Tame Trading an easier way to trade

Are you your own worst wealth-building enemy?

Recently, a fellow member e-mailed a question about execution the Dow Double Diamond plan with his Individual Retirement Account (an excellent idea, by the way). And after I answered his question, he wrote back, saying, "I'm going to put $25,000 into a DDD execution account and forget about it for 10 years."

It's been a couple of months since he wrote to me, but I haven't forgotten his words. And the more I ponder them, the more I think how wise he is. Why? Because I believe he understands he can be his own worst enemy, and he's found a way around that.

Let's face it, in today's investment world, there are a great many ways to fail, but very few ways to succeed. And, frankly, I wouldn't mind if we all succeeded by default. In other words, if we succeeded by avoiding the pitfalls, scams, come-ons, and emotional errors that cause losses and failure.

You see, if you can eliminate all the things that can cause you to fail--and one is your own emotional decision-making--then the DDD plan can do its job, which is to build the wealth you want by the date you need it. Consider that...

Jim Patterson has given us a powerful wealth-building plan in the Dow Double Diamond. This plan is dumb. It's mechanical. It has no brain and no emotions. It doesn't think. It doesn't panic. It's only going to do the job Jim designed it to do. And it will continue to do that job year after year.

So who's going to screw this up? Not Jim. Not the DDD plan. And not our politicians in Washington (although it's tempting to blame them). No, the only person who can mess this up is YOU! And when I say that, I'm talking to myself, too.

Hey, we're only human. We have hopes and dreams and fears and anxieties. Ultimately, our thoughts and emotions affect everything we do. We're going to react to events. We're going to sometimes get upset. We're not always going to do the right thing. And when it comes to golf and investing, we're likely to be our own worst enemies.

I'll give you some examples of that in a moment. But first, let's get back to our wise DDD member who is going to put $25,000 into an execution account and forget about it. What can that potentially do for him?

Well, we know from the back-testing that, over time, the DDD plan is capable of 26%, 56%, 81%, and 162% compound annual growth (1x, 2x, 3x, and 5x investing respectively). But for this illustration, let's be a little more conservative and cut those rates by 20%. That way, we can be sure to account for trading fees, slippage, and unforeseen variables. Let's also say our member puts half his money into the 2x program and half into the 3x program. And of course, he's using his IRA, so we don't have to worry about taxes.

Okay, reducing the 2x and 3x back-tested rates by 20% gives us 45% and 65% respectively. And averaging those two numbers gives our member a "target growth rate" of 55% per year. No guarantees, but if he were to achieve that rate, his $25,000 would grow to $2 million in 10 years.

Yes, that's TWO MILLION DOLLARS! Now, do you see why our fellow member is wise?

He knows that the DDD plan is capable of doing the job. He knows the plan is both adaptable and adjustable. He knows that a strict adherence to the plan will eliminate the problems that can cause him to fail. And most important, he knows if he'll just get out of the way--get his temptations, fears, greed, and sometimes flawed judgment out of the way--he'll give himself the best chance of attaining his goal on schedule.

Let me be perfectly clear about this. He wants $2 million in 10 years. DDD can potentially get it for him. And he's figured out his best chance of getting that money is to just "let go." In short, his plan is to succeed by not failing. It's an excellent strategy.

Now, I don't want to change his wealth-building plan for him, but his $2 million wealth goal is based on a lump sum $25,000 investment without adding one additional dollar. But what if he were to add $4,000 a year on top of his original $25,000? Assuming he achieves his target growth rate of 55%, he'll have $2.57 million in 10 years, or an extra $570,000 just for making those yearly contributions totaling an extra $40,000.

Hey, this isn't rocket science, just simple math, plus using a few of the brain cells you didn't destroy in college. But, seriously, I think our fellow member is on to something really important here. Just get out of the way so that the DDD plan can do its job. Step aside so you don't mess this up. Bow out so you can ensure your success.

What's the alternative? To not forget about it, to be very involved, to use a heavy hand? To worry and fret and second-guess? To follow the plan sometimes and not follow it at others? To chase after the so-called best investments, trying something new every other month? To become impatient, afraid, angry? To succumb to greed, to fear, and maybe even loathing?

Yes, you can do any or all of those things, and you can also let your emotions run you off a cliff (and many of us have). But if you do, how are you going to make progress toward a specific wealth goal? How are you going to reach your wealth goal by a specific date in the future? How are you going to make any financial plans at all? I don't see how you can.

This past month, I saved several investment pitches that showed up, uninvited, in my inbox. I'd like to share a few of them with you to illustrate the temptations that can lure you away from your wealth goal, away from your plan, and literally away from success. Let's take a look...

