Returns for week ending 12/26/08
Strategic Growth Model (SGM) portfolio, returns for past…
1 week: +1.0%
26 weeks: +6.6%
52 weeks: +29.0%
Value of $10,000 invested at inception: $52,995
Saturday, December 27, 2008
Sunday, December 21, 2008
Sunday, December 14, 2008
Saturday, December 6, 2008
Saturday, November 29, 2008
Sunday, November 23, 2008
Is the Market Undervalued?
click to enlarge chart
The S&P 500 index is now trading 49.4% off its 2007 peak. Some analysts are saying the Market is undervalued and this is a great time to put capital at risk in the stock market. Maybe.
The Hussman "Prior Peak Earnings Model" (PPEM) is a good way to measure the market's valuation relative to prior bear market bottoms. As shown on the chart, secular bear markets often reach bottom when the S&P 500 index is trading at a multiple less than 10x prior peak earnings.
At the end of this week, the SPX closed at 800.03. At this level, the Market is trading at roughly 9.4x prior peak earnings, a level that is considered "undervalued." When the market has reached this valuation level in the past, stocks have ALWAYS outperformed T-bills over the next 10 year period.
But that is not saying that the Market can't first go lower from here before it goes higher. If the SPX dropped another 160 points (20%) from here to 640, the P/E would be 7.5x prior peak earnings, similar to the valuation trough of the bear market of 1983, 1980, 1974, 1949, and well above the valuation troughs of the bear markets of 1942, and 1932.
Every Mutual Fund has Has Lost Money in 2008...
Except One
Out of the 11,585 U.S. and international stock mutual funds tracked by Morningstar Inc., 11,584 have lost money in 2008, according to fund data through Nov. 20.
In other words, just one fund hasn’t lost money this year—and that is the APX Mid Cap Growth Fund, which was flat through Thursday’s close. That’s right, folks, its return—or lack thereof—is a mere zero thus far in 2008.
5 weeks to go for some of these Mutual Funds to show a positive return.
The SGM portfolio, as documented here in the live test, is up 40% YTD.
Do you have 26 years?
click to enlarge
Buy-and-hold is what Wall Street promotes to the Sheeple. Buy-and-hold has been a good way to get fleeced this year. The fallacy of B&H should now be clear.
The above chart shows the crash of 1929 and the bear market that followed. If you had bought the Dow at the top of the market in 1929 and held onto your investment, you would have recovered your original capital 25 years later, not accounting for inflation.
A better way is to allocate your capital in accordance with prevailing market conditions. For example, the SGM portfolio's timing system generated a SELL signal on 9/12/08, neatly avoiding the OCT/NOV plunge. As documented here in the live test, the SGM portfolio has been net-50%-short the market and is UP 31% over the period since 9/12/08.
Saturday, November 22, 2008
The Professionals?
Feeling mauled by the seemingly undying bear market? The S&P 500 is down -44.4% for the year.
Take a look at the year-to-date performance for some biggest of the big-name investors and consider yourself in good company:
* Warren Buffett (Berkshire Hathaway): -43%
* Ken Hebner (CMG Focus Fund) -56%
* Harry Lange (Fidelity Magellan): -59%
* Bill Miller (Legg Mason Value Trust) -50%
* Ken Griffin (Citadel): -44%
* Carl Icahn (Icahn Enterprises): -81%
* T. Boone Pickens: Down $2 billion since July
* Kirk Kerkorian: Down $693 million on his Ford shares alone
These results suggest that “a bear market gets everyone” — even Wall Street legends.
A Photo Album of Bear Markets
click to enlarge
The current bear market has moved into first place for the deepest decline since the inception of the S&P 500 in 1957. Although the ultimate severity of today's bear market is unknown, the rate of decline has been faster and deeper than the other post 1950 declines. At this point in time (about 300 days into the bear market) all the other bear markets were only about halfway to their ultimate bottom.
Sunday, November 16, 2008
Sunday, November 9, 2008
Sunday, November 2, 2008
Live Test - Performance Summary
click to enlarge
The Strategic Growth Model (SGM) portfolio is performing well during these adverse market conditions. It has generated 60% in excess returns over the past 52 weeks compared to the market and it is showing no correlation to the market trend.
Shock-tober!!!
