally-weighted SPY.

3. If SMA-200% is positive, it indicates that the market plunge has not been detected and you can skip the following steps.

4. The market is plunging if SMA-50% is more negative than SMA-200%. To illustrate this condition, SMA-200% is -2% and SMA-50% is -5%.

5. Conservative investors should sell most stocks starting with the riskiest ones first such as the ones with negative earnings, high P/Es and/or high Debt/Equity. Obtain this info from Finviz.com by entering the symbol of the stock you own.

6. Aggressive investors should sell all stocks. Extremely aggressive investors should sell all stocks, buy contra ETFs, and even short stocks. I do not recommend beginners to be aggressive.

Example

As of 2/12/2022, the following are from Finviz.com.

ETF	SMA-200	SMA-50	SMA-20	Death Cross?
SPY	-0.8%	-4.2%	-1.7%	Yes (Step #4)
RSP	-0.5%	-1.9%	0.4%	Yes (Step #4)

Both ETFs indicate the market is a confirmed crash from my indications using a technique similar to Death Cross. However, they are quite close, and we should keep an eye on these numbers. In this case, SMA-20 has not been used. If it is a false alarm, the Golden Cross would indicate it and you should return to equity; it could be quite common in volatile markets. The futures indicate that on Monday (2/14/22) the market would plunge further.

Another test is using SMA-350: When the current price is below SMA-300, it is a crash. SMA-20 has to be more negative than SMA-50 and it has not been used here.

When to return to the market (similar to Golden Cross)

Use the above in a reversed sense to detect whether the market has been recovering. However, when the SMA-200% turns positive, I would start buying value stocks (low P/E but the ‘E’ has to be positive, and/or low Debt/Equity).

1. Bring up Finviz.com.

2. Enter SPY (or any ETF that simulates the market).

3. If SMA-200% is negative, the market is not recovering, and you can skip the following steps.

4. Sell all contra ETFs and close all shorts if you have any.

5. Market recovery is confirmed when SMA-50% is more positive than SMA-200%. To illustrate this condition, SMA-200% is 2% and SMA-50% is 5%. Commit a large percent of cash (or all cash for aggressive investors) to stocks. If you do not know what to buy, buy SPY or an ETF that simulates the market.

How often should you check the market timing indicators?

Do the above once a month. When the SPY price is closer to SMA actions percentage, perform the above once a week. The charts and data for market timing described in this book are based on SMA-350 (Simple Moving Average) that is more preferable than this simple procedure, but it requires some simple charting.

Nothing is perfect

If the market timing is perfect, there would be no poor folks. The major ‘defects’ are:

· It does not detect the peak / bottom as it depends on past data. However, it would save you a lot during the crash.

· It is hard to determine whether it is a correction or a crash.

· From 2000 to 2010, there was only one false signal. The indicator tells you to exit and then tells you to reenter the market shortly. In most cases, you do not lose a lot. After 2010, we have more false signals.

· The market may not be rational or may be influenced due to specific conditions such as excessive printing of USD. If you do not mind charting, use SMA 350 (or 400) using SPY. Buy when the price is above SMA-350 (or SMA-400), and sell otherwise. SMA-400 reduces the number of false signals, but it is not nimble.

#Filler: Glad to be an investor

After watching the following YouTube video, I am glad my parents did not push me to play piano and also glad I do not have any musical gene. How can I compete with this kid?

https://www.youtube.com/watch?v=yf0B4rVoq44

Also, glad not into some life-threatening professions such as surgical doctors, soldiers, fire fighters, etc. I can make mistakes in investing from time to time without suffering from the consequences. With the uptrend market for most of the last 50 years, most investors should make good money. Thank God.

2 Quick analysis of ETFs

Evaluate an ETF

ETFs are a basket of stocks according to the market, a specific sector, country or a specific theme.

Yahoo!Finance used to give the P/E of an ETF. Try to get it from ETFdb.com. Enter the symbol of the ETF such as XLU, and then select Valuation. If it is below 15 and above zero, it could be a value ETF. Also, if the current price is lower than its NAV, it is sold at a discount (or premium vice versa). Compare its YTD Return to SPY’s.

Alternatively, get similar info from http://www.multpl.com/. In addition, this website provides the following metrics: Shiller P/E, Price/Sales, and Price/Book.

