The Rich MacDuff Investment Philosophy (Part 2)

Two posts ago, I presented an example of the “rolling down” CC management technique from Rich MacDuff. I will now proceed by talking more about MacDuff’s general trading philosophy.

MacDuff’s book begins by stressing that Nobody Knows whether a stock will go up in value, go down, or trade sideways. He suggests that stock analysts are notorious for being wrong with their projections and they are the paid professionals who have more resources and technology at their fingertips than anyone else in the industry.

[Looking past the irony of a fraudster basically accusing others of fraud] I tend to agree with this claim and future posts will address this with regard to different categories within the financial industry. Nobody knows what will happen to a stock and that includes any professional or “service” that claims an ability to choose the right ones.

A corollary to the Nobody Knows principle is that no one stock is better than any other. MacDuff provides a stock checklist and suggests the most important thing is to be consistent with whatever criteria we choose to use. Be fully aware, too, that no matter what criteria we use, the stock may or may not go down: Nobody Knows, after all.

Another corollary to the Nobody Knows principle is that “money does not care what it owns.” Why, then, should the investor? We should look to stay diversified. We should trade numerous, small positions to limit the risk in case any one position goes bad. Trade in all sectors. Grow wealthy through increased stock holdings or positions rather than with any one specific stock.

Because Nobody Knows, rather than stock selection MacDuff insists the focus should be on every trade fulfilling the “Math Exercise.” Any proposed trade that fulfills the Math Exercise is good to go as a small trade. The guidelines (for CCs) are:

–Initial call option should produce a 12-15% cash return on the underlying stock.
–If assigned, a minimum 15% annualized return should be realized.

I will continue this discussion in the next post.