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:

  1. Let Your Winners Ride, but Cut Your Losers Short
  2. As Goes January, So Goes the Year
  3. Sell in May and Then Go Away
  4. There’s No Free Lunch on Wall Street
  5. There’s Always a Bull Market Someplace
  6. Don’t Get Mad – Get Even!
  7. 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.

Final Thoughts

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:

  1. Simply leave a comment and you’ll automatically be entered in the draw for a free copy.
  2. 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!

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The problem by taking 1990 data is that the last 10 years has been completely out of any “market rules” we know. Economic cycles are smaller, volatility is higher and they didn’t have much Hedge Fund back n 1990 (thank god we got rid of some of them lately ;-) ).

Not sure that Sell in May and go away is a good rule:
http://www.thefinancialblogger.com/sell-in-may-and-go-away%E2%80%A6-should-you/

Best rule to beat the street? Get free stuff!!

Keep up the great work!

I’d love to win this book! Thanks MDJ for your effort on your site. I really enjoy reading it each day.

I wonder if his arguments are relevant in other places such as DJIA, NASDAQ, or in other countries.
If there is no free lunch on Wall Street, then let me get a free book because I’m hungry.

I agree with The Financial Blogger…with all of the wild volatility since electronic trading has begun it is hard to make rules based upon that. Either way, it sounds like an interesting read!

“# Sell in May and Then Go Away”

Always thought this was a silly rule.

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please include my entry for the seven rules of wall street. thank you. i enjoy this site immensely.

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I have previously added this book to my list of books to read.

I’m in too.
Thanks

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Keep up the great blogs and book reviews. I appreciate hearing your opinions, and the opinions of your followers, on the many aspects of finance.

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Free stuff is always good

Sending in a comment so I can get entered in the draw but I was also wondering if anybody new about the witholding tax for american dividends if they are held in the TFSA. Do we still have to fill out that form? and would the dividends be tax free?

Sounds like an interesting read! Count me in!

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Here my comment and my ticket to a potential win.

Rob…. interesting question as I haven’t thought of this issue so far. Let’s see what Frugal Investor says.

Sounds like an interesting read. I am a sector investor but usually with a longer time frame than a year. I try to spot macro trends occuring in the overall economy and go long (5-10+ years) on those.

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Please enter me for the draw as well! Thanks much~

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A friend told me about this book, it is on my reading list. Please count me in.

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In to win.

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I’m always in to win!

Time to learn more techniques to manage my personal financial. I hope I can win. lol

I have been doing my own sector research. Would be better to read this book

I have been looking at beating the market in dif ways. Would be better to read this book

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Always enjoy your MDJ insights. Got you fed right into Google Reader and enjoy keeping up to date. Wouldn’t mind giving the book a read – for free :)

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I would love to win a copy of this book.