The Strategic Growth Model (SGM) portfolio was UP 16.5% during the month of October. Let's look at how some of the market indices fared...
EQUITIES:
• October 2008 was the most volatile in the 80-year history of the S.& P. 500. (see NYT chart, above)
• The Dow dropped 14% drop over the past four weeks — the biggest October decline since 1987, when the crash sent markets down 23% for the month. The S&P 500 was down 17%, and Nasdaq fell 18%. This ranked as the 15th worst monthly decline for the Dow Industrials since 1900.
• Compare 3 recent SPX Bear Markets: -46% from October 2007; Compare that with 1973-74 down 48% over 23 months. The 2000-03 bear was 49 percent over nearly 3 years.
• The S&P 500 had the most volatile month since November 1929 (1% moves higher or lower).
• Consider days with 4% moves up or down: None from 2003 through 2007; Three throughout the 1950s and two in the 1960s. October 2008 - 9 days with four percent plus or minus. That edges out September 1932’s record of 8. (NYT)
Friday, October 31, 2008
Saturday, October 25, 2008
Saturday, October 18, 2008
Sunday, October 12, 2008
Worst (Best) Week Ever
click to enlarge graph
I watched last week - and I suspect I was not alone - with shock and awe as the stock market all but disappeared into the greatest sinkhole of investment history.
The S&P 500 index was off 18% for the week, 43% for the 12 months. The Dow Jones lost 18% over five trading sessions, swelling its 12 month loss to 39.4%. Not in the 112 year history of the Dow Jones has there been a greater point or percentage loss in a single week.
On the other hand, the Strategic Growth Model (SGM) portfolio held up well under the severe stress of last week. The portfolio gained 8.8% because of its defensive stance. Due to poor market conditions, the SGM portfolio has been on a SELL signal since September 5th.
The above chart shows the performance of the SGM portfolio compared to the market benchmark since the beginning of October, 2007. The S&P 500 index has declined -44.3% while the model portfolio has returned +44.0%
The SGM portfolio has thus generated over +85% in excess returns over the past 12 months, with a maximum equity drawdown of -11.2%. This is an exceptional reward / risk in extremely difficult times.
Saturday, October 11, 2008
Worst 12 Months Ever
click to enlarge chart
This marks the one-year anniversary of the current correction. The Dow put in its record high of 14,164.53 back on October 9, 2007. This week, the Dow closed at 8,579.19 -- down 39.4% from its one year old peak. For some perspective on the magnitude of the current decline, the chart illustrates how the Dow performed during the first year of all major corrections since 1900. As the chart illustrates, the first year of the current correction has been more severe than the first year of any correction since 1900 -- and that includes the correction that began in 1929.
The Great Bear Market Plunge of 2008
click to enlarge chart
The chart shows how various benchmarks and asset classes have fared over the past week and past 52 weeks of the Bear Market. You will note that the only sectors to show gains are Gold and $USD (cash). There has been virtually no safe haven in this Bear Market.
This Bear Market is not typical. It is ravenous for capital. This downturn is not solely due to the natural ebb and flow of the business cycle and earnings. This Bear is due to misjudging of risk and the resultant systemic failure of our financial system.
The global financial system is being forced to rapidly de-leverage. We are now witnessing a negative feedback loop. This cycle is operating in reverse from normal, producing a cascading failure that is destroying the global capital base at a furious pace.
Less capital means a destruction of demand for all assets which leads to deflation. The global asset bubble has burst. Asset deflation has now manifested itself as the GREAT BEAR MARKET PLUNGE of 2008.
For the past several years, "buy and hold" has not been a profitable strategy. As of this week, we have now seen the last 5 years of gains wiped out on the major indices. Even worse, if you had bought the S&P 500 index 10 years ago, you would be faced with a negative 11% total return.
About the SGM Market Timing Model
The Strategic Growth Model (SGM) uses a Thrust / Trend Model (T/TM) for determining market conditions. This data-driven model has proved to enhance the SGM's returns during favorable market conditions and defend its capital during unfavorable market conditions. It does not depend on my subjective interpretation of data or my prediction of market trend.
The model recognizes that market tops and bottoms form differently, and different tools must be used to identify each one. For example, with stock indexes, bottoms are most often characterized by sharp, spiky formations resulting from rapid reversals in trend ("V" bottoms), whereas, tops are generally rounded and take longer to complete than bottoms.
