"This Book is Helping Me Learn How to Beat the Market...

Its been six months since I first read DIY Portfolio Management and it has had a positive impact on my investing. I'm a neophyte at managing my portfolio so I started by implementing the specific recommendations requiring the least work and lowest risk. The steps I took were simple, but the results boosted my confidence in my ability to manage my portfolio. It took awhile before I found time to build models. I'm building models because I want to find that better strategy. Some of my models are looking good in testing. I have evolved beyond the random walk, efficient market hypothesis. It's oversimplify price movement assumptions hide opportunities for profit.

The book has three parts: Background, Trend Regression Portfolio Strategy, and Portfolio Management Issues. The first two parts discuss the logic and testing of the strategy. The third part covers risk return tradeoffs, cycles and other issues related to portfolios.

Part one reviews the research credited with convincing Wilkinson that investors could beat the market. His research found both scholars and traders who dispute the random walk theory of stock price movement. Winning investing systems split into two camps, trend following and reversal systems. Analysis then led him to start working on a reversal system. There is enough detail in the statistics discussion that you can follow along, but I still found myself wishing I had paid more attention in Statistics 101.

The middle part gives a good idea of work quality and quantity needed to develop and test a system for managing a portfolio. This section covers the basics, PC organization, back-testing, paper-trading, and measuring performance. It covers three sources of profit, stock picking, entries & exits, and market timing. It discusses technical indicators including MACD, RSI, Williams %R, KST, and AROON. It mentions details like slippage, commissions, brokers, and tuning. There is a lot of detail in this section. I was in a hurry to know the secret of how to make money and skimmed this part. Now that I am building my own models, I find myself coming back to this section often.

The last part goes to the big picture. It covers risk versus return, and concludes that long-term investors staying 100% in stocks end up richer than those with some in bonds. I felt I understood risk reward charts. However, the graph on page 259, cast new light on the subject. Study this graph and you will see why putting money in bonds likely reduces your future wealth. (The use of color makes the 75 charts in the book easy to read.) The book's reverse mortgage idea and annual retirement distribution tables have me looking forward to my senior years. I have tried some of the website stock screeners and shortcuts the book recommends. Now I'm working on my portfolio Action Plan.