Book publisher McGraw-Hill was kind enough to send me their spring catalog for me to choose which books I would be willing to read and review. Out of the many titles in the “finance” section, the book “The Seven Rules of Wall Street, Crash Tested Investment Strategies that Beat the Market” caught my eye. I mean, who doesn’t want to beat the market?
About the Author:
According to the book:
Sam Stovall, chief investment strategist of Standard & Poor’s Equity Research, serves as chairman of the S&P Investment Policy Committee, where he focuses on market history and valuations. He is the author of The Standard & Poor’s Guide to Sector Investing and “Stovall’s Sector Watch,” a column featured on www.spoutlook.com.
About the Book
As indicated by the title, this book is about the seven rules of wall street and how they can be used to beat the market. What rules might that be? They include:
- Let Your Winners Ride, but Cut Your Losers Short
- As Goes January, So Goes the Year
- Sell in May and Then Go Away
- There’s No Free Lunch on Wall Street
- There’s Always a Bull Market Someplace
- Don’t Get Mad – Get Even!
- Don’t Fight the Fed
As indicated by the short author biography above, Mr. Stovall is a specialist in sector investing within the S&P500. What are sectors? Out of the 500 companies listed on the S&P500, they are sorted in “sectors” such as information technology, consumer staples, utilites etc. In this book, Mr. Stovall goes through each of the “rules”, explains their significance, and creates mock portfolios including back tested returns (since 1990).
The strategies above all involve actively monitoring and trading your equity positions with the longest hold time of one year. Rule #5 involves fairly high turnover with potentially trading out of your positions every month.
What I Liked/Disliked About the Book
What I appreciated most about the book was that Sam Stovall went through each rule, explained the benefits/downfalls along with back tested returns (CAGR and risk adjusted) since the inception of “sectors” on the S&P500 (1990). In addition, he creates mock sector ETF portfolios to drive the point home.
The largest problem I see with his conclusions is that his sector data only goes back to 1990 which, when the book was written, is only around 18 years of back testing. This is a relatively small market sample in the grand scheme of investing.
Sam Stovall has some very convincing arguments in his book and shows some statistically impressive market beating strategies. His favorite strategy however, involves quite a bit of turnover which can generate unnecessary taxation in a taxable investment account. The obvious choice would be to use a tax sheltered account, but as his strategies involve US based sector ETFs, the exchange fees would impact returns (for Canadians).
Perhaps the best bet, if someone were to follow the strategies indicated in this book, is to open a Questrade RRSP account which allows the investor to hold US Dollars (which no other Canadian online stock broker allows).
Want a Free Copy?
McGraw-Hill was generous in offering Million Dollar Journey readers the chance to win 2 copies of the book. The details are below:
- Simply leave a comment and you’ll automatically be entered in the draw for a free copy.
- Follow me on Twitter for an entry.
- Please only 1 comment entry / person (please enter a valid email address).
- Only those with a North American mailing address may enter (publisher rules, sorry).
- Contest will end Friday 5pm EST June 19, 2009 and the winner announced shortly after!