Hi guys, long-term trend-following is that still working?
From time to time we get somebody claiming that trend-following is dead and then somebody who demonstrates that it’s not dead.
Actually, there are websites, blog spots where people defend or illustrate long-term trend-following and from time to time they show the profits this approach made.
This is witnessing that it works!
The problem, if we can speak about the problem, is that positions you sit in obviously do not go up in a straight way, but they have a different kind of moves and you can be sitting in losing position for a very long time, which can be very stressful because even though you might have a very good backtest of your approach, you never know if, as somebody said, it’s dead.
So you stay there, you wait for the position getting back into the black or for your exit.
You planned to be hit eventually but obviously, you are not sitting quietly in your pants in that case.
It’s difficult, technologically difficult.
Furthermore at the end of the story the entries and exits are not really so important because if I invest in the value of something, because it’s what we are doing if you go for a long-term trend-following, we take a position in a market because we believe that market will gain value or will show its value increasing its price or if we were short to lose and show its weakness later on.
So, in looking for value in something we should have more sort of a fundamental analysis.
I want to invest in this specific stock, this company because I believe that the balance sheet is very good and the company will grow.
This is fundamental analysis and it makes a lot of sense, sort of Warren Buffett style. Well, I cannot obviously compare myself to Warren and probably none of you, I mean I don’t think you get offended when I say this.
But let’s say we look for value and we put our money believing this will grow.
Nowadays, I’m talking about 2018, it’s difficult because we have seen a stock market going up for years and the bonds went up as well so it’s difficult to say I will put my money there because I believe that market will grow in the next N months or even years, so this approach is very hard unless you believe in it very strongly, deeply and you allocate a not too high percentage of your capital to this approach, which makes sense for any approach actually.
So, I mean, you can obviously use technical entries, Bollinger bands breakout, Donchian channel breakout, 20, 50 days channel or on weekly momentum.
This all makes sense but at the end of the story it’s not the most important point, the point is that you look for something that will grow because it has shown value and this is not really that easy.
It’s not that easy because if it were that easy there would be a lot of people making tons of dollars out of it.
So I mean, I like, I really like the idea of long-term trend-following but sort of something that keeps me from dedicating more time that this would deserve most probably.
If someone of you is believing in that please comment on the video, tell me your position, tell me your ideas.
I’m very happy to discuss it and we will discuss other topics next week.
For this week that’s it. Ciao from Andrea Unger…ciao.