Legendary investor Peter Lynch spent 70 hours a week at the office.
He figured that if he spent 20 extra hours a week poring over financial reports, he’d be able to outperform other funds.
But you don’t need to spend countless hours in front of a computer screen to beat the market.
In fact, you could fuel your retirement portfolio on just five minutes a day.
I know that sounds nuts. But hear me out – I can show you how to get there in just three easy steps…
It all begins with what’s known as “trend following.” It’s a strategy we’ve talked about for years. In fact, it’s the same strategy used by high-end hedge funds to generate investment gains for millionaires and billionaires in any market.
Now I want to show you how to put a trend system into place for your portfolio (with a little help from one of my close friends and colleagues).
You’re conditioned to believe that investing is a lot of work. And if you’re purely a fundamental investor, it certainly can be. When you’re scouring the news looking for anything that could impact a company’s financial performance, or when you’re trying to manage a portfolio of more than 1,600 stocks (like Peter Lynch was over at Fidelity), then it’s no surprise that investors can make a full-time job out of watching the markets.
But trend following doesn’t have those same requirements.
It’s time to free up your day with three simple steps to build trend following success.
Let’s get started…
Step 1: Cut the Noise
As a trader using a trend following system, you can ignore the news. Tim Ferriss, the author of the best-selling 4-Hour Workweek, calls it an “information diet.”
“Modern investors are bombarded with market news these days, and it’s always reactionary,” trend-following stat man Jonas Elmerraji says. “When the market moves, journalists pick the biggest news story of the day and give it credit for making the market moving up or down.”
I don’t know anyone who’s gotten rich trading the news from The Wall Street Journal. That’s why you should just put it down unless you’re looking for entertainment.
Traders use price as their primary input. That’s because prices react to news almost instantly — well before a journalist has a chance to write a story about it. In effect, price already has the news “baked in.” That’s why you should skip the Monday morning quarterbacks in the media and focus just on price.
For most individual investors, cutting out the noise is the biggest step you can take toward trimming your investment workload down to five minutes a day.
Step 2: Stop Searching for Stocks
Scouring the market for stocks is another huge time sink for investors. There are more than 8,700 stocks trading in the U.S. alone.
“Trying to find out which one is the most attractive on any given week is a momentous task,” Jonas continues. “By trading broad ETFs that give you exposure to a whole diversified basket of stocks in one fell swoop, you avoid all that extra work. When the system flashes a ‘green light’, you simply click buy.”
With a trend following system, there’s no scouring for stocks. You start with a finite number of possible choices and your system tells you which one you should buy. Yes, it’s that simple. And that’s also what makes it a spectacular complement to the individual stocks you might trade on your own.
Step 3: Think Like a Trader
Trading and investing takes faith. Each time you hit “buy” or “sell,” you must have faith that your trades will work out in the end. But I’m not talking about blind faith.
Trend traders have faith in their strategies because of performance testing — if you know that your trend system can thrive during recessions, depressions and roaring bull markets, then your faith is warranted.
“It’s a lot easier to sleep at night when you’re invested in a strategy that holds up to statistical scrutiny,” Jonas concludes.
Since you’re trying to spot trends early on, it’s understandable that you’ll have false starts. But trend following can be hugely profitable because the big trends that you hit a third of the time more than make up for the tiny losses you’re taking two-thirds of the time.
You have to be able to think like a trader to mentally shake off the losses and stick around to take advantage of those long-run gains. A hands-off approach to investing takes some faith, but it can be lucrative.
A Real 5-Minute Retirement
Obviously, developing a trend following strategy takes time. The backtesting, statistical tests and performance analysis involved make for more than a full-time job. But that’s why I’m here. For an individual investor putting a finished strategy to work in his portfolio, all it takes is around five minutes a day of “work.” Sometimes less.
If you don’t want to spend a lifetime researching stocks, that’s a game changer. Especially when you consider the fact that any good trend following system can beat the market by a broad margin.
We’ll explore more about building a trend following system with Jonas in the weeks ahead. In the meantime, do yourself a favor and peel your eyeballs away from your computer screen for a bit…