Mechanical Engineering

Two weeks into mechanical investing has been a hair-raising, ulcer producing experience.  If you follow the performance of my picks, you’d probably avoid mechanical investing like the plague.  But I feel obligated to discuss my approach in light of mechanical investing.

I am not the mechanical investing (MI) guru.  I haven’t explored the deepest and darkest corners of the methodology.  But, what I have researched in relation to the texts I have read, bring one to a logical conclusion that MI is the way to success.

MI boils down to this: remove emotions from investing.  Easy, right?  Well no.  Ask any stock market pundit about the impact of emotions on the average investor and they will all say fear and greed drive the average Joe’s investing decision.  And its true.

I have been investing for a while.  Well dabbling.  And I know from experience that fear and greed has influenced nearly every decision I’ve made.  I remained on the sidelines out of fear.  And I’ve held on to positions for far too long because of greed (well and pride…)

MI, in theory, removes all emotion from investing.  (Except one, excitement.  Who does not feel excitement in today’s era of market volatility?)  When one establishes clear cut buy and sell rules, stock selection criteria, and allocation requirements and FOLLOWS them, they have basically put into place a MI portfolio.

MI is nothing new.  Pick up Benjamin Graham’s Intelligent Investor, and you will see underlying tones of MI in his recommendations.  Turn ahead to today and read William O’Neil books and you’ll see similar themes.  Yes, the rules are unique, but both set standards for what stocks to buy and which to avoid.

Back on point.  If you follow my performance (soon I’ll make it easier, believe me I’m working on the backend), you might be shy away from MI.  But I reiterate the paragraph above.  Specifically the last sentence.  Different rules and criteria will effect portfolio performance.  Not an enlightening statement but essential when deciding, based on what others have done, if MI is right for you.

If you read my rules, you will see that I recognize that my methods will be riskier and more volatile.  I expect more risk — greater potential declines — as a necessary evil counterpart to higher returns.  And this has been abundantly clear over the last few weeks as my portfolio has been beaten and kicked while down.

But, I still hold on to one basic tenet.  The strategy I have chosen (though not without its flaws) has a solid foundation based on historical performance.  In today’s market I expect that I will have periods of nearly unbearable loss.  However, I also strongly believe (not hope, but based on fact) that this strategy (maybe with some adjustments) will prove to be hugely succesful.  Or am I just trying to convince myself?

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