• Mike Komara

Grateful For Our Rules-Based Process

Updated: May 29

"I would maintain that thanks are the highest form of thought; and that gratitude is happiness doubled by wonder." — G.K. Chesterton

“What’s there to be grateful for?” Given the steady supply of negativity experienced over the last few years, this is a rational and too-often-asked question. To many, gratitude does not come naturally.

However, just like successful investing, having a process for practicing gratitude makes all the difference. Research shows that having such a process consistently produces benefits, from enhanced immune systems to improved sleep.

In this blog, we take part in the practice of gratitude. We are grateful for the inherent features and benefits that come from our rules-based process. But most of all, we are grateful for our clients for their trust, kindness, and commitment to their financial plan.

What is rule-based investing and how does it work?

The practice of investing according to a specified set of rules is referred to as rule-based investing, and it is a type of investment strategy. Investing can become less emotionally charged and more rational as a result of this, which may also lead to more consistent outcomes.

Creating a set of categories that investments are able to fit into is one of the most common approaches that can be taken with rule-based investing, however there are a number of other ways that rule-based investing can be done.

For instance, an investor may determine that they will only invest their money in businesses that have achieved a particular degree of profitability or that are located in a particular nation.

After adhering to these guidelines, the investor will be able to make judgments on investments with ease and self-assurance.

Even though there is no assurance that this strategy will be successful, many investors may find that utilizing it is a helpful tool.

Why use rule-based investing as a method for stock market investment decisions?

Putting money into the stock market is often a venture that is fraught with uncertainty and danger. Many people opt to invest their money based on their intuition or the advice of others, but history has shown that this strategy frequently results in unprofitable trades.

Rule-based investing is a method that is considered to be more methodical because it is dependent on a set of established criteria to make investment decisions. Using this approach can assist to remove the influence of your emotions on your investment decisions, which in turn can boost your chances of being successful.

Rule-based investing can offer a methodical and disciplined approach to accumulating wealth over time, provided that it is carried out in the correct manner.

In addition to this, investors may find that they are able to get a better night's sleep as a result of the knowledge that their money is not subject to the whims of the market. Because of all of these factors, rule-based investing is becoming an increasingly popular strategy for deciding how to invest money in the stock market.

How to create your own set of rules for stock market investment

Everyone who has ever put money into the stock market is aware that doing so exposes them to a wide variety of potential hazards.

There is always the risk of incurring a financial loss, and even the most seasoned traders are susceptible to making mistakes from time to time.

You can, however, reduce the amount of risk you take on and improve your chances of turning a profit by developing your own system of guidelines to follow when investing in the stock market.

Diversifying one's investment holdings is a best practice that every investor ought to adhere to.

Investing in a diversified portfolio necessitates putting money into a range of businesses, sectors, and asset categories. Spreading your money out over a number of different investments reduces the risk that you will lose everything if just one of those investments fails.

Another essential principle is to establish an orderly withdrawal plan. Before you make any kind of investment, you should think about how you will respond if the price of the stock starts to go down.

Will you sell immediately, or will you hold on to it in the anticipation that it will make a comeback?

When the markets are turbulent, it will be much easier for you to make judgments that are sensible if you have a plan in place before you make any investments.

In conclusion, always make sure to remove your emotions from any investment decisions you make.

These feelings can cloud your judgement and cause you to make poor decisions, although it can be tempting to buy stocks that have been rising in value or to sell after a rapid drop in value. However, these emotions can cause you to make poor decisions.

You will improve your odds if you are rigorous and consistent in following the guidelines you have set for yourself.

Examples of rules that can be used in stock market investing

When it comes to making investments in the stock market, there is a set of guidelines that can be adhered to. One of the most critical guidelines to follow is to ensure that their investment portfolio is diversified.

This implies making investments in a number of different firms, rather than putting all of your eggs in one basket, so that if the value of one stock drops, the value of the other stocks can assist to compensate for the loss.

Another essential principle is to establish an orderly withdrawal plan. This involves being aware of the appropriate time to sell a stock in order to safeguard your investment and keep any losses to a minimum.

In conclusion, keeping abreast of the latest news and events in the stock market is essential if you want to be in a position to make educated decisions regarding your investments.

If you adhere to these guidelines, you will be able to reduce the amount of risk you are exposed to while simultaneously increasing the likelihood of your investment paying off.

The benefits and drawbacks of using rule-based investing as a method for stock market investment

Rule-based investing is a system where investors follow a set of predetermined rules in order to make investment decisions. This system can be helpful in eliminating emotion from the decision-making process, and it can also help to keep investors disciplined.

However, there are also some drawbacks to using rule-based investing. For example, if the rules are not well thought out, they can lead to suboptimal investment decisions.

In addition, rule-based investing can be inflexible, meaning that it may not be able to adapt to changing market conditions. As a result, investors need to carefully consider the pros and cons of using this system before making any decisions.

