4. Trend Following: an investment strategy for the common man...and woman!
At hardhatinvestments.com our approach to long term investing is based on one of the oldest and simplest methods around: trend following. Trend following is a very basic, easy-to-understand long term investment strategy that is perfect for us working folks:
> we don’t have to be stock market experts
> we don’t have to spend a lot of time watching our investments
Trend following can be as simple as you want it or as hard as you make it, but it is not perfect. Using a trend following strategy won’t make you money 100% of the time - no investment strategy will, despite what you may hear or read. But trend following has proven time and again to outperform all other investment strategies in bull and bear markets.
> Hey, let’s face it: if we’re going to invest in the stock market, there is always going to be an element of risk. It’s unavoidable, but that risk can be controlled. When we hop in the truck to run down to the store, there’s an element of risk involved. We throw on our seatbelt and watch our speed (most of the time!) in an effort to control some of that risk. Using a trend following method to invest is just like using that seatbelt while driving. It may not totally protect us, but it sure lessens the likelihood of serious injury!!
? Now, you’re probably thinking, “If trend following is so great, why isn’t everyone doing it?” Well, in one form or another, everyone does. Whether you’re a day trader, swing trader or investor, your strategy only makes money when stocks are moving in one direction. Day traders look for trends that last a few minutes. Swing traders look for trends that last a few days. Investors - that’s us - look for trends that last a few months (or years).
For us working folks, trend following is a no-brainer. Let’s face it, when you get home from work you may hang up your hard hat, but then you have to put on your “mechanic’s hat” to work on the car; your “landscaper’s hat” to tend to the yard; your “chef’s hat” to fix supper; your “teacher’s hat” to help the kids with homework - on and on and on every day. Who’s got the time to learn all the ins and outs of the stock market?
With trend following, the only thing we need to know is market direction and how to invest accordingly. Once we get the hang of it, we can check the markets and our portfolios in less time than it takes to re-string the weedwhacker!
Now, we won’t sugar-coat it: learning to invest with a trend following method will take some time. How long? Well, it depends on how much market/investment knowledge a person already has and how much time he or she has to devote to the learning process.
Sorry if that answer sounds lame, but each person’s circumstances are different. These 2 things are for sure, though:
> The time saved in the future using a trend following method will far outweigh the time spent learning it.
> We spend 40, 50 or 60 hours a week working our butts off to earn our money - doesn’t it make sense to spend 10 or 15 minutes a weekend to take care of it?
Hey, if you’re like us and have more calluses on your hands than brain cells in your noggin, don’t worry - you can learn this stuff. We did!
To sum up, markets constantly change, trends come and go with the various cycles of the economy. These trends directly affect the performance of our investments. Not everyone knows how to use trends to their investing advantage - for some reason, many don’t even care to know. Don’t be one of those people - keep reading and learning! In the Charts section, we’ll outline a very simple way to identify these trends and keep up with the markets.