Does Stan Weinstein’s system work today? Yes, listen here, if you invested with buy and hold from 1820 you would have earned a real rate of return of 1.4%. If you used Stan Weinstein as a guide you could have earned closer to 10% with a simple application of his stage analysis. I know this real rate of return makes investing look not as attractive but if you know what you are doing you will make a lot more.
The principles of Stanley Weinstein’s system are the same as they were 25 years ago when he wrote the book on stage analysis, that is ‘The secrets of profiting in a bull or bear market’.
However, I would recommend at this point a more simplified version. Not because his technical analysis theory of investing is not valid, rather because I am kind of busy person, and the way I invest is my own style based on my own risk preferences. I am a cross between buy and hold good companies and moving averages on the index as a whole.
Using Stan Weinstein today
What I do is a look at the twelve month moving average on the S&P index. Stan recommends the 200 day moving average on the market, then sectors, then companies. However, I prefer the 12 month moving average on a broad index. This is my basic strategy for market timing. Some call this a fundamental technician. I do not think so. I do not like labels.
Moving average convergence-divergence, moving-average envelope, Bollinger bands, etc I do not like it. It is too much complication and will distract you. If you had used Stan’s basic system of investing, applied to the 12 month moving average on the index you would have participated in every major upswing and gotten out on every major fall.
Many people say you cannot time the stock market, however, if you look at the stock market as the whole, the inflation adjusted real rate of return is about 1.4 percent. Does this sound incredible? It’s true.
However, if you are and market timer begin time the market using the twelve month moving average, just investing in the index you will have a rate of return of 10 percent. I personally think much higher but I would rather be conservative in my real rate of return estimates. You can test this yourself.
Further, if you can pick stocks then you can make a lot of money. Therefore my philosophy for investing is a combination of looking at the twelve month moving average on the index and picking the stocks that I think are good.
Why Stan Weinstein is not a fundamental or value investor
Stan Weinstein would use further moving average analysis on stocks and sectors. He feels everything, value and fundamentals of a company are already in the price, because markets are hyper efficient and move faster than you or I.
How I make investment decisions – However, that being said, I still prefer a more basic investment strategy combined with looking at the company. I don’t know if my investment strategy is a value strategy or a growth strategy, but I feel it works. I look at strong cash flow and low debt in relation to the price. I invest in stocks that I would personally buy products from. Companies, I know and personally buy from. I believe in less than perfect information in the market. I combine this with looking at the moving average as a whole of the market index.
Further, by buying companies I personally use, I know I would be missing out on the best types of new high tech investments and bio-research investments, however, I believe all sectors provide opportunity for a higher than normal. Therefore I focus on the sector’s then I know and understand and the products which I know and understand, rather than just looking at the moving average at Stan Weinstein recommends.
Stan Weinstein even mentions people who invest like me in his book as an good but not optimal investment philosophy. He thinks it is not optimal because the tape tells all. He believes the price trend tells all and you do not need to look at other factors. That is the price already includes this information. I think Stan is more of a Stock trader than I am.
Why use moving averages?
It is a painful thing to be a slave to the news, and get stressed out every time you hear potential bad news in the financial markets. this is why using moving averages are the best way to analyze the market as the whole. Stan Weinstein’s system does work.