Buy Rules: Enter a Position Correctly

At the same time, it is necessary to codify the “what to buy”. Many investors wonder how to time stock markets. We don't have any questions. We use charts as a timing mechanism for market and stock markets, and have managed a well above average gain and avoided major downturns.

Purchasing and selling are advantages for the private investors over the institutional investors, in our view. Investors can't be certain of market timing, but it's possible to get consensus about purchasing a product that is highly prone to feelings, especially pride. Rules are more powerful than emotions as it helps you find a good price.

Sell Rules: Lock in Wins, Avoid Losses

The guidelines that investors follow while selling their investments should fall into two categories: those that assist them make a profit, and those that prevent them from suffering excessive losses.

It makes no difference whether the position is showing an impressive profit or losses; the result has an emotional impact and might influence the decision-making process.

There is no difference between this and looking at x-ray photos to verify his medical history. In order to guard against and stop runaway losses, we maintain the highest possible standards of capital preservation.

Portfolio Management Rules: Balance Risk, Keep Your Holdings Manageable

Even if you choose the highest-quality stocks on the market, there is still a good probability that your portfolio may incur a loss.

It is best practice to formulate an efficient stock portfolio strategy in advance of Monday's opening, as opposed to making decisions on the allocation of the portfolio during trading hours.

Developing and adhering to a guideline that helps you strike a healthy balance will clarify your judgments and make it easier to avoid making mistakes in the future.

Stock Selection Rules: Find the Right Ideas for You

The process of selecting the most profitable stocks for an investment is one of the criteria that is used to evaluate whether or not an investment is suitable. The user can then employ a powerful stock sourcing mechanism to find the best idea possible if they so choose.

The usage of an institutional-grade database allows for the screening of stock portfolios, which may be done regardless of the investment method that is being employed.

Your primary consideration in making an investment decision is fundamental data, in particular earnings and sales.

Asset Level Overview

Equities and Real Estate

Up until the Thanksgiving holiday, equity markets in November looked very much like they have throughout most of 2021. Nearly all segments were enjoying positive months, with U.S. large caps leading and international markets positive though underperforming slightly. The emergence of the Omicron variant of COVID-19 quickly changed that. Equity markets across the globe dropped sharply, temporarily pushing monthly returns into the red. In the case of emerging markets, returns are now negative for the year.

Though jarring, the decline in U.S. equity prices is not enough to impact trends, which remain positive. Hence, allocations to U.S. stocks will not decrease and will actually increase due to taking on exposure from emerging markets, which have formed a long-term downtrend. Both emerging and foreign developed markets continue to have intermediate-term downtrends. Overall, international markets exposure is now near minimum allocation levels due to our process favoring their much stronger U.S. counterparts.

Real estate securities also declined on the news of Omicron, but like the rest of the U.S. equity landscape, the asset class remains locked in uptrends. As a result, there is no change to exposure. This segment continues to have the strongest performance of 2021.

Fixed Income and Alternatives

The flight to safety stemming from the Omicron news benefited nominal fixed income instruments, but outside of long-duration bonds, the overall asset class remains weak. An intermediate-term uptrend in long-duration U.S. Treasuries will cause the fixed income allocation to shift slightly in that direction, away from short duration, but the average duration of portfolios remains very low.

Inflation-protected bonds continue to fare much better, as might be expected, and thus allocations remain overweight. Conversely, downtrends dominate for international bonds and gold.

Reasons for Gratitude this Thanksgiving

Gratitude does not always come naturally, but like most things, it becomes more fruitful (and easier) the more repetitions you have. As it relates to our own firm, we hope you will oblige us as we mention a few things that stood out to us this year.

First, we are thankful for having a process for making allocation decisions that is impervious to the prevailing news cycle. Although we are 20 or so months into a global pandemic that has caused unprecedented levels of social and economic lockdown in the United States and upended one of the longest-running bull markets in history, the systematic rules we use continue to work by keeping us invested in the strongest segments of the market. There is tremendous peace and comfort in knowing that we don’t have to predict what is going to happen in the future because we have a process that will automatically respond to dynamic market environments.

Similarly, we are thankful for the inherent tax friendliness of a trend-based process. After the run-up in U.S. equity prices, one might assume that a chunk of those gains within a tactical process would incur significant realized gains. Fortunately, that is not the case for Solas Wealth. In fact, most of our continuous accounts have realized very few gains and, in many cases, have harvested net losses that can be used to offset future gains.

Last, and most important, we are thankful for our partnering clients. Our process means nothing without clients who believe in it enough to incorporate it into their portfolios.

We wish our clients the best during the upcoming holiday season. The last couple of years have had some dark moments, but hopefully, we can all think of many things for which we are thankful and try to live each day a little better as we move ahead.


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