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9 Rules That Encourage Successful Investment Strategies

Written by: Benjamin Bimson CIMA®, CMT® / CIO, Trek Financial

No one has 100% certainty of where we are headed next, so having a framework to make decisions is far better than “investments-by-feeling.”

Sometimes the current situation feels very Wild West, so today I wore cowboy boots.  We all seem to be part of a generation-defining event. The uncertainty that comes with this COVID-19 crisis has even led to difficulty in obtaining “rolled gold,” aka toilet paper. What a change in perspective in such a short time. I would not have believed you if you had warned me about this last Christmas, and we are living it now.

Great market minds are in full swing these days, and the sheer difference in how great minds think definitely highlights the greatest risk we have right now: uncertainty. I think it far better to be honest and say that outcomes from this recession are unpredictable now. Have we seen the worst? Is it time to get extremely bullish? Is it time to get extremely defensive? Unfortunately, the answer to all these questions is very unsatisfying – “depends.”

Why aren’t we getting a good indication of which direction we are going? Much depends on our ability to not only “flatten the curve” from the COVID-19 cases on a global level, but to also reopen economies where able, prevent a new upward cycle in COVID-19 cases, and in the meantime, provide the necessary coordinated fiscal and monetary policy to help the maximum number of people bridge the social distancing measures adopted in the western world. Essentially, we have a lot to accomplish and time is critical.

Although a goldilocks scenario feels very unlikely based on the horrifying economic data that has begun to filter into the news, we cannot accurately predict what happens here. There can be a temptation to throw off discipline and steer by “feel.” Maybe this time we can “feel” our way through this maze of uncertainties, but based on performance of feeling-oriented investment strategies, I would be extremely cautious about adopting such a strategy today.


I am reminded of the 9 rules Ned Davis Research encourages for successful investment strategies:

1. Go with Mo: Do not fight strong momentum. This does not mean that you swing back and forth daily, but rather that trends develop both up and down that should not be fought if investors want the best long-term results. This is not market timing so it will not catch tops and bottoms perfectly, but does highlight general direction.

2. Do Not Fight the Fed: Staying in harmony with interest rates is important! Trying to out-think and maneuver fiscal policy is not a good idea. It seldom works. Money is what moves markets; when there is more liquidity in the markets, it is a bullish sign. When there is liquidity being removed from the markets, that is a warning sign.

3. Beware of Crowds at Extremes: Psychology matters. It can be tempted to adopt “group-think,” but that can be extremely dangerous. This is one of the dangers of “strategy by feeling.” It can lead you to do exactly the opposite from what you should do. The relative relationships between extreme optimism and extreme pessimism tend to revert and burn those with the strongest feelings.

4. Rely on Objective Indicators: Indicators are not perfect but by being objective, it gives consistency. We must use observable evidence and not theoretical evidence. This is very difficult when it requires patience! There is an insatiable desire to “be right.”

5. Discipline: This anchors investor’s exposure to facts and not gut reactions. Admittedly, this may be one of the hardest to stick to in extremes!

6. Remain Flexible: Investors should be able to adapt to changes in data, the environment and the markets. Be willing to quickly change your view, but only with factual evidence (not based on how you feel).

7. Risk-Adverse: Do not be afraid to make money instead of being right. Sometimes investor’s feelings lead them to being wrong for all the right reasons. This is hard. Taking a weight-of-the-evidence approach protects against a myopic view.

8. Money Management Matters: This rule has multiple aspects:

  • Stay Humble and Flexible: Be able to turn emotions upside-down and be open minded.
  • Let profits run and cut losses short: The conditioning to “just hold on because bad decisions will eventually correct themselves,” can do more harm than good.
  • Think in terms of risk: this includes the opportunity risk of missing out on a bull market.
  • Buy the rumor, sell the news: this is a philosophical idea that most of the time excitement over something is better than what it really is. Markets tend to guess at what will happen next and the reality is not nearly as good as the thought of it.

9. Those who do not study history have the potential to repeat mistakes: Investors can learn a lot from history even though we know each circumstance is unique.


It is tempting to buy the line “it is different this time.” Reality is that rules number 5 and 6 are necessary in those moments. Uncertainty happens in the markets and what we are currently experiencing is potentially one of the greatest uncertainties we have faced in nearly 100 years.

No one has 100% certainty of where we are headed next, so having a framework to make decisions is far better than “investments-by-feeling.” Knowing what you can and cannot handle is imperative here as we are experiencing a time where nearly every strategy has increased risk from the longer-term risk profiles.

We may not know yet if we are through the worst of things or headed for more difficult times ahead, but it’s important to be prepared to systematically deal with whatever comes next. It’s also very important to not stubbornly adopt a view that data cannot alter, but to remain patient for developments that are confirmed with weight-of-the-evidence to give the highest confidence.

We hope that you all are staying safe, embracing the family that you have around you, staying well, and getting any assistance you need. We are here for you and will help bring some level of clarity as conclusive evidence presents itself. We will all get through this together.


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Investment advisory services are offered through Trek Financial, LLC., an SEC Registered Investment Adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein.  Trek FG 20-46

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