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Article Title:
The Importance of Trend Following in Stock Market Investing

Article Description:
What Edgar Genstein is talking about is the core of investment 
strategy - trend following.  While he explains it in an academic 
sense, I prefer to be more visual.

Additional Article Information:
517 Words; formatted to 65 Characters per Line
Distribution Date and Time: Tue Mar 28 09:06:10 EST 2006

Written By:     John Lohmeier
Copyright:      2006
Contact Email:  mailto:[EMAIL PROTECTED]

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The Importance of Trend Following in Stock Market Investing
Copyright © 2006 John Lohmeier
Enterprise Advisory

"It is the direction of the price movement that counts.  It is 
always probable, but never certain, that the direction of the 
price movement will continue.  Soon after it reverses is time 
enough to sell.  You should sell when you wish you had sold 
sooner, never when you think the top has arrived.  That way you 
will never get the very best price - by hindsight your individual 
transactions will never look daring.  But some of your profits 
will be large; and your losses should be quite small.  That is 
all that is necessary for a satisfactory, enriching investment 

What Edgar Genstein is talking about is the core of investment 
strategy - trend following.  While he explains it in an academic 
sense, I prefer to be more visual.

Picture a beautiful sun setting over the mountains; let's say 
there are three of them and one is bigger than the other two. 
Now pretend that you are hiking in these mountains, (not me 
because I am afraid of heights) and you are scaling the first 
one; it's not the tallest but you get to the top and the view is 
nice but you see the second taller mountain.  You start to hike 
down the mountain and then jump across a ravine to the next 
mountain.  It's a steeper climb but you get to the top.  The 
views are stunning until clouds roll in and fog distorts your 
view.  You see that it is clear over on the next mountain so you 
climb down the steep terrain and take a flying leap across to the 
next mountain where it is a smoother, easier climb to the top 
where you reach a flat area where you can get refreshed, rest, 
eat and prepare for the next part of your journey.  

This is the journey of a trend follower.  You don't stay on a 
mountain forever, and you know that you have to go down sometimes 
to get to the next trend.  Climbing mountains can be exciting, 
but trend following is a very disciplined style of unemotional 
investing - boring yet effective.

The key with trend following is relativity to the market. You 
want to ride the trend to beat the market indices. If you put an 
absolute return goal on your stock investment performance, you 
will be disappointed most of the time.  Following the trends will 
work in bull and bear markets.  Neither lasts forever and the 
more flexible and realistic you are, the less emotion you will 
have to enable you to make better decisions.  That's why trend 
following works; it eliminates the emotion in investing and 
creates the necessary discipline for success.

When you look at a chart on the S&P 500 for the end of 2005, 
stocks were banging their heads on resistance at a triple top 
that, yes, does look like a mountain range.    It held the market 
back but eventually broke above it in early January so a longer 
rally upward could be unfolding here.  Watch the trend as the 
first quarter unfolds and follow it to improve your chances of 
beating the market.

John Lohmeier is President and Chief Investment Officer of 
Enterprise Trust Co.,, a 
Nevada-based trust and investment company.  He employs several 
different quantitative long-short models that follow trends 
to provide market-beating performance for his clients.  
He can be reached at 1-877-ENTER01 (1-877-368-3701).



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