If you're looking for a leg up on the market, Douglas S. Roberts, Managing Principal of Channel Capital Research, suggests that you need to watch what the Federal Reserve is doing. In his new book, Follow the Fed to Investment Success, Roberts lays out the simple case that when the Fed lowers interest rates, capital becomes easier to come by, which helps small public companies grow faster and thus outperform large cap companies. Of course, the opposite is true as well - when interest rates rise, smaller, less-capitalized companies can't grow as easily, while large caps can weather the high-interest rate storm, and thus their shares do better in the market.

Of course, it's not that simple, as stocks never just stop on a dime and perform according to a strategy. When exactly do the small caps perform better? The first time the Fed lowers interest rates? The second time? The third?

Roberts makes the case (convincingly, using much historic data) that the real catalyst is "real" interest rates - interest rates minus the rate of inflation. When real interest rates are negative (the interest rate on Treasury Bills is less than the rate of inflation), small caps are essentially borrowing money for free, thus their time to shine in the stock market has come. So, buy small stocks when the real interest rate is negative, go for large stocks when the real interest rate is positive.

This all seemed great, and I was ready to buy into it, when the math began. Once Roberts starts laying out the step-by-step instructions to figure out the "real" interest rate, what seemed like an easy formula suddenly began to seem very complicated. My eyes began to glaze over. I don't mind a little math, but if this suddenly seemed like a lot of work to me, I knew it was going to seem like even more work for people that don't want to plot out interest rates and figure inflation rates each month.

Roberts' company will do the math for you for a fee (I'm sure you're surprised) and tell you when the magic number has come that tells you to switch between large and small cap stocks. That's no rip on Roberts or his company, just a statement that what seemed like a simple formula isn't so simple in reality, and that most of us wouldn't feel confident enough in our abilities to do it successfully, so we'd head back to our index funds, where we feel safe and warm.

If you love the idea of getting the jump on Wall Street, especially if it requires doing a little extra work that the average Joe wouldn't (or couldn't), this one's for you. Otherwise, you might want to stick with what feels comfortable.

E-mail me: j.mchenry@indexcreditcards.com