The other important concept behind the timing model is that the closer an indicator is to raw price movement, the better it is likely to perform. Indicators derived from breadth, volume, and sentiment are useful for confirming price movement and analyzing market condition, but we buy and profit from price movement, so our decision tools should be as closely connected to price movement as possible.
The timing model has a specific component based on market internals for detecting bottoms and generating BUY signals, and another component for detecting tops and generating SELL or NEUTRAL signals. There is also a long-term component, which determines whether the timing signal indicating poor market conditions should be SELL or NEUTRAL.
This timing model has proved to be superior to one dimensional trend following systems, which can produce significant whipsaw losses leading to frustration and loss of confidence in what would otherwise be a profitable system.
The model recognizes that market tops and bottoms form differently, and different tools must be used to identify each one. For example, with stock indexes, bottoms are most often characterized by sharp, spiky formations resulting from rapid reversals in trend ("V" bottoms), whereas, tops are generally rounded and take longer to complete than bottoms.
The other important concept behind the timing model is that the closer an indicator is to raw price movement, the better it is likely to perform. Indicators derived from breadth, volume, and sentiment are useful for confirming price movement and analyzing market condition, but we buy and profit from price movement, so our decision tools should be as closely connected to price movement as possible.
The timing model has a specific component based on market internals for detecting bottoms and generating BUY signals, and another component for detecting tops and generating SELL or NEUTRAL signals. There is also a long-term component, which determines whether the timing signal indicating poor market conditions should be SELL or NEUTRAL.
This timing model has proved to be superior to one dimensional trend following systems, which can produce significant whipsaw losses leading to frustration and loss of confidence in what would otherwise be a profitable system.
Saturday, October 4, 2008
Saturday, September 27, 2008
Sunday, September 21, 2008
Friday, September 12, 2008
Sunday, September 7, 2008
Saturday, August 30, 2008
Returns for the week ending 8/29/08
Strategic Growth Model (SGM) portfolio = +1.1%
Value of $10,000 invested at inception: $49,933
SGM holdings for next week (10 equal positions):
Holdings: GMXR BUCY CF TITN GHM POT MEE DXPE KSU SYUT
SELL: ACI ISYS
BUY: KSU SYUT
SGM hedge position next week:
Net-50%-long – Remove 50% of hedge (TWM is 2x inverse Proshares ETF on Russell 2000 index)
Strategic Growth Model (SGM) portfolio = +1.1%
Value of $10,000 invested at inception: $49,933
SGM holdings for next week (10 equal positions):
Holdings: GMXR BUCY CF TITN GHM POT MEE DXPE KSU SYUT
SELL: ACI ISYS
BUY: KSU SYUT
SGM hedge position next week:
Net-50%-long – Remove 50% of hedge (TWM is 2x inverse Proshares ETF on Russell 2000 index)
Saturday, August 23, 2008
Returns for the week ending 8/22/08
Strategic Growth Model (SGM) portfolio = +2.4%
Value of $10,000 invested at inception: $49,400
SGM holdings for next week (10 equal positions):
Holdings: GMXR BUCY CF ISYS GHM TITN CNQR POT ACI MEE
SELL: KSU RIMM DXPE SYUT ENS
BUY: TITN CNQR POT ACI MEE
SGM hedge position next week:
net-50%-long – Remove 50% of hedge (TWM is 2x inverse Proshares ETF on Russell 2000 index)
Strategic Growth Model (SGM) portfolio = +2.4%
Value of $10,000 invested at inception: $49,400
SGM holdings for next week (10 equal positions):
Holdings: GMXR BUCY CF ISYS GHM TITN CNQR POT ACI MEE
SELL: KSU RIMM DXPE SYUT ENS
BUY: TITN CNQR POT ACI MEE
SGM hedge position next week:
net-50%-long – Remove 50% of hedge (TWM is 2x inverse Proshares ETF on Russell 2000 index)
Sunday, August 17, 2008
