There are two trading-related things that make me angry:
- When I get excited about a system and then it turns out to be so complicated that I can't do it myself.
- When I get excited about a system, and then it turns out to be a useless piece of garbage once I test it.
Because of that, I am going on a mini-rampage, trying to find a simple system that everyone can use that actually might put money in our pockets.
The system we're talking about today is for stocks. As you probably know, I only trade Forex (for now), but my favorite instrument to trade is stocks. I've always liked that you can buy Barnes & Noble stock and then go into one of their stores and "help the stock price" by buying a few books. I realize that's ridiculous, but it's still fun.
Forex, to me, is just some mindless, faceless chart that goes up and down. Stocks are companies and people and stories. Again, more fun.
Plus, there are a lot more retail people trading stocks and a lot more retail people who would be open to a stock system, as opposed to an ambiguous Forex methodology.
So here's the system.
First, the hard part: finding stocks to buy. How do you find something to trade when there's so much to choose from?
Here's what we can do. Once a year, we can go to Barnes & Noble (especially if we own their stock!), and buy one of the "100 Best Stocks To Buy" books. Have you seen these? Every year they come out with a new one. Allegedly, their picks do okay, but I've never studied their results in detail. We don't care about their picks, though, we just want some ideas.
Now we have 100 great ideas on stocks to buy, so let's whittle those down. Let's say we use a filter that's boring and concrete, and let's say we're only going to pick 10 because that's a nice, round number. How do we pick our 10?
We'll keep it super simple. Let's only buy stocks that we can actually see in our own homes. If we can't see it or haven't bought it, we can't trade it. The logic being: a stock isn't going to zero if we all have to buy the company's products indefinitely. Some famous Oracle From Omaha tends to pick stocks this way, too.
So we've decided on 10 stocks that we can see in our homes and we have a hypothetical $10,000 trading account. To keep our simple motif, we'll buy $1,000 worth of all ten stocks. We're ready to trade.
Here's the system:
- Buy the 100 Best Stock book before the end of the year. The 100 Best Stocks to Buy in 2018 will come out before December, for example.
- Choose ten stocks from that list that we can see in our house.
- Buy $1,000 worth of each stock on January 1st of the next year.
- Hold each pick for five years.
- Make money.
The advantages of this system are clear. One, we do almost no work--and then we get the next five years off.
Two, no trading or chart-watching.
Three, no short-term tax problems and no day-trading requirements.
Four, research shows stocks go up in the long-term.
As it turns out, I like to keep track of things, so I actually still have the 100 Best Stocks To Buy book from 2012. That's about five years ago, so we can look at some results.
Here are the stocks we might have picked back in late 2011:
- AAPL (I can see my iPod in my house)
- BBBY (I can look at all the stuff I bought there)
- BBY (I bought the TV I'm looking at there)
- CL (my toothpaste)
- CLX (my cleaning products)
- CPB (their soup is in my cupboard)
- K (their cereal is, too)
- KO (in my refrigerator)
- MKC (my spices in the cabinet)
- PEP (also in my refrigerator and cabinets)
All are visible in my house in one way or another. If I bought on January 1st, 2012 and held until now, what would have happened?
Here's the breakdown:
Stocks To Buy 2012
$6,623.99: Total Profits
$1,324.80: Profit Per Year
5 Years: 13%% Per Year
Theme: Household-Only buy things you can physically see in your own house
Resource: 100 Best Stock To Buy books
Hold: 5 years
As you can see, there was only one that lost money (BBBY).
Overall, the portfolio made about $6,600 on our original $10k account (about $1,300 per year), which gave us an average return of about 13% per year.
If we had a big nest egg of $500,000 like we talked about in a recent post, then our 100 Best Stocks To Buy trading account could have paid us $54,000 a year, or $4,500 per month. If our expenses are less than that, we're independently wealthy, and we would have done about fifteen minutes of work in the past five years.
It begs the question: what if we picked different stocks? The answer is that other stocks probably would do the same or better. Most of the stocks I looked at on the list of one hundred made some profit. As long as we are diversified with ten, we should be just fine.
It also feels like cheating, doesn't it? How can we call ourselves "traders" if we're not doing any trading? Believe it or not, that's a really tough question. It's hard to believe in something so simple, as strange as that sounds.
And, of course, there are trading systems that make more money.
But today we wanted something simple that produces results.
I don't think we can get much more simple than that.
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