Adrian Reid argues that ETFs force you to hold dead weight stocks and spike your drawdown risk, pointing to 2008's 40-50% index drops. He recommends building a systematic, trend-focused trading system instead so you can exit to cash when markets turn.
Hey, it's Adrian here. I'm at a course in Idaho of all places, which is about a billion miles from where I live in Sydney. But I was at the course, it's not trading related, but I got asked a question about what I do. And so I was explaining about stock trading and how I teach people how to develop stock trading systems to suit their personality, objectives and lifestyle and so on. I got this really great question, so I just wanted to share the question and my response with you because I, I thought it really helped some people out. The question was like, it was a challenge actually, because this person's not a trader, not interested in stocks. And his response was, yeah, but you know, isn't it better to just, you know, buy an ETF or an index fund because it's way cheaper than doing all that trading active in and out paying brokerage. And also you get so much more diversification so you just get better results overall. And look, while some people, for some people that might be right, for people who can trade actively like you guys, it's absolutely, you know, a bollocks belief. Let me tell you why. Because if you buy an index fund, let's say you buy the s and P500 index, there's 500 stocks in the index and at any one time a whole bunch of those stocks are not going up, a whole bunch of them going down, a whole bunch of them going sideways. And when you're buying the index, you're basically saying, hey, I'm good with holding a whole bunch of stocks that are going sideways or down. And you know, that's just not a great way to build your wealth. So look, what I explained was if when you learn to trade actively, it doesn't even have to be super active. I'm not talking about day trading here because I absolutely don't believe in day trading either. But when you've got a long term system that will allow you to get in and out of stocks which are trending and moving in the right direction, you can do way better than buying and holding an index fund. Just think back to 2008 when the markets got absolutely smashed in the global financial crisis. What happened? Just about every index in the stock markets around the world dropped by like 40%, 50% or more. And the passive investors money went way down with that. And so what I said to this guy who was asking a question was just imagine if you could only hold the stocks that were going up and you didn't hold the stocks that are going down. Your portfolio performance is so much better. And if you've got a systematic way of getting in and getting out of the stock market, you're also able to avoid those massive drawdowns. And because when the markets tank and your exit point gets triggered, you get out. You can go to cash, but if you're a passive investor in an index fund, you can't go to cash because you don't have any rules about when to exit. So what I encourage you to do, if you're not already trading systematically, is think about developing or going and finding a stock trading system to allow you to get in and get out of stocks, rather than just being a passive buy and hold investor. Because your rate of return and and your level of risk and volatility in your account in the long run will be so much better than if you just passively buy and hold the whole market. So that was my Q and A for this today in this course that I'm at. Hope that's helpful to you. I'm Adrian Reid from Enlightened Stock Trading. If you liked the video, shoot me a comment below. If you disagree with me, shoot me a comment below. Let me know what you think. I'd love to hear your challenges. And if you've got any questions about developing your own trading system that fits your personality, your objectives, and your lifestyle, then pop them in the comments below and let me know what you think. Don't forget to like and share this video. Thanks. That's all for this video. See you in the next one. Bye for now.
