Using a System for Better Investing Success

Using “systems” to reduce risk and improve investing performance.

Using a system to manage your finances is critical and most often extraordinarily worthwhile – in terms of reduced stress and reduced losses. Being organized just makes you feel better and in control. I contend that your finances and your health rank as the top two areas of your life that are most important to your well-being. I will let the doctors help you with the latter concern. The last blog post I promised to address this topic, so follow along here.

Money management should be treated somewhat much different than most other work-a-day fields of study, as there are various roads to success (and failure). One size does not fit all. The landscape and markets change and force us to change along with them. Using a system should allow you to assess your track record if followed with discipline, to know why it did or did not work, and then to fine-tune it for better success.

So what are some ‘systems’ used? Two for today bear mention, and we'll dwell on technical systems. We’ll stick within the category of stocks since that’s the most popular vehicle for investing now-a-days.

The two broad types or categories of systems are FUNDAMENTAL and TECHNICAL. The difference? Fundamental systems deal with company-specific operational data such as earnings, sales, profit margins, dividends and the like. Filtering stocks that earn a 15% profit growth year-over-year would be criteria for your fundamental investing system. Or buying stocks that pay a 4% dividend yield and earn 10% on capital may be your criteria for this type of fundamental system. TECHNICAL systems use no company data; they rely on TRADING data for the stock as buyers and sellers trade it on the stock exchanges.