Gregory L. Morris’s latest book, Investing with the Trend: A Rules-based Approach to Money Management, was published on December 31 of last year, the same day the Dow and S&P 500 set new all-time highs. The Dow is up 153.2% from its March 2009 low and the S&P 500 has risen an even more impressive 173.2%. These massive rallies were the reversal of devastating drawdowns during the Great Financial Crisis. The Dow and S&P 500 had declined 53.8% and 56.8%, respectively, since their pre-crisis all-time highs in October 2007.
How do we invest to minimize the losses and maximize gains in this sort of environment? Buy-and-hold strategies, regardless of diversification techniques, would have produced modest results over this six-plus year timeframe, and the emotional stresses of the savage bear selloff were excruciating for the buy-and-hold mindset. Investors with a longer history will recall similar emotions during the irrational exuberance of the dot-com bubble and subsequent crash.
Investing with the Trend: A Rules-based Approach to Money Management Unless you were one of the few who sold near the tops and bought near the bottoms, the 21st century has been a manic-depressive nightmare for investing.
If any of these comments resonate with you, then make Greg’s Investing with the Trend your next book purchase … and in light of the current market action, the sooner the better.
The book is divided into three parts, each containing several chapters. In the bullets below, I’ve provide a 50,000 foot overview of the topics covered in each part.
Part I: Market Fiction, Flaws, and Facts
- Fictions Told to Investors: Greg examines the marketing spin and underlying reality of several familiar concepts: Buy and Hold, Protection with Diversification, Dollar Cost Averaging, etc.
Â- Flaws in Modern Financial Theory: Over the past several decades many academic theories of investing have dominated the world of finance: Efficient Markets, Modern Portfolio Theory, Volatility Risk, etc. Greg uses his analytical skills to deconstruct the underlying assumptions of these theories in the context of market reality.
Â- Misuse of Statistics and Other Controversial Practices: How does the “World of Finance” achieve its sell-side goals? Greg takes a close look at “The Deception of Average” in the routine parlance of the professional financial community.
Â- The Illusion of Forecasting: Greg’s opening remark captures the essence of this chapter: “I adamantly believe there is no one who knows what the market will do tomorrow, next week, next month, next year, or at any time in the future — period.”
Â- The Enemy in the Mirror: The title of this chapter is self-explanatory. It offers an excellent and succinct overview of the many behavioral biases that profoundly influence and ultimately compromise our investment decisions.
Â- Market Facts: Bull and Bear Markets and Market Facts: Valuations, Returns, and Distributions: These two chapters round out the first part of the book with a compendium of fact, figures and graphs to illustrate historical realities of the market. Without a reasonable grasp of this material, it is impossible to make intelligent decisions about investing.
