Stock market formula is in essence, a software or program which, taking its cues from developments outside the individual investor's field of judgment, caprice or personal opinion, dictates a definite investment policy at all times. It does not select stocks, but it does indicate whether a particualar time is favorable for owning stocks, and if so, in what quantities, and how much of your capital should be reserved for later stock purchases at more favorable levels.
The primary objective of a formula is to protect you, the investor in a permanent and continuous profit position. It is gauged to produce profits—over a period of time—whatever happens in the market. When stock prices rise, your portfolio shows a profit. When they fall, you step up your purchases at bargain levels. At intermediate points, you can rely on the indications given by the formula 'to continuously strengthen your profit position.
The special feature of the stock market formula method is that it tells you, exactly what to do at all times without attempting a precise prediction of market prices. Implicit in the formula idea is that it is not possible to pinpoint every turn in the market or to gain maximum profits during every market swing. Formulas make no attempt to do this, but are aimed at putting you, in a position to profit to some extent from any market upswing, and to provide some protection during every decline.
Stock market formulas are also designed to inject an element of caution in your investing when caution seems advisable, they reduce the provision for caution when risks seem relatively low, and permit you to benefit from rising prices for common stocks. Moreover, once you incorporate a formula into your investment program, it works more or less automatically, thus allowing you to sleep nights in the knowledge that you are continuously hedging against various possibilities.
Since Stock Market Formulas ordinarily appear rather complicated, can the small investor like me and you profitably use them?
The answer is definitely yes. Some stock market formulas are complicated, it is true, and you may find some that are so complex as to be unsuitable. But most formulas do not fall into this category. The most widely used formulas today, in fact, are based on extremely simple principles and can be used by anyone with a rough knowledge of grade-school arithmetic. And there is no particular disadvantage in having a small portfolio when you use a formula.
You can select any of the formula which is appropriate to your own temperament, financial circumstances and proclivity to insomnia. As made clear, any of the formulas can be adjusted to suit the needs and preferences of any investor.
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