A New View…Can Trend Investing Lead to Profits?

Today being a holiday, I was doing a little catch-up reading in the “Financial Times� where I read an interesting article on Contrarian Investing. Contrarians believe that you can not make money following a trend. As soon as you catch on to the trend, they reasoned, it was probably ready to reverse. You’d always be getting on board the wrong train, going in the wrong direction, at the wrong time.

“You can be a contrarian; or you can be a victim,� as quoted by stock guru, Rick Rule, puts it.

But what’s this? The Financial Times tells us there’s a new train schedule. A couple of professors at the London Business School decided to test trend following as an investment approach. They imagined that each month, going back to 1900, an investor had simply bought the 20 stocks that had performed the best over the last 12 months – drawing only on the 100 largest stocks on the market. The investor in this example would have made a compounded annual rate of return of more than 15%, they concluded, compared to a rate of return for the market as a whole of less than 10%.

Well, what if they’d done the opposite, for the contrarians out there. What if they’d taken the 20 worst performers instead of the best? Turns out they found that the worst performers only produced a compound annual rate of return of 4.5%, barely a third of the winning formula. Go figure…I guess the trend is your friend!!!

On another subject, I just read about a new kind of CD. Here’s the spiff on it. I found it to be quite interesting if your bullish on inflation.

“Benefit from the silver market in an entirely new and safe way. “

EverBank® is pleased to offer its award-winning MarketSafe® CD in silver – where yields are driven by the average spot price of silver bullion, and deposited principal is never subject to market risk.

Key details about MarketSafe Silver:

- CD Return: Tied to the upside performance in the average spot price of silver
– Deposited principal: 100% guaranteed
– Term: 5 years
– Minimum deposit: $1,500

I’m not soliciting this product by any means, I’ve never heard of EverBank. I am just commenting on the product. I find it to be very interesting way of hedging against inflation.