From Finviz.com, enter the ETF symbol. If SMA-20%, SMA-50% and SMA-200% are all positive, most likely the ETF is in an uptrend. To illustrate, SMA-200 is Simple Moving Average for the last 200 trading sessions (no trading on weekends and specific holidays). The percent is how much the stock price of the ETF is above the SMA. If the percent is negative, it means the stock price is below the SMA.

If your average holding period of your stocks is about 50 days, SMA-50% is more appropriate to you.

If RSI(14) > 65, it is probably oversold; if it is < 30, it is probably under-sold (indicating value).

In addition, ensure the ETF’s average volume is high (I suggest more than 10,000 shares), the market cap is more than 300 M, and it has low fees. Most popular ETFs have these characteristics. Beginners should avoid leveraged ETFs.

How to determine if the sector has been recovered

It is easier to profit by following the uptrend of an ETF using the above info. It is hard to detect when the bottom of an ETF has been reached. If SMA-20%, SMA-50% and SMA-200% are all positive, most likely the ETF is in an uptrend or it has recovered. It does not always happen as predicted, so use stops to protect your investment.

An example

First, determine whether the market is risky. Most beginners should not invest in a risky market. Advanced investors can bet against the market or a specific sector by buying contra ETFs or puts.

Next, you want to limit the number of sector ETFs by selecting those that are either in an uptrend or hitting bottom (bottom is hard to predict). Personally, I prefer sectors with long-term uptrends (indicated by articles found in many websites including cnnfn.com and Seeking Alpha.

For illustration purposes only for deteriorating market conditions, I would select the following ETFs: SPY (simulating the market based on large companies) and XLP (consumer staples). XLP should perform better than XLY (consumer discretionary) during a recession as those products are the necessities.

Technical indicators such as SMA-50 (Simple Moving Average for the last 50 sessions), SMA-200 and RSI(14) are obtained from Finviz.com and the rest are obtained from Yahoo!Finance.com. After you buy the ETF, use a stop loss to protect your investment. For example, biotech sector moved up for many months until it crashed in 2015. Change the stop loss value every month to protect your gains in this case.

As of 2/5/2016	SPY	XLP (staples)	XLY (discreet.)
Price	190	50	71
NAV	192	50	73
· Technical
SMA-50	-4%	0%	-7%
SMA-200	-6%	2%	-7%
RSI(14)	44	50	36
Other	Double bottom at $186
· Fundamental
P/E	17	20	19
Yield	2.1%	2.5%	1.5%
YTD return	-5%	0.5%	-5%
Net asset	174 B	9 B	10 B

Explanation

· The figures may not be identical among websites due to the dates they are using.

· XLY has the best discount among the 3 ETFs as most investors believe a recession is coming.

· XLP has less down trend among the 3 ETFs as expected.

· XLY is more undersold among the three as expected.

· Double bottom is a technical pattern that indicates the stock would surge upward.

· SPY has a better value according to its P/E.

· XLY’s dividend is the least among the three as they have more tech companies in the ETF. They have to plow back the profits to research and development.

· XLP has the best YTD return among the three.

· As long as the asset is above 500 M (200 M for specialized ETFs), it is fine and all three pass this mark.

There are many metrics such as Debt/Equity not readily available from most websites. Many sites list the top holdings of a specific ETF. Just average the metrics of the top ten or so of its stock holdings.

#Filler: Illogical logic

If we do not test for the pandemic, we would have zero increase in this pandemic. Some silly folks buy this argument. What happens to the once-great country?

# Filler: The problems of the U.S.

1. Our political system. We waste time arguing between the two parties. There is no long-term planning, as the other party could claim the credit. Same as corporations' CEOs who care about their yearly bonuses.

2. The politicians have to satisfy their voters. Today give them free cash by jacking up the printing press. And ignore the long-term consequences.

3. We have to protect our workers, our environment... Hence, we cannot compete with many countries.

4. We have spent too much on the military and ignore our crumbling infrastructure.

5. Historically no country can rule the world forever.

6. We blame China, but ignore how hard-working Chinese are.

An example

This example evaluates RING, a gold miner, using ETFdb and Finviz that are free from the web. The data is from July, 6, 2020.

