Investing with the Trend: A Rules-based Approach to Money Management

Chapter 14Security Ranking, Selection, Rules, and Guidelines

It is not uncommon for investors to believe that the more information they have, the better their chance at choosing good investments. Financial websites offer alerts on stocks, the economy, and just about anything you think you might need. The sad part is that the investor thinks every iota of information is important and tries to draw a conclusion from it. The conclusion may turn out to be correct, but it is usually not. The investor is trying to tie each item of news to the movement of a stock, which generally never seems to work; just a few minutes watching the financial media should tell you that it doesn’t work. Human emotions make the investor feel good about having news that supports their beliefs, but rarely do those emotions contribute to investment success. I find it amazing how many times I go into an office and find the financial television playing, sometimes muted, but probably only when they see me coming. Too much information can lead to a total disarray of investment ideas and decisions. Keep it simple, turn off the outside noise, and use a technical approach to determine which issues to buy and sell. You’ll be healthier.

Ranking Measures

Ranking measures are the technical indicators used to determine which issues to buy based on their trendiness. They can be assigned as mandatory or tie-breaker ranking measures. The mandatory ones are the ranking measures that have to meet certain requirements before ...