The Worry-Free Investing technique (WFI) has been producing excellent results in the UK, SA and the USA. The technique is simple to implement and totally mechanical in nature. For example, in a 20-year back test in the USA the technique only traded on 177 occasions with 10 positions still open at the end of the test period. That’s roughly one trade every six weeks and should fit into the most active of lifestyles.
The rules are simple and based on the Confirmed Call Market Timing method and the shares chosen to trade sorted by the proprietary VectorVest metric, Relative Safety (RS). RS is a function of:
- Earnings Consistency/predictability
- Sales Volume
- Company Size
- Price Behavior
- Business Longevity
- Dividend history, if any
- Debt/equity ratio
The higher the RS, the higher is the consistency and predictability of the financial performance of the company under examination. In WFI, we wish to invest in those companies where the probability associated with a surprise in financial performance is very low.
The Confirmed Call method of Market Timing is the most conservative in the VectorVest arsenal of timing methods. The rules are totally objective and each day the trend as defined by the Confirmed Call method is displayed on the front page of the program. No chart reading skills or interpretation are necessary.
WFI rules could not be simpler.
- When the market is rising as defined by a positive Confirmed Call then it’s time to be fully invested. Simply sort the entire database by RS or use the “Long term winners RS descending” Unisearch. The latter is found in the retirement section of Unisearch. Choose 10 shares from the top of the RS descending sort, making sure that there are no more than 2 shares in the selection from any single sector of the economy.
- When the market is rising it’s unusual for a high RS share to fall and trade below its VectorVest calculated stop loss. If this should happen then exit the share. If the market is still rising and the Confirmed Up is still in place then rerun the Unisearch and replace with a high RS share than you don’t already hold. When the market is rising it’s vital that you are fully invested.
- Markets are living entities and like all living things breathe in and out. Sooner or later there will be a Confirmed Down signal. VectorVest UK gave the last signal on Friday 17th November and this signal has prompted the writing of this piece. At this point then watch stops carefully. If the market is falling then there is a higher chance of a share trading below its stop loss. If this should happen then exit the share but DO NOT replace. Build a cash position.
- When the next Confirmed Up arrives then rerun the Unisearch and replace those that got stopped out while the Confirmed Down signal was in place.
I have run a backtest on the WFI technique and the results are shown below. The test runs from March 2009 to the 15th of November 2017. In this period 50000 pounds has appreciated to 230000 plus pounds and I haven’t added the dividends into the mix.
Please don’t take my word for it. In your 30-day trial of VectorVest, all of this can be easily replicated using the BackTester with full support from out call centre which is open 12 hours a day.
A full and detailed document on the WFI technique can be downloaded from the VectorVest program. Click on “views” and then on “special reports”.