Bring up ETFdb and enter RING in the search. There is basic info that are important to me: Sector (gold miners), Asset Size (Large-Cap), Issuer (iShares), Inception (Jan. 31, 2012), Expense Ratio (0.39%) and Tax Form (1099).

They fit all my requirements. The expense ratio is higher than most ETFs that simulate an index such as SPY. I try to trade ETFs using Tax Form 1099 in my taxable accounts. The large cap created about 8 years ago by a reputable company is good.

Select “Dividend and Valuation”. P/E of 17.39 is fine in a rank of 11 in 27 in a similar group of ETFs. As in my books, I stated it is hard to evaluate miners. I buy this ETF primarily to fight the possibility of inflation and the potential depreciation of USD. The dividend rate of 0.52% (0.70% from Finviz) is in the low range of the scale; it is fine for me as dividend is not my concern.

There is more info from this website. For simplicity, bring up Finviz:

· The short-term trend is up (SMA-20% = 8% and SMA-50% = 7%).

· The long-term trend is up (SMA-200% = 26%).

· It is close to overbought (RSI(14) = 64%; 65% to me is overbought).

· It is -4% from 52-w High. It has performed well from the YTD, Last Year, Last Quarter, Last Month and Last Week.

· It almost doubled in price from mid-March this year.

· Avg. Vol. is fine.

From ETFdb, check the Holding. It has 39 stocks, so it is quite diversified for this industry. The two top holdings are NEM (19%) and ABX (18%), which is listed as GOLD in NYSX. I also consider buying these two stocks in addition to RING. You can estimate the other metrics that are not available by averaging these two stocks. Here is my summary:

STOCK	NEM	GOLD
Forward P/E	20	25
Debt / Share	0.31	0.24
ROE	17%	22%
Sales Q/Q	43%	30%
EPS Q/Q	389%	254%
SMA50	2%	4%
RSI(14)	59%	60%
Insider Trans	-13%	N/A
Fidelity’s Equity Summary Score	6.1	6.8

3 Rotate four ETFs

We can beat the market by rotating one ETF that represents the market such as SPY and cash via market timing. Aggressive investors can add SH or PSQ (contra ETFs) to the four to have better returns during market plunges.

During a market uptrend, rotating the following four ETFs could be more profitable than staying with SPY (or any ETF that simulates the market). Be warned that a short-term capital gain in taxable accounts is not treated as favorably as the long-term capital gain; check current tax laws.

The allocation percentages depend on your individual risk tolerance. You can use indexed mutual funds. Compare their expenses and restrictions. Some mutual funds charge you if you withdraw within a specific time period.

Select the best performer of last month (from Seeking Alpha, cnnFn, or one of many ETF/mutual fund sites). Add a contra ETF such as SH to take advantage of a falling market for more aggressive investors. Add sector ETFs to the described four ETFs such as XLY, XLP, XLE, XLF, XLU, IYW, XHB, IYM, OIL and XLU to expand your selection.

ETFs	Money Market	U.S.	International	Bond
Fidelity		Spartan Total Market	Spartan Global Market	Spartan US Bond
Vanguard		Total Stock Market	Total International Market	Total Bond Market
My choice	Fidelity	SPY	Vanguard	Fidelity

Suggest %
During Market plunge	90%	0%	0%	10%
After plunge	10%	60%	20%	10%

Explanation

· The above are suggestions only. If your broker offers similar ETFs, consider using them.

· Check out any restrictions of the ETFs and commissions.

· 4 ETFs (one actually is a money market fund) are enough for most starters. They are diversified, low-cost and you do not need rebalancing except during a market plunge.

· The percentages are suggestions only. If you are less risk tolerant, allocate more to a money market fund, CD and/or bond ETF.

· Have at least 10% allocated to the money market fund for safety.

· When the market is risky, reduce stock equities (i.e., increase money market and bond allocations).

· The symbols for Fidelity ETFs are FSTMX, FSGDX and FBIDX.

· The symbols for Vanguard ETFs are VTSMX, VGTSX and VBMFX.

· If you are more advanced, use additional sector ETFs to rotate. Also buy long-term bond funds (such as 30-year Treasury) when the interest rate is 10% or more.

#Filler: Where common sense is not common sense

Excessive printing of money is not a long-term solution. Servicing the huge debt weakens our competitiveness. The politicians just want to buy votes today and finance their campaigns. Our next generations have to pay for these huge debts.

