Buy and Hold Boomer Say You? Where’s Peter Lynch When You Need Him?

Remember when Peter Lynch, formerly of Fidelity, made it all so easy:

[Peter Lynch’s] most famous investment principle is simply, “Invest in what you know,” popularizing the economic concept of “local knowledge”. This simple principle resonates well with average non-professional investors who don’t have time to learn complicated quantitative stock measures or read lengthy financial reports. Since most people tend to become expert in certain fields, applying this basic “invest in what you know” principle helps individual investors find good undervalued stocks.

Lynch uses this principle as a starting point for investors. He has also often said that the individual investor is more capable of making money from stocks than a fund manager, because they are able to spot good investments in their day-to-day lives before Wall Street. Throughout his two classic investment primers, he has outlined many of the investments he found when not in his office – he found them when he was out with his family, driving around or making a purchase at the mall. Lynch believes the individual investor is able to do this, too.

There might trouble with the technique upon which millions of boomers bet their retirement? It appears so:

Aging baby boomers may hold down U.S. stock values for the next two decades as they sell their investments to finance retirement, according to researchers from the Federal Reserve Bank of San Francisco. Americans born between 1946 and 1964 are beginning to retire as the U.S. stock market is still recovering from the financial crisis that began in 2007 with the collapse of the subprime-mortgage market. The timing is ‘disconcerting’ and, since stock prices have been closely tied to demographic trends in the past half century, “portends poorly for equity values,” adviser Zheng Liu and researcher Mark Spiegel wrote in a paper released by the bank today.

Ah, the nostalgic days of wandering the local mall and going through Spencer’s “Adult only” section as investment panacea. Life used to be so much easier when you didn’t have to think…


Big Thanks to Everyone Who Has Helped Me!

Feedback in:

“Years ago, famed Chicago bond trader Tom Baldwin put trading in a phrase: “Everybody wants the money, but whose willing to do the work?” I know a few. One of them is Michael Covel. Michael did the yeoman’s duty no one else would do: bringing together the principles, practices and track records of trend following. In his now numerous books, courses and programs, he solidly demonstrates trend following is a viable trading and investment strategy; moreover, one that can be learned and mastered. Something many so-called trading and investment strategies have yet to do.”
Charles Faulkner
Market Wizard Trading Coach,
Mental Edge Trading Associates


Note: Faulkner is in my film and my new book The Little Book of Trading.

Where to Start?

An email in:

Dear Mr. Covel,

My name is Andrew [Name]. I’m a law student from Ireland and I’m very interested in getting involved in the investment/trading environment. I’ve been an avid follower of everything financial since a young age, but I’ve only come about actually using my own finances in the past while. My problem is I am unsure about what direction to proceed in. As a student I only have limited funds with which to work with. I would appreciate any advice or opinions about how to progress in such a direction.

Also I am interested in a career in finance, particularly in the investment side of things. I would greatly appreciate any input or advice you can offer at this time. I do realise you do preach the trend following system as a main line but I do realise you do keep up to the date with the comings and goings of the financial world. My biggest concern id trying to figure what state the financial world will be come in say four to five years, and I do appreciate ant follow up to my concerns.

Thank you for your time and I hope to hear from you soon.

Thank you again for your time,
Andrew [Name]

Andrew, first steps? And it won’t cost you much at all, have you read my 4 books and seen my film? Also read the book Linchpin by Seth Godin. Our future conversations become much better if I know your foundation.

The Battle for the Message

Feedback in from a reader:

Hi Michael,

I just wanted to congratulate you on your approach to interactions with readers and contributors to No matter what the writer’s opinion, you give them a hearing, even if you disagree with them. Of course, you then demolish them with logic and give them every opportunity to respond, and the exchanges are entertaining and enlightening.

That’s the attitude that makes the Internet great and allows all opinions to be heard. Plus it makes for more interesting reading than the bland wallpaper paste of most sites.

I bring this up because I was visiting a site run by a fund manager (read, fund salesperson) who relies on fundamental and traditional technical analysis. The site is all hoity-toity with quotations from leading economic thinkers and, of course, this money manager’s unassailable opinion on what is causing the bear market, and every up-tick and down-tick along the way. All of the comments to the opinions and articles on the site — and there are only about two comments per week — are glowing endorsements of this fund manager and how intelligent she sounded when interviewed on this show and that show. Based on the flattery and endorsements in the comments, you’d think this was a site dedicated to Mother Teresa.

As you can guess, I disagreed with almost everything she said, so I registered on the site and sent in my comment in support of trend following and slamming fundamentalism. My comments didn’t appear right away. Instead I saw the good old “Your comments are being assessed by the moderator” message.

To make a long story short, my comments never made it to the site and all my subsequent attempts to comment have been blocked with a message that says I am “spam.” Interestingly, the “spam prevention service” says “over 900 spam messages” have been prevented. Hmmm, that’s a lot of negative feedback she’s kept from her site.

I hope those readers, bloggers, and Internet users who visit these money manager sites are able to tell when they’re getting smoke blown up their keesters. This lady’s entire site is a giant edited advertisement for her services, not a forum for discussion. She sells her services to a lot of wealthy individuals (her site says over 200 clients with a minimum net worth of $1 million), but I doubt they realize that a more down-home, good-old-boy, banjo player like Ed Seykota could have given them ten times the returns with half the risk — and no fluff. If the spam prevention service was REALLY working, it’d take down her entire site.

Keep up the good work, Michael. We need someone to educate people on methods that will actually help them keep and grow their capital while taking on all dissenting opinions with logic and evidence…not by shutting them out lest they point out weaknesses in an argument. Intelligent people are swayed by evidence, not by fluff.