Muscular Investing

Brian Livingston
About the author: is the author of Muscular Portfolios (2018), which reveals the 21st century's best-performing long-term trading strategies, and editor of the free Muscular Portfolios Newsletter. He is also the coauthor of 11 Windows Secrets books (1991-2007). He has been assistant IT manager of UBS Securities, a consultant to Morgan Guaranty Trust (now JPMorgan Chase), and technology adviser to Lazard Ltd., all in New York City. His columns appear in the Muscular Investing blog most Tuesday and Thursday mornings. Learn More

Latest Posts

Muscular Investing

Avoid Behavioral Biases and Make More Profits

by Brian Livingston

Our built-in behaviors, which are unconscious, make us choose investments that will lag. The key is to do what we can to defeat these tendencies. • The more research we do, the more we convince ourselves of our rightness, and therefore the more overconfident (and wrong) we become. Fortunately, there are easy ways we can let the market — rather than our opinions — tell us what to buy and sell. Figure 1. As investors, we can leave behavioral biases aside and use sound principles to guide us to long-term outperformance. • Part 4 of a Read More 

Muscular Investing

The Best Strategy Becomes the Worst, and the Worst the Best

by Brian Livingston

Investing strategies have short-term momentum (the past 3 to 12 months predict the next month) but long-term reversion (the past 3 years deceive you). • Institutions that hire outside money managers routinely fire any analyst who underperforms a benchmark for 3 years. Some fire analysts after just 1 or 2 years. You’ll be shocked to see how much you could earn if you did exactly the opposite. Figure 1. Don’t fall into the trap of thinking that the past 3 years’ worth of performance predicts good returns in the following 3 years. • Part Read More 

Muscular Investing

Ignore the Last 3 Years; They'll Just Deceive You

by Brian Livingston

It isn’t only individuals who exhibit ‘short-termism.’ Highly capitalized institutions suffer from the same bias. Don’t let it harm YOUR performance. • As humans, we share a strange compulsion about the last few years of price action. The SEC compels mutual funds to publish their returns over meaninglessly short periods, such as 1, 3, and 5 years. Unfortunately, what’s gone up has a tendency to go down. Figure 1. What’s gone up in the past three years tends to revert to subpar performance, not continue its past performance. • Part 2 Read More 

Muscular Investing

Buying a New Fund? Don't Even THINK About It.

by Brian Livingston

Perhaps you’re tired of the fact that one fund you hold is underperforming the market. Should you switch now or forever hold your piece of the pie? • Don’t make a move till you’ve read this article. Most of the time, the securities we sell outperform the ones we buy as replacements. Don’t let your mind play tricks on you. Figure 1. What do we perceive when we hear the market calling? Probably a wrong number. • Tens of millions of households hold 401(k) and similar accounts that prohibit buying individual stocks or trading more than once or twice per month. Never Read More 

Muscular Investing

What's Normal About the Stock Market? Not Much.

by Brian Livingston

One of the most powerful predictive forces in the natural world is the bell curve or ‘normal distribution.’ But don’t make any trades based on it! • An inexpensive device demonstrates the curve’s age-old principle — as well as Fibonacci numbers, a favorite of technical analysts — although you should be careful about any assumptions you might make. Figure 1. The Galton Board is a $39.95 gizmo that packs a lot of mathematical theory. Photo by Four Pines Publishing. In my Mar. 7, 2019, column, titled “How Do You Know Your Strategy Will Work in the Read More 

Muscular Investing

Diversification Can Actually Make Your Portfolio Rise During Crashes

by Brian Livingston

Using multiple types of assets in a portfolio isn’t just a theory. It works in the real world to cut your losses and increase your gains. • Only in the past few years have all of the major global asset classes achieved representation by low-cost exchange-traded funds. This presents a way for individual investors to diversify their portfolios for greater profits such as never before. Figure 1. Want to use the magic of diversification? It works better with a greater number of assets to choose from. Today’s new, low-cost ETFs are just what we need. Photo by Maya Read More 

Muscular Investing

What Asset Can You Add to Stocks for the Greatest Gain?

by Brian Livingston

Diversification works well in sample cases, but how about in actual trading? In this article, we’ll combine two assets you can actually buy and sell. • When you add to an all-stock portfolio an asset that has a low or negative correlation to stocks, the result is a more diversified portfolio that can subject you to smaller losses with the possibility of larger returns. Figure 1. Diversifying a portfolio in even the simplest way, with only two assets, produces some great benefits that may not seem obvious. Photo by Vi Chizh/Shutterstock. • Part 3 of a Read More 

Muscular Investing

Given Two Lemons, You Can Make a Profitable Lemonade Stand

by Brian Livingston

Diversification works in mysterious ways. But does that mean diversifying a portfolio is a hard thing to do? No! It’s actually quite simple. • The problem is that it’s not obvious exactly HOW diversification improves a portfolio’s return. It’s not rocket science. It’s simple math. But many people have never learned the ways diversification can turn a pig’s ear into a profitable silk purse. • Part 2 of a series. Part 1 appeared on Mar. 19, 2019. • As we saw in Part 1, the human mind is not ideally suited to guess the best asset allocation for a portfolio. That’s true Read More 

Muscular Investing

Why Use Diversification? To Make More Profit.

by Brian Livingston

We often hear that we should diversify, diversify. Why should we do so? For greater gains. But the way to do this is seldom laid out clearly. • The secrets of diversification are not obvious. The truth is that it’s possible to earn MORE MONEY from a properly managed, diversified account than the simple average of the different asset classes that are used in the account. • More than 100 million households in the US, Canada, and other countries hold 401(k), IRA, and similar savings accounts. The vast majority of 401(k) participants cannot buy individual stocks — only index funds — and can Read More 

Muscular Investing

Why Is It So Hard to Find Indicators That Always Work?

by Brian Livingston

It’s often assumed that stock markets follow a ‘normal distribution’ — a bell curve — but there’s nothing normal about the way stocks behave. • In any securities exchange, where the sum of the greed and fear of all traders’ opinions determines the prices, there are a few big winners and many big losers in what’s known as the ‘free-market distribution.’ Figure 1. Indicators work until they don’t. Photo by Standret/Shutterstock. • Part 4 of a series. Parts 1, 2, and 3 appeared on Mar. 5, 7, and 12, 2019. • We saw at Read More 

Muscular Investing

After Almost 40,000 Backtests, One Strategy Stands Out

by Brian Livingston

In a monumental achievement, backtests of 39,832 trading rules by researchers at Columbia University and Academia Sinica resulted in a big discovery. • None of the gains were statistically significant in ‘mature’ markets such as the Dow Jones Industrial Average and the S&P 500. But further mathematical analysis revealed a winner. Figure 1. Many are tested, but few are chosen. Illustration by MicroOne/Shutterstock. • Part 3 of a series. Parts 1 and 2 appeared on Mar. 5 and 7, 2019. • As we saw in the previous part, the author of Read More 

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