DIY Investor Magazine
/
March 2017
27
Get into those which are in a promising position, and
get out of those Industry Groups which are not. On Wall
Street, people very often fail to see the thing that is right
in front of them. I cannot emphasise too strongly the
importance of examining Industry groups.’
If you simply replace the term ‘Industry Groups’ with the
term ‘Fund Sector’, this could be an instruction from the
current Saltydog member’s handbook.
WHY BUY-AND–HOLD INVESTING SEEMS SILLY.
I cannot see the sense in staying in the market all the
time. Why would anyone stay in when it is heading
down? Do they want to lose money? It seems pointlessly
fatalistic to me. If you are prepared to be active, and
are using accurate numbers and information, it just
seems like common sense to be mobile. Especially in
this day and age when moving in and out of funds can
be transacted for very little money. At the same time,
there is a more subtle meaning to this rule, and that is
… don’t invest when you cannot see a clear trend. Or
conversely, only invest when you are confident that a
trend has emerged. I liken trend investing to going to a
horse race and being able to switch to the leading horse
as the race progresses. You are in the best position
throughout and you will win in the end.
TAKE SMALL STEPS QUICKLY TO WIN.
I started the Saltydog system with a fundamentally
conservative, risk-averse approach. I felt that the worst
thing you can do is to lose money. Through a process
of trial and error I worked out one practical guideline
to help with protecting my investment. That was, as
an active investor you do not need to commit all your
money at once, or take it all out at once. It is not a black
and white, either/or situation. You can test the market
by placing small sums and see how they pan out, then
if it goes against you, reduce your holding. This ‘softly
softly’ approach greatly minimises the risk. Surprise,
surprise, that is exactly what the great Jesse Livermore
also advised. He said:
‘It is the change in the major trend that hurts most
investors. They simply get caught investing in the wrong
direction, on the wrong side of the market.
To determine if I was right in my appraisal, I used
small position probes, placed small orders to test the
correctness of my judgement.’
FOLLOW IN THE FOOTSTEPS OF JESSE
LIVERMORE.
Now I am not claiming that the Saltydog system will turn
you into the next Jesse Livermore. Whilst that might be
nice, as at one point he was worth over $1.3billion, he
must have been a strange man. He married four times
and ended his life by committing suicide. Obviously a
man of extremes! However, what I do claim is that we
at Saltydog have devised algorithms to examine and
interrogate the performance of the many thousands of
funds available for investment.
The Investment Association sectors are plotted to show
the relative performance between the sectors, and then
presented in graph form for easy recognition. The best
performing funds are then shown in a similar fashion,
taking all the work away from the reader. This has
expanded out of all recognition from what I was doing
by long- hand in the early 2000s for the seventy or so
funds that were available to me.
To prove the system had legs we invested £40k of
our own money into a real demonstration portfolio in
November 2010. It was called the ‘Tugboat’ and was
designed to avoid the drops in the market and give
a return of around 8% per annum. It is now a fraction
below this target.