#Filler: Cayman Island

Most global corporations are making fun of our tax system. Moving the "headquarter" to low-tax countries such as Cayman Island with a mailbox, a bank account and/or an office that has never been used is a norm. The profitable Boeing has negative tax liability. What a shame!

4 Simplest ways to evaluate stocks

Beginners should trade ETFs only. This chapter is for the readers who are ready or getting ready to trade stocks. In general, ETFs are diversified, less volatile than trading stocks. However, stocks offer higher profit but higher risk.

Many stock researches have already been done recently and some are available free of charge. I have no affiliation with Fidelity except I retired from it. You can open an account with them with no balance. Their Equity Summary Score is one of the best indicators; I check out value stocks with scores higher than 8. Concentrate on fundamental metrics such as P/E for long-term holds, and momentum metrics for short-term holds. Add criteria to limit the number of screened stocks. Finviz.com is a free screener.

Several sources

The popular ones are Morningstar, Value Line, The Street and Zacks (currently free for rankings of individual stocks). If they are not free, check out whether they are available from your local library. I have 3 simple ways to evaluate stocks starting with the simplest. In addition, read the articles on the selected stocks from Fidelity, Finviz, Seeking Alpha and many other sources for further evaluation.

Fidelity

Select only stocks that have Fidelity’s Equity Summary Score 8 or higher. There are tons of information about a stock. Once in a while I did not agree with this score such as SHOP and ZM that scored high in August, 2020. Include the following for your analysis.

A modified stock selection based on a magazine article

Most metrics are available from Finviz except EV/EBITDA.

1. Forward P/E (expected earnings and not based on the last twelve months). It should range from 5 to 15 (10 to 25 for high tech stocks). EV/EBITDA (from Yahoo!Finance) is a better choice as it includes the debts and cash than P/E; it would be more effective if it uses forward earnings. If you do not use EV/EBITDA, ensure Debt/Equity is less than 0.5 except for the debt-intensive industries.

2. ROE (Return of Equity) measures how well the company uses the capital. I prefer stocks with ROE greater than 5%.

3. Volatility. Conservative investors should select stocks with a beta of less than one (i.e., less volatile).

4. Insider Transactions for sales (i.e., negative) should be less than 5%. If it is -5%, most likely the insiders are dumping it.

5. Compare the metrics such as P/E and Debt/Equity to its five-year average and its competitors (available in Fidelity).

6. Momentum. Check out the SMA-50 (actually SMA-50%) and SMA-200. Ideally, they should be positive. SMA-50% is especially important for stocks you do not want to keep for a long time.

7. Check out articles on the stock as some recent events (for example a new lawsuit) have not been included in the metrics.

8. Compare the trend of the sector this stock is in. Under Finviz, enter the related sector ETF.

Summary

The sources are Fidelity (Equity Summary Score and various comparisons), Finviz and Yahoo!Finance (for EV/EBITDA). Value stocks should be held longer.

Category	Score / Metric	Value /Momentum
Score	Fidelity’s Equity Summary Score	Both

Value	EV/EBITDA	Value
	P/E cheaper compared to 5-year avg.	Value
	P/E cheaper compared to its sector.	Value
	Insider Purchases	Both

Safety	Debt/Equity	Value
	Compare it to its sector.	Value

Momentum	50-SMA%	Momentum
	200-SMA% (for long term holds).	Value

Articles	Check out latest events	Both

Market	No purchase if market is risky.	Momentum

A simple scoring system using Finviz

Bring up Finviz.com and then enter the stock symbol.

No.	Metric	Good	Bad	Score
1	Forward P/E¹	Between 2.5 and 12.5, Score = 2	> 50 or < 0, Score = -1
2	P/ FCF¹	< 12, Score = 1	>30 or < 0, Score = -1
3	P/S¹	< 0.8, Score = 1	< 0, Score = -1
4	P/ B¹	< 1, Score = 1	< 0, Score = -1
	Compare quarter to quarter of last year
5	Sales Q/Q	> 15%, Score = 1	< 0, Score = -1
6	EPS Q/Q	> 20% , Score = 1	< 0, Score = -1

			Grand Score
	Stock Symbol Date²	Current Price	SPY

Footnote

¹Negative values for Sales (due to accounting adjustments), Equity and Book are possible but not likely.

