2007 Stock Market Wrap-Up

According to yesterday's Chicago Tribune business section, here is how the stock indices finished in 2007:

Dow + 6.4%

NASDAQ +9.8%

S&P500 +3.5%

At the start of 2007, the pundits predicted that the market would struggle for the first three quarters of the year, and then have a strong rally at the end.

Almost the opposite of this occurred. The market climbed, and peaked in July. Then, the market declined - only to rally again in October. Then, the market declined in both November and December.

So, what should we look for in 2008? I don't know, and I don't care. The market could be flat, decline, or even rally.

Things look bleak now, but the last time the market lost ground in both November and December was in 1974. The mood was pessimistic, but stocks rallied strongly in 1975 for double digit gains.

As I have stated before, I don't believe in predictions. My system assumes that the market is a random walk, and the only thing you can count on is that stocks fluctuate over time.

As the late Edward Toppel, the author of "Zen in the Markets", put it: "Assume nothing, and be prepared for everything".

My approach was validated again this year. As I mentioned this morning, my portfolio was up 22% in 2007.

My intention isn't to brag - but to draw attention to systems such as mine, which use various rebalancing formulas to automatically buy low and sell high.

Simple rebalancing formulas are easy to implement and deadly effective. However, they are very difficult to use because they are against human nature.

I recently looked at an issue of "Technical Analysis of Stocks and Commodities". I hadn't read one in a long time. I couldn't believe how complex the trading systems have become!

I developed my system years ago, after I decided to go in the opposite direction - and ruthlessly simplify my model and approach to the markets. I have no intention to ever replace it.

Yet, even I still sometimes get the urge to tinker with technical indicators.

I'm sure that if I rewrote my book to promote complex systems using "Tradestation gymnastics" and junk like stochastics, RSI, etc. I'd sell lots of copies ;-)