Wall Street Idiots Manifesto: The Wake Up Call

Warning: The post below is a bit out of character for me as I usually do my best to post neutral observations on the markets based on technical analysis. Now that I'm beginning to see our economy unravel at the hands of Wall Street's incompetence I felt compiled to state my case that losing the inept Wall Street brokers is a blessing in disguise, and hopefully this is a WAKEUP CALL for Americans to finally make the decision to manage their own money. It may mean picking up a book and studying rather then drinking a beer and playing video games, but how did it feel to watch your 401k just plummet to 2003 levels in 3 months?

With a simple moving average trading system, a computer, the internet and two dollar commissions there is simply no more need for brokers.

Brokers are a dinosaur.

You only need to check your position once a month. It would take about 2 minutes a month, 5 minutes a month if you needed to put on a trade. That's 33 minutes a year if you place and average of 3 trades a year.

Ask yourself this, "Did the money I had in the markets grow over the past 10 years?"

If the answer is no and you have a broker that is suppose to be a professional at making money in the markets you need to fire him/her today.

If the answer is yes you'll want to do a comparison to the chart we're going to look at below and then see if a simple system works better then your broker. If yes, why do you need a broker?

If the answer is no and you manage your own market positions you will also want to study the chart below carefully.

The CLEAR winner over the past 15 years is the disciplined trend trader who took signals on the monthly charts using entry and exit signals based on the 20 period moving average. This system does not require an MBA or degree in finance, it only requires 3 grade math skills and the ability to follow simple instructions -- that's it.

The unfortunate loser over the past 15 years has been "Wall Street" who proved their incompetence by their self inflected extinction, AND the American public who for years have listened to their rhetoric about "buy and hold" for the long run and their bull s*&t line about cost averaging when the markets are "down trending". I DO believe in cost averaging as long as the trend itself is UP trending. Unfortunately most Wall Street Brokers don't have clue about timing as self evident in their demise. There is always a time to be long the market and a time to be short.

It's likely your broker has no clue which is which. If they did you'd be making tons of money in this current bear market.

Seasoned investors like Warren Buffet have done very well with buy and hold strategies but those have been with carefully researched companies. Unfortunately for Joe Six-Pack his retirement 401k money is in Mutual Funds which for the most part are going to rise and fall with the S&P 500. Buy and Hold did not work over the past 10 years as clearly seen in this chart. If you have the patience to wait another 20 years it "may" turn around for you -- good luck.

Here's the problem.

Most mutual funds rise and fall with the broad market as measured by the S&P 500.

Trading "buy and hold" style makes the "Assumption" that the market will continually rise.
That is the fallacy that undermines everything. This ignores the fact that Bear markets exist and that we are very likely entering one now.

Wall Street collapsed because they made the same "Assumption" about housing values.
Their assumption put 100+ year old companies out of business, tens of thousands of out of work and our economy in a tail spin.

The Basic Rules of Investing:
1) Manage Risk
2) Trade Trends with a Proven System
3) Be Disciplined
4) Be Patient

Wall Street did none of the above because they failed at step one. Without step one you will fail. Part of managing risk is understanding the worst case scenario of your position. I won't even comment about Wall Street on the others because they imploded by the lack of discipline to follow rule number one. And these are the brilliant minds? I was really hoping that the smartest ones in the room were still in prison after Enron, but as I can see greed still has he ability to undermine the weak and soulless.

The Winner:
The winner is the man woman or child that decided that they could do better then any financial advisor, broker or CNBC guru by trading a simple, sensible long term wealth building system based on long term trends in the market. They also realize that they can pick investment products that are able to increase in value in a bull market and products that will increase in value in a bear market.

The winner decided that he/she would be in this system for the long haul and would follow the system with extreme discipline.

The entry long would be 2 consecutive monthly candles closing above the 20 period moving average and the exit from that long position would be 2 consecutive monthly candle closes below the 20 period moving average. Additionally when he/she got an exit signal they would enter a short position on the market to take advantage of the bear market. 2 consecutive closes above the 20 MA again would get them out of the short position and back into a long position. This process would continue for years as illustrated on the chart below of the S&P 500.

Investing is not gambling, if you're a gambler your better off letting your useless broker play with your money as he'll probably lose less then you would.

Growing wealth requires a proven system and the discipline to follow it.

The system below works as is clearly illustrated below.

Don't be fooled any more by the suits and skyscrapers, they have outlived their
usefulness.

Green circles are entries to go long, Red circles exit long and enter short.
The 20 Period Moving Average is the Purple Line.

S&P 500 15 Year / Monthly Chart (Each Price Candle is One Month)