²The last row is for your information only. SPY is used to measure whether it will beat the market by comparing the return of this stock to the return of SPY.

The Score

Score each metric and sum up all the scores giving the Grand Score. If the Grand Score is 3, the stock passes this scoring system. Even if it is a 2, it still deserves further analysis if you have time. You may want to add scores from other vendors. To illustrate on using Fidelity, add 1 to the score if Fidelity’s Equity Summary score is 8 or higher. Monitor the performance after every 6 months or so to see whether this scoring system beats the market.

Very basic advice for beginners

Beginners should stick with U.S. stocks with Market Cap greater than 800 M (million), Debt/Equity less than .25 (25%) except for debt-intensive industries such as utilities and airlines and Forward P/E between 5 to 20 (25 for high-tech companies). These metrics are all available from Finviz.com, which is free.

Do not have more than 20% of your portfolio in one stock (unless it is an ETF or mutual fund) and do not have more than 30% of your portfolio in one sector.

For more conservative investors, buy non-volatile stocks whose beta (available from Yahoo!Finance) is less than 1. Beta of 1 represents the market (the S&P 500 index). For example, a stock with beta 1.5 statistically fluctuates more than 50% of the market and hence it is very volatile.

Try paper trading to check out your strategy and your skill in trading stocks. If your broker does not provide one, use a spreadsheet to record your trades or check the availability of simulator.investopedia.com.

#Filler: Silence is golden

I am glad I did not give advice to a friend who had to decide whether to take a lump sum payment or an annuity. The correction in March, 2020 would wipe out a lot of his portfolio if he took the lump sum payment. No one would share his profits when the predictions are correct, but the blame if it does not materialize.

It is the same in investing that nothing is certain. With educated guesses, we should have more rights than wrongs especially in the long run.

5 Simplest technical analysis

When the stock, the sector that the stock is in and the market are all above its SMA-N averages (Single Moving Average for the last N sessions), most likely the stock is trending up.

1. Bring up Finviz.com from your browser.

2. Enter SPY. Write down the SMA-200 (Single Moving Average for 200 sessions). Positive numbers indicate that the trend for the market is up.

However, the market could be peaking or overbought. Be careful when SMA-200 is over 5% and / or RSI(14) is over 65%. RSI is a metric on overbought / underbought.

3. Enter the sector ETF the stock is in. Write down the SMA-50. Positive numbers indicate that trend for the sector is up.

However, the sector could be peaking or overbought. Be careful when the SMA-200 is over 10% and / or RSI(14) is over 65%.

4. Enter the stock symbol. If your average holding period of the stocks is 200, use SMA-200 and so on. I recommend SMA-200 for holding value stocks long term and SMA-50 for momentum stocks. Write down the SMA-N for your stock. Positive numbers indicate that the trend is up.

However, the stock could be peaking or overbought. Be careful when the SMA-200 (or SMA-50) is over 25% and / or RSI(14) is over 65%.

If the above three criteria and the fundamental criteria are satisfied, most likely it is a good buy. If you buy sector ETFs or mutual funds only, you can skip step #4. In any case, use stop loss to protect your investment.

#Filler: The Ten Commandments of Investing.

http://www.investopedia.com/articles/basics/07/10commandments.asp

· Set goals. * Personal finances in order. * Ask questions. * Do not follow the herd. * Due diligence. * Be humble. * Be patient. * Be moderate. * No unnecessary churning. * Be safe. * Do not follow blindly.

· My additions: * Diversify. * Study market timing. * Protect your losses and profits. * Monitor your screens and your metrics. * Be emotionally detached from investments. * Learn from mistakes. * Stay away from bubbles. * Be socially responsible.

6 The best strategy

The best-kept secret in investing is to buy a weighted ETF. I use SPY as an example here. This ETF is well diversified as it keeps all 500 stocks in the S&P 500 index. The ETF has a higher position (in percentage) on stocks with higher market cap. The stocks with higher market caps usually grow the market cap by having good management and good products. The bad stocks are deleted from the index periodically.

The second best-kept secret is using simple market timing as described in this book to reduce the losses in market crashes.

It is very hard to beat this strategy. You do not need any knowledge in investing, and you only spend a few minutes every month to time the market. The market is risky when the metrics show you so such as the price is close to the simple moving average in using SMA-350 method; in this case you time the market more frequently.

