In 1933, a gallon of gas cost $0.18. Luckily, it’s much more affordable today.
No, that’s not a joke.
When you look at the math, gas really is almost four times cheaper now than it was 90 years ago.
In 1933, $0.18 was a lot of money. Workers made an average of $0.42 per hour. That means they worked about 26 minutes to buy a gallon of gas.
That’s setting aside the fact that inflation puts $0.18 in 1933 to $4.10 today. Gas is cheaper today in that respect, too.
The “good old days” don’t always look so good when we apply some math. Almost everything works that way.
So I’m always surprised to find something that works as well today as it did decades ago.
My #1 trading strategy, which works just as well today as it did 90 years ago, fits that bill.
Relative Strength: Buy High, Sell Higher
In May of 1933 — the same year that gas was $0.18/gallon — Barron’s published the first known paper on relative strength (RS).
RS is a trading strategy to buy high and sell higher. The idea is stocks that are going up tend to keep going up.
Barron’s shared a detailed RS strategy in May of 1933, showing readers how to find the strongest stocks. The author divided stocks into one of three groups based on performance. The best performers beat the weakest stocks by 200%.
Readers also learned how to track RS on their own. (This is remarkable for the time. There were no computers. The math was done entirely by hand.)
And just like that, a simple idea for beating the market was discovered.
Countless papers have been published in the years since, proving the profitability of a relative strength strategy.
See, many individuals ignored RS because they believed it was impossible to beat the market. This is due to a popular academic theory known as the “efficient market hypothesis” (EMH).
And while EMH is mathematically correct, this common interpretation of it is dead wrong…
According to EMH, the current stock price reflects all the information available about the stock. Therefore, it must be correct.
No one can do additional research to find a better price, so all investors must achieve average returns.
I agree with this theory. What I don’t agree with is financial advisers misusing it to scam small investors.
EMH says, as a group, all investors will achieve average returns. This is mathematically correct. If we add up all the gains and losses, the result is the average return. Many investors will have better-than-average returns. Others will have worse returns. That’s how math works.
Individual investors don’t realize this. They hear financial advisers say no one can beat the market, so they follow their advice and buy an index fund.
But what the adviser is really saying is: “I want you to lose 50% or more if that’s what the averages do. And I want you to pay me for the privilege.”
Average returns are exactly what an index fund delivers. It also delivers average losses. Meanwhile, the money management industry generates hundreds of billions in fees in either direction.
The truth is, you don’t have to settle for average. You can beat the market. And you don’t have to pay a financial adviser to do it.
Barron’s proved this almost 90 years ago. It was proved again in 1945, 1967, and 1993.
And I proved it to my clients in 2010.
That year, I started managing over $200 million at a Wall Street firm. I handed investors market-beating returns of 48%, before I left to pursue a different path.
I couldn’t stand the hidden fees and drawn-out corporate meetings. I decided I’d much rather spend my time helping everyday Americans beat the market.
If you’re tired of average returns, click here to learn more.
Michael Carr, CMT, CFTeEditor, True Options Masters