Being conditional helps us win the pub quiz

With the possible exception of day trading, all trades or investments follow a simple process:

  • Conditional
  • Trend
  • Price

The above applies no matter what my preferred method.

Conditional is something that gives us a clue as to the probability of something happening in a defined way. In other words, it’s like taking a sneak peek at an answer sheet before a pub quiz.

Conditional can be any number of things. For example, our conditional could be as simple as knowing how popular a product is, or how well somewhere is managed, or we have a particular take on how to calculate the future value of a company, or we might have a specific talent in astrology!

Whatever it is, we need something conditional to give us an advantage. Without it, with regards to the big picture, we’re guessing.

I use different conditional guides for various items. For shares and stocks over the shorter term its consistent EPS (earnings per share) percentage growth over the past ten years. Sounds complicated but is easy to obtain with most trading software.

For longer-term buys its future value, what Benjamin Graham coined Margin of Safety (MOS). I couple the MOS with the consistency of growth.  If you’ve seen my first blogs, this is difficult to do well. However, you would be daft to trade (invest) long term without it – or something that gives us a similarly favourable condition. Maybe Nick, the author of the calculations I use, can provide this information online in the future.

Also, a current favourite of mine in the medium term time frame for foreign exchange pairings (FX) and commodities is the COT (commitment of traders) report. A simple chart but one, I have learnt, through lots of trial and error, that takes many consistent weeks and months to understand correctly and use well.

Ask yourself (or your fund manager) what ‘conditional’ you (fund manager) use. Are you happy with it? Does it work? Or are we guessing?

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