7 Don’ts for beginners

· Do not use leverage: options, margin and leveraged ETFs.

· Do not short stocks.

· Buy low and sell high.

· Buy value stocks. Sell profitable stocks after a year and losers before holding 12 months for favorable tax treatments in non-retirement accounts. Be a turtle investor.

· Limit momentum trades.

· Use stops to protect your portfolio.

· Do not follow ‘experts’ blindly (most have their own agenda).

· Do not trade penny stocks (i.e., stocks less than 200 M and/or price less than $1 to my definitions).

· Venture into momentum trading when you have knowledge and time. Avoid trading systems that are available.

· Do not day trade. Most beginners lose most of their money.

· Do not take classes / seminars that promise you big money - if it works, they will give out their secrets.

· Be selective on investing subscriptions. If they give you a handful of stocks to thousands of subscribers, most likely the actual performance will not be good. Check their past performances that use real money.

· Beginners (even some experts) miss many opportunities by only buying blue chips and/or the companies they know.

· Do not buy stocks making new lows, as there could be another bottom.

· Buy stocks on their way up, especially when the market is in an uptrend with low inflation and low interest rates.

8 Summary

The following improves the odds of success but there is no guarantee.

Risky Market?

Bring up Finviz.com. Enter SPY. If both SMA-50% and SMA-200% are both negative, do not invest especially when SMA-50% is more negative than SMA-200%.

Evaluate value stocks from others’ researches

Gather a list of stocks from screens and/or recommendations from magazines. Use researches that are free. Value stocks should be kept for at least 6 months. In six months or so, evaluate the bought stocks again to see whether you want to sell the stocks. Some other sites may provide free trial or one-time evaluation: IBD, GuruFocus, Zacks and Morningstar. Fidelity requires an account but there is no minimum position.

Name	Pass Grade	Link
Fidelity’s Equity Summary Score	>=8
Value Line²	Timeliness > Average
	Proj. 3-5 yr.% > 5%
VectorVest¹	VST > 1 and RV > 1	Link

¹^{Should be available from your local
library.}

²^{Free for limited number of stocks and
free trial.}

Evaluate stocks

Bring up Finviz.com and enter the stock symbol.

Metric	Passing Grade
Forward P/E	Between 5 and 20 (25 for tech stocks)
P/FCF	< 15 and ratio is positive
Sales Q/Q	>10
EPS Q/Q	>15

Intangible Analysis

Bring up Finviz, Fidelity, Yahoo!Finance or Seeking Alpha (fewer articles now) and enter the stock symbol. To prevent manipulation, the stocks should have larger cap (> 200 M) and higher daily average volume (> 10,000 shares).

Bonus: Investing for ‘lazy’ folks

You have better things to do than investing or you do not have the time, the desire to learn and/or expertise in investing. You should be better off to buy ETFs.

I recommend the following 4 ETFs. If you have $100,000 to invest, buy $25,000 for each recommended ETF. Consult your financial advisor before taking any action. The recommended ETFs should have a large market cap (the ETFs themselves and not the stocks they hold) and have a high volume.

Most returns started on July 1 and ended on July 1 the following year; this article is written on July 20, 2021. All are annualized returns for easy comparison. Fees, commissions and dividends have not been included; you can add the dividend yield and prorate it for YTD return.

Symbol	Name	YTD¹ Return	1 Year²	5 Years³	Bear⁴
IWF	Russel 1000G	30%	34%	40%	-33%
QQQ	QQQ	30%	46%	42%	-31%
VTI	Vang. Viper Tot	34%	22%	42%	-35%
VUG	Vang. Growth	37%	33%	41%	-32%

Avg.		31%	34%	41%	-33%
SPY⁵		34%	21%	39%	-35%
Beat⁶		-9%	60%	6%	7%

¹The start date is 1/4/2021 and the end date is 7/1/2021.

²The start date is 7/1/2020 and the end date is 7/1/2021.

³The start date is 7/1/2016 and the end date is 7/1/2021.

⁴The start date is 1/2/2008 and the end date is 4/1/2009. My estimates.

⁵SPY is the ETF for the S&P 500 index. It is used as a yardstick.

⁶= (Avg. – SPY) / SPY. Again, it does not include fees, commissions and dividends.

