Gaming the stock market: PVP your own investments

Picture from Finance.google.com 8/5/2011

Here's a tip.  Find two investments; one that gos up at the same time the other goes down.  Make sure to buy the low one, and sell the high one.  You have just pitted two investments against each other in a PVP grudge match.  When one drops, buy more of the lower.  When one rises sell more of that one.  Wait for the cycle to repeat.  Sounds as simple as waiting for Gold Farmers to post their daily auction house items, right?

Now the practical side of that statement, it is very hard to do that.  Professional investors seek out that kind of thing, and occasionally find them.  Personally I have never found a relationship like that...  You would find it by looking at an industry or two that when one does better, the other does worse.  So what's a gamer to do?  Well the next best strategy is to find an investment that goes up and goes down, and find one that doesn't fall very much or at all.

Lets try that on Easy Mode.  The Stock market goes up and down all the time.  Daily volatility is impossible to get any kind of decent return from, but over the long term you can expect 8.28% per year.  Here is a neat little calculator that shows this.  That includes recessions.  But what about those recessions?  What if you are trying to maintain value during those down times?  The best place you can keep your cash right before a market down turn is a Money Market Fund.  Here is a link to a chart of the Vanguard Money Market Mutual Fund performance over time.  I'll save you the click.  It's worth $1.00 a share.  The chart is really boring, it's a straight flat line.  When the market is crashing, a straight line is a beautiful thing.

So to implement this strategy start buying shares in an Exchange Traded Fund, like we talked about.  Right now, because the market is very low.  Make sure that Etrade, Fidelity, or whatever brokerage you use allows you to exchange ETF shares into a MM fund.  Set up an automatic purchase plan and keep buying more (this is just good advice from The Intelligent Investor).  The market is going to steadily climb out of this recession.  If it looks like things are going to crash again, switch the money out before the fall to a Money Market Fund.  A few weeks later, switch back.

There is a lot to be said to buying more when the stock market crashes.  But we're going to save that for another post.  Additionally more elaborate plans can be made based on that simple beginning.  Remember I don't advise playing a particular stock.  Timing the market as a whole is slightly easier than VVVVVV.  Timing one stock is damn near impossible.  Also this takes guts.  Everyone in the rest of the market will be shouting "SELL, SELL, SELL"!  But gamers have guts and smarts.  We know that grouping behavior is bad in FPS levels...  And guess what, it's bad on the stock market too.