I recently read about two bright young guys who invented a "robot" to pick micro-cap stocks that have a good likelihood of increasing in value. They boast of earning 200% to 300% on some trades. If this is true (and I actually do believe they have good technology) why doesn't everyone do it? The problem with their system and to a bigger extent investing in individual stocks (and to an even bigger extent micro-cap stocks), is that their system doesn't "scale" well. For example: Let's say that I produced a forecast on a micro-cap stock so that investors could make money when the stock went up. Now if all of their clients, let's say only $5 million in capital, attempted to buy into this stock pick, most likely the stock would actually increase as a result of client buying. Therefore only the first money in has the best potential for making a profit. After a while, when these two young guys start getting a number of people following their forecasts, the system is doomed to failure, for all those that are not the very first money in. It is a simple and inevitable result of supply and demand.

The reality is that individual stocks as opposed to an entire collection of stocks, (i.e. an Index) carry a much higher relative volatility and risk. Let me ask you this, what are the chances that the Dow Jones Industrial Average is going to run out of money, or go out of business? :-) Not likely! So - because the DOW is made up of the 30 largest corporation's securities in America, it is very stable. In addition, these companies could collectively take a billion dollar influx of capital "long" or "short" without the "wag the dog" syndrome that I described above. In other words forecasting indices is "scalable". A hundred-thousand people could follow our forecast without this impacting the underlying forecast.

Stability means consistency, when it comes to securities. My advice to you is, if you are at all interested in preservation of capital, and minimizing risk, then invest in securities that match or double the movements of the major indices. We use Rydexfunds for our FMS trade group, but they are not the only good funds that are out there. The bottom line is that you need good forecasts in advance that can identify the basic rhythms and patterns of each specific index.

Lastly take note that the FMS Daily Forecast is 65% accurate as measured over the last 3 years. However, I will leave you with this final warning. Having 65% to 80% accurate forecasts does not make you profit, it is knowing how to act on the information that locks in a profit. Sound easy? It's not. Please take some time to review the rest of this site to learn more.
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