Know Exactly What a Stock Market Formula Does, And Profit!

'Know Exactly What a Stock Market Formula Does, And Profit!'
by Sir Jon Weaver

What exactly does a stock market formula do? Stock traders
have been using and developing formulas since the birth of
the stock market. A summary of a formula's usefulness
includes two main functions that it fulfills.

First, over a full stock market cycle, it will improve your
investment profits without the application of any thought
whatever on your part. As is well known, there are many
investors who do not believe that the market will ever go
through a full cycle again -- that the direction of the
market is in a permanently upward movement, except for
temporary, minor dips. It might be worthwhile to point out,
without seeming to be too pessimistic, that there are some
good arguments against an indefinite continuation of bull
markets.

The second purpose of a formula -- apart from the question
of profiting from complete market cycles -- is to provide a
means of profiting from more minor fluctuations. It is
undeniable that the market will continue to fluctuate, and a
formula allows the investor to benefit from these
fluctuations by specifying conservative investment policies
when the market is relatively high, and more aggressive
policies when it is relatively low.

Since formulas ordinarily appear rather complicated, can the
small investor profitably use them? The answer is definitely
yes.

Some formulas are complicated, it is true, and you will
undoubtedly find some that are so complex as to be
unsuitable for most investors. But most formulas do not fall
into this category. The most widely used formulas today, in
fact, are based on extremely simple principles and can be
used by anyone with a rough knowledge of grade-school
arithmetic. Special measures to adapt formulas to the needs
of small investors will need to be investigated, but it is
worth noting that small investors are just as likely to want
to improve their profit performance in the market as are
larger investors, and there is no particular disadvantage in
having a small portfolio when you use a formula.

All investors -- large, small and medium-size -- are in the
same basic quandary. They would like to be sure of what is
going to happen to their capital, and so are inclined to
appreciate the features of fixed-income investments such as
savings accounts, bonds and commercial paper.

In such investments, their capital is guaranteed, and
(except in the case of savings accounts) so is their
interest. On the other hand, there are few opportunities for
appreciable profits in these areas, and no protection
against a decline in the value of the dollar. Consequently,
they are attracted by the characteristics of common stocks,
where neither their capital nor their return is guaranteed,
but which offer substantial opportunities for profits
through capital gain.

How to resolve the dilemma? It is obvious that the great
difficulty with the stock market is its uncertainty. One
workable suggestion of reducing the damage this uncertainty
can do has been often made: don't buy common stocks at all.
Most investors tend to regard this idea as, although
practical, rather extreme, and are reluctant to abandon the
possibilities of profit that exist in common stocks.

The formula idea is simply a form of protection against
uncertainty. Formulas are designed to allow the investor to
profit from the advantages of owning common stocks, while
providing a measure of protection against their handicaps;
to give some of the stability offered by fixed income
investments, while not condemning the investor to a low
return on their money. The whole point of formulas is to
make the best of both these worlds.

by Sir Jon Weaver

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