A Simple Approach to Stock Market Investing Since 1980

A renowned investor, Peter Lynch, once said, “I've found that when the market's going down and you buy funds wisely, at some point in the future you will be happy.” This idea of buying wisely during downturns is at the heart of the investment strategy we’re about to explore.

It’s time to see how this approach, the Diamond Strategy, performs with real-world data. We’re going hands-on, applying the system to historical data stretching from 1980 all the way to the present day. This isn't just theory; it's a practical look at a systematic method that can be a great entry point for .

We’ll start with a personal stock case study before expanding our analysis to cover a wide range of assets, including:

• : From the S&P 500 and Dow Jones in North America to the DAX in Germany, the Nikkei 225 in Japan, and the Shanghai Composite in China.
• : We'll look at the performance of Gold, Brent Crude, Copper, and Silver.
• : To keep things modern, we'll also apply the strategy to Bitcoin and Ethereum.

The Method Behind the Madness

The process is consistent across every single asset to keep the results clear and comparable. Think of it this way: for our simulation, we treat every point of an index as being equal to one dollar.

A buy signal gets triggered when the Relative Strength Index (RSI), a common technical indicator, crosses and closes above the 40 mark at the end of a month. This gives us the green light to invest $2,500 at the opening of the following month.

For example, if we get a validated buy signal at the end of January, we’re ready to act. When the market opens on February 1st, let's say the index is at 1,250 points. We would then invest our $2,500, which buys us two units of the index ($2,500 divided by 1,250). We add that to our existing holdings and wait for the next signal. This simple, rule-based approach makes more accessible.

How We're Measuring Success

For each asset, you’ll see a chart illustrating every purchase made since 1980, along with a table detailing the annual and total returns for each trade and the asset as a whole. You’ll notice the signals are infrequent, but when they appear, they are powerful. The annual return is a key metric here, as it provides a solid benchmark for comparing performance against safer bets like bonds or savings accounts.

Every asset is rated as PASS, NEUTRAL, or FAIL based on a set of minimum performance criteria. For an index to get a PASS, it needs to deliver an average annual performance of over 8% and a total return exceeding 250%. This kind of return is what can turn into a significant wealth-building tool.

Commodities and cryptocurrencies are evaluated a bit differently. They aren't held to the same strict benchmarks because their primary role in this strategy is for capital diversification and allocation, not as core growth drivers.

A Few Things to Keep in Mind

As you look through the results, remember that the data used in this simulation might vary slightly from other sources, which could lead to minor differences in signals depending on the data provider you use. For this analysis, "present day" refers to asset prices on June 30, 2023.

Also, for simplicity, we haven’t factored in currency exchange rates or international tax differences, which would obviously impact real-world returns. However, the indices we're examining belong to major global economies with broadly comparable financial structures.

Finally, when it comes to the numbers, two points are critical:

1. : We use a weighted average. An investment held for 10 years has a much greater impact on the overall average than one held for only a year. This gives a truer picture of long-term performance than a simple average would.
2. : This is simply the percentage of profit relative to the initial capital invested. If you start with $100 and it grows to $300, your total return is 200%.

These case studies are packed with data. Feel free to focus on the markets that capture your interest or read them all. Either way, the following analysis will provide a comprehensive statistical summary of everything we cover here. Let’s dive in and see the results for ourselves.