This Trading Strategy Makes Perfect Sense… yet Few Use It

Andy Snyder|March 1, 2023

This is a different way to think about how we make money.

It’s as intuitive as it is eye-opening. It makes perfect sense… yet few folks do things this way.

In his deservedly bestselling book The Perfectionists, Simon Winchester lays out the case for precision. Without it, he argues, the world would be a much different place.

Precision gave us accurate timekeeping that allowed us to safely cross oceans. It gave us steam power… then cars… then spaceships. It gave us the semiconductor, artery-opening stents and even the foods we eat.

The ability to be not just accurate but also clean and crisp on the most minute of details is what makes modern life… modern.

But what is precision’s role in the investing world?

Imagine a clock with rickety wooden cogs. The teeth on the gears are out of shape and oddly placed. One is here… one is there. The clock runs fast for the first few minutes of the hour and slow through the rest.

Within hours of winding the contraption, it’d be so unreliable that it’d be useless.

For most folks – we’d argue the vast majority – investing is like telling time with that imprecise clock. These are some of the most important choices they’ll make in their lives, and they have no reliable system to guide them.

For most, investments are made on feelings, hunches and prejudices.

“I like that Elon fella,” we say. “I’ll buy his stock.”

“This market is way too expensive,” we convince ourselves. “I’m out.”

Imagine buying a car that gets you where you want to go just 50% of the time because the engineers who designed it lost their micrometer. You’d never do it. It’d be a huge waste of money.

Why, then, do we insist on investing with such imprecision?

It’s true that which direction the markets will head is wholly unpredictable. We don’t know what will happen to stocks tomorrow… and neither does the next guy.

But there are some things we do know. They’re as precise and reliable as a multi-jeweled watch…

Over the long term, stocks go up.

Compound interest is an incredible force.

Buying with a value cushion creates a unfair fair competitive edge.

Trading volume – especially insider buying – is a powerful telltale.

Owning companies right before they go public has traditionally been a way to create immense wealth.

And, as we penned yesterday, owning buyback companies is an easy way to load your portfolio with market-crushing stocks.

On its own, none of these ideas could produce a game plan that’s all that precise. But put them together… and oh boy. Imagine a trading strategy that used all of them. It wouldn’t give us a fresh trade every morning – perhaps not even one every week.

But the success rate of the trades it spit out would be tremendous.

Following a simple set of precise trading rules is the one thing all great investors have in common. Their gift isn’t clairvoyance, deep pockets or experience.

It’s precision.

Don’t guess. That’ll never get you to the moon.

Be precise to the umpteenth degree… and watch as a new world opens up to you.