Comments:

· The YTD is the only period that this portfolio does not beat SPY (the market to many). It could mean the market could be changing the favorite from growth stocks to value stocks. However, 31% return is far above the average of the market.

· The one-year return beats the market by 60%.

· The 5-year return beats SPY only by 6%, but the return of 41% is nothing to sneeze at.

· All except Vanguard’s Viper Total are ETFs for growth stocks. Hence, I expected it would not beat the market, but it still did by 7%.

· You can time the market using the techniques described in this book as often as you can. When the indicator tells you to exit, you can sell these ETFs and reenter the market when it recovers. Riskier investors can buy contra ETFs such as PSQ and SH instead of holding cash when the market is down.

· At least once in a year review the selection. Use ETFdb.com for information. If you do not have time, it is fine skipping the review. When you switch ETFs, taxes should be considered.

· Most ETFs replace some stocks periodically to ensure better appreciation potential.

Bonus: Sample portfolio

It is a suggested sample. You need to tailor it to fit your personal requirements and your risk tolerance. In general, you should have an emergency fund for at least 3 months (6 months preferred). Many of our generation have one or even no layoff. However, I estimate the current generation will have 3 layoffs in their work life. It is due to automation, artificial intelligence, global economy, etc.

The rough estimate of stock holding in distribution between stock and bond is equal to 100 – Your Age. To illustrate in the following three portfolios, I use a 30-year-old, and hence he should have 70% in stocks and 30% in bonds (including gold, CDs and cash).

In addition, some sectors are better than others according to the market conditions. The following three portfolios are for regular, todays’ market and one during a market crash. I use low-cost ETFs exclusively. ETF is exchange-traded funds. They are traded similar to stocks, but most are more diversified; their fees are usually lower than mutual funds.

ETF	Normal	Today (2/2021)	Crashing⁵
SPY¹	40%	30%	0%
QQQ²	5%	10%	0%
ARKK²	5%	0%	0%
VTIAX³	20%	5%	0%
LQD³	15%	20%	5%
GLD	5%	15%	15%
CD	5%	0%	0%
Cash	5%	20%	60%⁶
SH⁴	0%	0%	5%
PSQ⁴	0%	0%	15%

¹VOO is a low-fee alternative for SPY.

²QQQ has more tech stocks, while ARKK is an actively managed ETF specializing in ‘disruptive technologies’. During market crashes, avoid them, esp. ARKK.

³VTIAX is an ETF for global companies. LQD is an ETF for corporate bonds.

⁴SH and PSQ are contra ETF to SPY and QQQ. They are shorting the corresponding index. When the market is recovering, switch them back to SPY and QQQ.

⁵Need to balance the allocations about two times a year as ETFs can grow or shrink. When the market crashes, rebalance it right away. All markets will crash, and the last two (2000 and 2008) have an average loss of about 45%. Refer to the chapter “Simplest marketing timing”.

⁶Today’s low interest rate does not benefit us for CDs. I would leave the cash not invested and wait for the recovery to move back to stocks.

Of course, everyone’s situation is different. If you are conservative, do not buy SH and PSQ. If you are afraid of inflation (especially due to the excessive printing of money), allocate more on GLD, a gold ETF.

Do not listen to financial news. They are used by institutional investors / analysts to manipulate the market. Many times they act the opposite from what they preach. This is the primary reason retail investors do not do better. With the GameStop incident, do not invest in most hedge funds. Buffett has proved the hedge funds with their high fees cannot buy an indexed ETF such as SPY.

The above is my recommendation. In the long run, it should work fine. Consult your financial advisor before taking actions. If you have more time, time the market as described (Death Cross and Golden Cross). If you are interested in investing, study the more sophisticated techniques described in my book “Art of Investing 2^nd Edition”.

#Filler: Simple measures to reduce net security.

Do not click any links from unknown sources. Some seem to be ok but not.

MalwareBytes, for checking viruses, is free for download (they do not pay me). Personally, I use a Chromebook for my financial transactions and a two-factor login for my stock trading.

#Filler “How to make a 50% return”

https://www.youtube.com/watch?v=eEto5nEkf1Y

#Filler Buffett, the person.

https://www.youtube.com/watch?v=w-eX4sZi-Zs

Debunk Myths in Investing

Sunday, March 27, 2022

Simplest techniques