Rules Based Investing

Update: June 19th 2017.  New video at bottom of page overviewing Daily, Weekly and Monthly Crosses; also presented in the Wealth Headlines Blog.

Hi, it’s Gerry again, and thank you for clicking on the introduction to Rules Based Investing of the Trusted Wealth Professionals website.

So, what is Rules Based Investing?   In a nutshell, it’s Trend Analysis. Trend following.  Momentum.  Math and Analytics.  And More.

The term ‘Rules’ is often explained in terms of Sector selection or stock picking.  For example, ‘sector’ questions include “is it in an emerging market, Asia or Healthcare or a ‘safety’ sector such as Utilities or Consumer Staples?”  In terms of ‘stock picking’; “does the company have a low P/E, ratio, does it make a profit, are earnings increasing, dividends consistent and/or increasing, is the SEC investigating the company, any class action lawsuits, etc …?”  That’s essentially Rules for Fundamental analysis.

But true Rules-Based-Investing, and the key word is ‘investing’, is really about entering/Buying and exiting/Selling a security based on the Trend, the Momentum of the security.

So you can catch the most amount of the Upside of a stock/security, and miss the most amount of the Downside (limit your losses).  The average Bear market is a Peak-to-Valley decline of 38%.  The recent 2007-09 Bear market was a decline of 54%.  Of note, Bear markets start when the indices are down 20% from their previous Peak.

And this helps address investor emotion, just follow the rules.  Buy&Rule ® is how we term this investment style.

The most visual way to represent Rules Based Investing is through the Crosses.  There are two Crosses that are commonly known to the investing community; the Death Cross and the Golden Cross.

Let me explain with an example.  The last 20 years of the S&P 500 are shown in a graph on this web page.  In 2003 the lines crossed up, the Golden Cross — green over red, and you would invest; you were in the Golden Zone.

In early 2008 the lines crossed down, the Death Cross, red over green, and you would exit the market; you were in the Death Zone.

And you would remain not invested, or out of the market, until mid-2009; until the next Golden Cross.

This approach, Buy&Rule ®, in many various forms, is inexistence today by Trusted Wealth Professionals.  The ‘lines’ can be unique and customized.  Lines for individual securities/stocks can be different that those ‘lines’ for indices. And the timeframe of the lines can be daily, weekly, monthly and quarterly.

But it is key to remember, that you can utilize true Rules Based Investing, Trend Analysis, Momentum following to complement your Fundamental analysis.

Please take a few minutes to review the Commentary to Session 4 of the CIC course, the Buy&Rule approach is shown since 1929 to present.  Session 13 of the CIC covers Portfolio Construction and Session 15 brings it all together in a separate section for Rules Based Investing.

But the intention is quite apparent.  Participate in the most amount of the Upside as possible.  And step aside during the Downturns.  Minimizing your losses during the Downturns is critical. Fully participating in a 54% decline is not admirable.  You wouldn’t want your current pay cheque to decline 54%, would you?  So why accept a 54% decline in your future retirement pay cheque(s).

Follow the Trends upward.  And miss the down Trends.  Use Rules to help accomplish this.  Practice Buy&Rule ®.

You are also welcome to subscribe to the Golden Swan newsletter where I will feature Gerry’s Crosses monthly.  And you are welcome to take the CIC course at your leisure, but if you would like to speak to a Trusted Wealth Professional in your area.  Just enter your POSTAL CODE in the LOCATOR and the contact details will be sent to you.  They can share with you other Rules they use to provide Capital Growth+Income and Capital Preservation for their clients;  the example we show with the Crosses (illustrated by green+red moving average lines) is very visual and easily conveyed.  But there are many other Rules that can be utilized while investing.

Once again, thank you for your time today, and please remember to Rule Your Wealth.

Note1: Trusted Wealth Professionals is not a stock recommendation website per se and features no advertising (and no pop-ups either).  Trusted Wealth Professionals does not bind any investor with any investment decision(s).

Note2: There is an example video that follows below that shows the use Rules Based Investing and the Crosses through the 2007-09 period.  You can download the accompanying chart from the Resources tab to help you follow along.  Please not, this is just a ‘high-level’ and visual example of rules Based Investing.


Daily, Weekly and Monthly Moving Averages, and the associated Crosses, are overviewed in this video.