A Strategy That Does Not Condemn Investors to Sleepless Nights

The Golden Rule Investors Seek

In recent years, investors have aimed to achieve success through simple and effective visuals instead of relying on comprehensive reports to analyze stock markets. Paul A. Merriman is a notable figure in this field, known for educating investors and attracting attention with his applications. According to Merriman, in addition to complex analyses, the information presented by visuals has the potential to convey the fundamental dynamics of the investment world in a more understandable way.

Quilt Chart: The Colorful Map of Performance

The Quilt Chart that Merriman highlights represents the annual performance of four different stock groups in the US stock market from 1928 to the present with colorful boxes. These groups are defined as S&P 500 (large companies), large-cap value stocks, small-cap stocks, and small-cap value stocks. When the returns of each year are displayed in different colors, it becomes evident that the winners change continuously.

The Advantages of Equal Distribution of Investments

Merriman suggests that investors should invest equally across each group. This strategy helps stabilize high returns and minimize the risk of falling to lower ranks. Dividing investments equally among these four main groups is known as the four-way fund strategy. This approach keeps returns satisfactorily in the middle and prevents being affected by sudden market fluctuations.

A Boring Yet Profitable Approach

Merriman admits that this strategy may seem boring from the outside. However, limiting extreme growth and sharp declines provides a vital advantage for investors. A less volatile investment process eliminates biases in decision-making during panic situations and has historically yielded better results than investing solely in the S&P 500. Merriman emphasizes that this method promises investors fewer sleepless nights while explaining the potential returns of his strategy.