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Holy Grail in Investing

This is an interesting article about using SA to get 8% monthly return by a PhD candidate and his professors at Purdue. Besides feeling sorry for our miserable state of higher-learning institutes, here are some of my responses.

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If any one from the Ivory Tower can find a holy grail in investing, please stand up so we can award him/her a Nobel Prize. This return is ridiculously high and looks like a fraud if s/he tries to sell me anything. It would beat Buffett's return many, many times.

I'm interested to find such a holy grail without success for years. If there is a strategy that works, it will not be consistent for long term. I've reviewed many strategies that are supposed to work, but nothing work. They are either: no full reveal from the authors, just frauds, or just working on certain conditions. If you know any professor using his strategy making him rich in investment, please let me know. Buidling castles in the sky is differenct from making a buck in the market unless he uses illegal inside info.

However, I did find some strategies that work on certain phase of the market cycle and certain market conditions. Some of them work in practice, but obtain results far lower than the ones tested/simulated. The trick is to identify the cycle phase and market conditions, and match to the strategy. It is almsot an impossible job, but works better than without a strategy. I've to admit I made 80% in 2009 in my largest account with negligible leverage beating 99% of the fund managers and making Buffett jealous. All the winds were blowing my way and it only happened once in every market cycle I bet.

If it works all the time, I should be sipping tropical drinks served by some beautiful tropical ladies in some tropical island. From the return and the simplistic methodology, I hope the author will ask his professor to have another topic (such as Is dividend growth stocks beat the market?), as he will not get a Nobel Prize.

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The following are related. Will put into separate blogs for easier to read when I've time.

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Actually I had some tests on the same topic but using Yahoo!Finance' Message Board a while ago. It is easier to maintain/use than SA. The result is the performance for positive responses is better than negative responses, but not by the margin described by the author.

I've not used this parameter (but the other 12 or so parameters) as it takes time to read the messages for each board and assign subjectively a Buy or a Sell.

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Yahoo!Finance Message board serves this function better. It may include problems of a company that could not be found in financial statements like lawsuit pending, drugs being expired... SA has its own advantages, but it is not easy for the average reader to find the social effect using textual search.

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The flowing should be followed in testing a strategy:

* When to sell the stock. Like 3 month for a swing trade and 12 month for a long-term trade.

* You need to go thru a complete market cycle. At the bottom, we should use negative recommendation from experts. It has been proven for the last two market cycles via many stock advising systems. Market peak should be careful with better stops. From the description, I do not think they went thru even one market cycle. You need a database with historical stock data and SA.

* Include dividend as part of the total return.

* Is surival bias important? If so, how to reduce the impact?

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Why some one gives out his secrets/holy grail in investing?

1. They make more money than using the strategy themselves and at zero risk (except running a business).

2. They benefit by selling what they recommend or/and buying them before they recommend. Examples abound.

3. They could be famous if it works even once. Let a thousand monkeys select stocks by hitting the keyboard randomly, and of course some will make big bucks