For decades, the vast majority of individual investors have been lucky enough to take advantage of stock market opportunities and improve their financial situation. However, the major financial crises of the 1990s (1992 – European exchange rate mechanism crisis, 1994 – Mexican crisis, 1997 – East Asian crisis, 1998 – Russian crisis, and 1998 – Brazilian crisis) and the global financial crisis of 2007 have forced investors to reassess their investment strategies. Stocks can no longer be counted upon as safe investment vehicles for return on investment and the stock markets, having seen a fair share of volatility, have made investors willing to look for safer investments that can give them higher returns with relatively lower risk.
For investors who have experienced severe market fluctuations ETFs have proven to be a safe solution for portfolio diversification and profitable investments on a long-term horizon. Tom Lydon’s ‘The ETF Trend Following Playbook’ is a valuable tool that navigates the current financial environment and guides investors to the paths of ETFs investing. By providing a comprehensive and excellent review of exchanged traded funds, Lydon manages to explain the complexity of the global financial system and to justify why increasingly individual investors and financial professionals see ETFs as reliable investment vehicles.
In ‘The ETF Trend Following Playbook’ Lydon discusses the mechanisms of 200-day moving average providing helpful advice on short-term trading strategies and how investors can keep trading on the right side of the market. Besides, he explains how the 200-day moving average is calculated and provides investors with historical examples of major market downturns showing them tactics that they could have followed to protect themselves. The book is all about the trend-following discipline and how investors should learn to take advantage of it instead of blindly applying ‘buy’ and ‘hold’ recommendations of major brokerage houses. Lydon suggests that ‘buy’ and hold’ recommendations are given only to maintain the market in an uprising trend and keep the corporate sales decline in a relative balance.
Besides, Lydon raises a strong argument against investing in mutual funds, primarily because of their high fees in relation to their poor performance, but also because they are subject to information asymmetry and capital gains taxes on unsold holdings under the US Law. In this context, investors should (1) recognize the trends that dominate in the market they are investing in, (2) know why they choose to invest in a certain asset, (3) have an exit-strategy and (4) invest based on company fundamentals and not on fear, greed or emotion.
Overall, ‘The ETF Trend Following Playbook’ insists on the importance of managing emotions when investing and learning how to make money by avoiding bubbles. Investors should take an active role in their portfolio and use simple strategies that can protect them from the downside while offering them the potential for long-term uptrend.
The following chapters and topics are addressed in ‘The ETF Trend Following Playbook’:
Introduction – Buy and Hold-Rest in Peace
Chapter 1 – Trends Are an Investor’s Best Friend
Chapter 2 – Risk and Disaster Don’t Have to Go Hand-in-Hand
Chapter 3 – Spotting Trends
Chapter 4 – Why Trend Following Can’t Be Beat
Chapter 5 – The Nuts and Bolts of ETFs
Chapter 6 – Tools You Can Use
Chapter 7 – Navigating U.S. Markets
Chapter 8 – International Opportunities
Chapter 9 – The Best-Looking Sector in the Room
Chapter 10 – The Luster of Gold and Crude
Chapter 11 – The World of Currencies
Chapter 12 – Trends in Fixed Income
Chapter 13 – Getting Leverage in the Markets
Chapter 14 – Conclusion: Let’s Get to Work