I love “dumb” investment systems…
One of my favorite dumb systems is up 16% for the month of July.
(I hope you took my advice on this system… I told you about the system and how to take advantage of it here.)
Importantly, this particular dumb system is saying to “Buy Again” for August.[ad#Google Adsense 336×280-IA]Now don’t get me wrong when I say “dumb” system. I don’t mean it’s stupid. What I mean by dumb is this: It’s something so simple, anyone can understand it.
The hard part for me is finding a simple thing that actually works… finding the true reason an investment moves up or down. That’s what requires the real homework. That’s what we do in my product True Wealth Systems.
In my experience, if we get that true reason right, then these simple-and-direct systems typically beat more complicated strategies over the long run.
To find the true reason in gold, I asked myself this question:
“What does a true bull market in gold look like?”
You see, gold might be soaring against the dollar… but that might just be because the dollar is falling in value. So a true bull market in gold is when gold is going up in value in terms of ALL major currencies.
We tested this simple idea, with remarkable results.
The math was easy for us to test. If the average price of gold this month in U.S. dollars is higher than the average price of gold last month in U.S. dollars… and if the same is true in euros, British pounds, and Japanese yen… it’s a true bull market in gold. Therefore, you want to own gold.
The trading system is simple. When this is true at the end of a month, you buy gold. (Since we’re U.S.-based investors, we buy gold in U.S. dollars.) You hold the gold for one month. And then at the end of the month, you re-evaluate for the next month.
Based on four decades of data, this dumb system is only “in the trade” about a third of the time. But when it’s in the trade, the returns are outstanding. If you buy a double-long gold fund (like DGP), your wealth has compounded at over 40% annualized.
The returns improve when we add another simple indicator to it… a simple trend system. (I explained both of these on July 7.) Returns for a double-long gold fund pump up to the 50% annualized range. The only thing is, it’s hard to get both of these signaling at once… it only happens about one out of four months.
Fortunately, for the month of August, both systems for gold are saying “buy” again.[ad#article-bottom]It was right last month. DGP up was up 16% for July (as I write this to you Friday afternoon). After such a great July, could this signal be wrong in August? Sure! It’s not infallible.
But the premise is right. It’s proven to be a great “dumb” system… a system that beats the complicated systems over the long term.
Over the last four decades or so, your wealth would have compounded at 50% annualized during the months this happened before.
Based on these two “dumb” signals, True Wealth Systems says to own DGP for the month of August. Judging by the track record, you should consider following that advice.
— Steve Sjuggerud[ad#jack p.s.]
Source: Daily Wealth