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The Simplest Possible Way to Understand InvestingBy
Tuesday, November 8, 2016
Stop making it so complicated!
A friend said to me yesterday, "I was thinking about selling stocks now – ahead of the election – and then buying them back afterward."
Hey, that's fine, whatever makes him happy. But that's not an investing strategy... that's a speculation. It's not based on an understanding of the markets.
Today, I want to show you the simplest possible way to understand investing. And I promise, just about everything you need to know about the stock market is contained in what I'll share with you today.
Let me explain...
Remember playing the game "four square" as a kid?
It was the perfect elementary-school game... You didn't need much: a ball and, well, something to draw four squares to be your playing court. It looked something like this:
Today, I'll show you my schoolyard "four square" investment model. You just need to know the answer to two things:
We can build our own four square court based on these two things. Take a look...  The top-right square is good... That's when stocks are cheap and in an uptrend. The bottom-left square is bad... That is when stocks are expensive and in a downtrend.
Let's take a look at the actual historical record on our four squares, going back to 1900...
 What do you see? It's interesting... You make money in three out of the four states of the market.
When do you lose money? When stocks are in the bottom-left square... When they are both expensive AND in a downtrend.
Where are we now? Today, stocks are in the bottom-right square, based on this model... They are expensive, but they're still in an uptrend.
These numbers cover the time frame from 1900 to 2013 – so it's a long study. (The work was done by my friend Meb Faber and economist John Hussman. You can see the specifics here.)
Even after eight straight down days, we are actually still in an uptrend in the stock market. That's because this study only looks at long-term trends. The eight-day fall wasn't enough to break the long-term uptrend in stocks.
We are still in the bottom-right corner of the four squares. Based on history, stocks still do extremely well in this corner. Why? Uptrends are POWERFUL. We are still in one.
If the uptrend turns into a downtrend, then it's time to seriously worry. That's the only time that stocks tend to lose money.
We are not there yet.
Good investing,
Steve
Further Reading:
U.S. stocks recently fell for eight straight days – something that has only happened five times in the last 35 years. But Steve says not to be scared. Learn why history shows the potential gains over the next year could be incredible here: Eight Straight Down Days... Here's What Happens Next.
Market NotesTHE LATEST WINNER IN HOUSING Today, we're taking a look at one of the largest global real estate companies...
RE/MAX (RMAX) is a $1.4 billion company that specializes in real estate brokerage services. The company has more than 110,000 agents in 100-plus countries and territories. It has held the No. 1 market-share position in the U.S. and Canada since 1999 for total residential transactions.
Last week, the company beat analyst expectations for third-quarter sales and profits. Shares rallied almost 5% on the news. This is no surprise for regular DailyWealth readers... Steve has been saying for months that record-low interest rates could continue the housing boom.
As you can see from the chart below, RE/MAX shares are benefiting from this trend. With interest rates near record lows, the uptrend in RMAX shares should continue...
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