One pitch claimed that huge money could be made on the continuing decline of the U.S. dollar. They said they recently recommended foreign stocks that gained 5,002%, 967%, and 648%. All you had to do was send them $1,250 to get their latest stock picks that would rack up similar profits. Okay, but how can you know how well they'll do? Which growth rate will you use to plan your future wealth? And will you feel comfortable allocating the bulk of your investment capital to foreign stocks?

Another promo claimed to have a system with a 95% accuracy rate. They said that one trader using their system made 344% in 10 days. Another made 141% in 24 hours. They claimed 81% of their picks moved at least 10%, although they didn't say in which direction. Finally, they said their plan was designed to get 25% to 50% gains every week. Yes, every week!

Shall we do the math? At 25% profit per week, a $10,000 investment would grow to over $1 billion by the end of the year! I'm not making this up. Multiply $10,000 by 1.25 fifty-two times. You'll get $1.09 billion!

And look at this: they guaranteed if you didn't get 70% winners the first year, you'd get a second year for free. All that for just $1,195. But they offered no money-back guarantee, just a second year free. So, let's see...they get twelve hundred of your hard-earned dollars, and you get stock picks that could prove worthless. And if you're not happy with those worthless stock picks, you can get more of the same. What a deal!

A third promo claimed to have a secret source revealing when mergers and acquisitions were about to occur. They said their previous recommendations made 558% in a week, 133% in 3 hours, and 50% in 9 days. They claimed their latest recommendation was poised to make 958%. All you had to do was send them $1,450 and they'd give you the name of that stock. Fair enough. And maybe you can buy a bridge from them too.

There's a reason these services have high prices. For one thing, in America we tend to believe when things cost more they're worth more. Of course, that's not necessarily true in the investment advisory world. But more to the point: as soon as you respond, your name and address go on a "suckers list." Such lists are always in high demand, and the real money is in renting them.

But let's say you did subscribe to one or more of these services, even at these sky-high prices. And let's assume some are legit. And let's even go so far as to say that you might make some money with a few of their picks. Maybe not the big money they promise, but some money. Okay, but how are you going to apply the occasional winning stock to the task of planning and obtaining the wealth you want?

How can you set a wealth goal? How can you set a date for attaining your goal? How can you choose a growth rate that will deliver your wealth goal on schedule? How can you feel comfortable using the bulk of your investment capital? How can you feel confident using leverage? How do you change course, or make adjustments to your plan, if that should prove necessary? I don't see how you can.

By comparison, Dow Double Diamond is a conservative trading plan that, in the back testing, has shown it can generate compound annual gains of 26%, 56%, 81%, and 162%. Over many years, the plan has shown a 55% win rate. Its winners have been nearly twice as big as its losers. It has never had a losing year. It can be customized to "target" the annual growth rate you need to attain your wealth goal on your set date. And as you proceed, it can be adjusted, via your allocation plan, to keep you on track to reach your goal on time.

Granted, past performance is not a guarantee of future returns, but a preponderance of positive data inspires confidence. Especially when the basic premise is that the DJIA need only move up and down in its historical range for the DDD plan to succeed. I'd say asking the Dow to do that is akin to asking the sun to rise and set.

So here's a plan to which you can comfortably make a large allocation. A plan with which you can confidently use leverage. A plan that's easy to use because it involves just one investment. And if you choose the execution service, you can pretty much forget about it and go play golf!

Do you see the difference between Dow Double Diamond and these other services? And I'm not talking about the price. With DDD, you have a clear way to plan your future wealth, a methodical way to go about getting it, and an easy way to "speed up or slow down your wealth building" to make sure you arrive at your wealth goal on time. Provided, of course, you don't screw it up.

So, if you think you just might be the problem, or could become a problem, then follow the lead of our wise DDD member and get out of the way. Just let go. Leave the DDD plan alone to do its job. With your decision to use the execution service, you'll be using the "succeed by not failing" strategy. And that should deliver the wealth you want on the date you need it.

Now, I'm not actually advocating that you "forget about your money," but I am saying that using the execution service (and not meddling) is an excellent idea if you suspect you could be your own worst enemy. Here's a clue: If you throw your club after hitting your ball in the water from the first tee, you're a candidate for auto trade (correction: if you throw your club at any time during the round, you're a candidate).

Just be sure to check your monthly statements. That way, as you monitor your progress you can periodically make adjustments to your allocation plan (only if necessary of course) to stay on track for success.

Well, this marks the 12th and final wealth-building article for 2005. I hope I've steered you away from trouble and kept you focused on your goal. I want to thank you for spending this time with me. And I'd also like to extend my warmest wishes to you and your family for a very joyous holiday season. Until next year, good wealth building!

Sincerely,

Dick Sanders