The Quantitative Mechanical, Dynamic Approach Advantages

Sunday, 08 June 2008 00:24

The Quantitative Mechanical, Dynamic Approach Advantages

The advantages of the Quantitative Mechanical, Dynamic Approach over the Buy and Hold Approach are many. If everyone knew when the ups and downs of the market were coming, investing would be a cake walk. Unfortunately, this isn’t the case. Because of the fact that very few have the ability to foretell, this lack of knowledge will cause a war within you between the ever present fear, and greed. This battle is the reason why so many hold on to a losing investment for so long. Since you cannot predict what the unpredictable market is going to do next, you are fearful that if you sell today, it will start going up tomorrow, and you won’t be along for the ride upwards. If you don’t sell today you might end up holding onto something that is an elevator down…with you inside it. This fear and greed war occurs daily. There are just enough good days to keep you afloat when those bad days come- and they will. When you lose the ability to sleep at night, and your dreams of retiring seem to be sprinting away from you, you finally sell…just in time for the elevator going up to leave without you in it!

A Quantitative Mechanical Investment system offers you access to knowledge you didn’t have before.

Let me sum up some of the key points for you:

There are 200+ algorithms monitoring the market dynamics daily. This helps to keep a close eye on the health of the ever changing market, allowing us to quickly move to a conservative portfolio is the health of the market begins to decline.
It is purely Mechanical. Even though the data from the market is changing daily, the algorithms crunching all that data never change. This creates a very healthy system that will continue to work effectively despite what the market throws at you. It also allows us to make quick decisions with out the hindering presence of emotions.
It has been back tested to 1988. These systems were created that included various types of markets (the good, the bad, and the ugly). Because of this, there aren’t any nasty little surprises that the system hasn’t seen and dealt with before.
It is based on Supply and Demand. Supply and Demand works on more than the grocery store level; it is also an important tool in the securities markets. A good football coach knows when to play the defensive line, and when to play the offensive line. Knowing the relationship between Supply and Demand allows us to always know where we are in the “game”.
It is Trend Based. When the market is in a positive trend, we try to make you money. When the market turns towards a negative trend, we put aside the money we just made during the positive trend. Our goal in this is to make the “trend our friend”.
It is Market Based. Because of the fact that the market and sectors determine 80% of what will happen during any given investment, we spend a considerable amount of time and resources determining its health.

Let’s take a look at this scenario:

Paul is a 40 year old who earns $50,000 a year. Paul has already saved that much in his 401k. Paul says he would retire today if he had enough invested to continue to pay him his yearly $50,000 on top of a yearly increase due to inflation. Paul doesn’t want to depend on Social Security for his retirement, so it will not be included in this calculation. Paul doesn’t feel the need to leave a lot of money for his children, so we will calculate based on the fact that he spent his last dime seconds before he died, which he hopes is around his 90^th birthday. Between the company match program and his own contribution, 10% of his salary is being added to his 401k each year.

So the question here is, “When can Paul retire?”

When answering the question, you will see that the largest variable that you need to consider is how much is going to be earned on the investment? Let’s take a look at the dramatic relationship between the return and retirement age:

Annual Return	Retirement Age
5%	83
8%	75
12%	62
*15%*	55

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