Returns for the week ending 8/15/08
Strategic Growth Model (SGM) portfolio = -0.2%
Value of $10,000 invested at inception: $48,228
SGM holdings for next week (10 equal positions):
Holdings: GMXR BUCY GHM CF KSU RIMM DXPE SYUT ISYS ENS
SELL: BABY
BUY: ENS
SGM hedge position next week:
Market neutral – Use 1/3 of funds to purchase TWM (TWM is 2x inverse Proshares ETF based on Russell 2000 index)
Strategic Growth Model (SGM) portfolio = -0.2%
Value of $10,000 invested at inception: $48,228
SGM holdings for next week (10 equal positions):
Holdings: GMXR BUCY GHM CF KSU RIMM DXPE SYUT ISYS ENS
SELL: BABY
BUY: ENS
SGM hedge position next week:
Market neutral – Use 1/3 of funds to purchase TWM (TWM is 2x inverse Proshares ETF based on Russell 2000 index)
Saturday, August 9, 2008
Returns for the week ending 8/8/08
Strategic Growth Model (SGM) portfolio = -1.3%
Value of $10,000 invested at inception: $48,326
SGM holdings for next week (10 equal positions):
Holdings: GMXR BUCY CF KSU RIMM GHM DXPE SYUT ISYS BABY
SELL: ENS TITN POT MOS MEE
BUY: RIMM DXPE SYUT ISYS BABY
SGM portfolio is on a BUY signal, next week’s holdings:
Market Neutral...
use 2/3 of funds to buy equal positions in each of the ASM-10 holdings
use 1/3 of funds to buy TWM (2x inverse ETF – Russell 2000 index)
Sunday, August 3, 2008
Friday, July 25, 2008
Returns for the week ending 7/25/08
Returns for the week ending 7/25/08:
Strategic Growth Model (SGM) portfolio = -1.3%
Value of $10,000 invested at inception: $49,134
SGM portfolio is on a SELL signal, next week’s holdings:
1/2 of funds in RWM
1/2 of funds in CASH
Strategic Growth Model (SGM) portfolio = -1.3%
Value of $10,000 invested at inception: $49,134
SGM portfolio is on a SELL signal, next week’s holdings:
1/2 of funds in RWM
1/2 of funds in CASH
Saturday, July 19, 2008
Returns for the week ending 7/18/08
Returns for the week ending 7/18/08:
Strategic Growth Model (SGM) folio = -1.4%
Value of $10,000 invested at inception: $49,781
Strategic Growth portfolio is on a SELL signal, next week’s holdings:
1/2 of funds in RWM
1/2 of funds in CASH
Strategic Growth Model (SGM) folio = -1.4%
Value of $10,000 invested at inception: $49,781
Strategic Growth portfolio is on a SELL signal, next week’s holdings:
1/2 of funds in RWM
1/2 of funds in CASH
Friday, July 11, 2008
Returns for the week ending 7/11/08
Returns for the week ending 7/11/08:
Strategic Growth Model (SGM) portfolio = -0.8%
Value of $10,000 invested at inception: $50,462
SGM portfolio is on a SELL signal, next week’s holdings:
1/2 of funds in RWM
1/2 of funds in CASH
Strategic Growth Model (SGM) portfolio = -0.8%
Value of $10,000 invested at inception: $50,462
SGM portfolio is on a SELL signal, next week’s holdings:
1/2 of funds in RWM
1/2 of funds in CASH
Saturday, July 5, 2008
Risk Managed Performance
Since I am using a system based approach here, I will explain some of the statistics I use in my scorecard.
Statistics are used to show that the model is generating excellent risk-adjusted returns, along with a low correlation to the market. A low correlation indicates that the system is appropriate for all market conditions, suitable for holding throughout the complete Bull-Bear cycle.
The CAGR% (Compound Annual Growth Rate) is the total return generated by the model. Many trading systems are optimized for CAGR% alone, with the idea that a higher number is always better. Not always! A better goal is to maximize risk-adjusted return. So in addition to absolute return, this system considers several factors that impact the return/risk.
The Sharpe Ratio is a measure of reward-to-risk efficiency. It measures whether the investor gains at least one unit of return for each unit of risk. The higher the number, the better.
The RSQ correlation coefficient measures the degree to which movement of the model portfolio is related to that of the S&P 500 index. It is a measure of the beneficial effect of diversification. for a diversified portfolio, you want to see the its correlation coefficient within a target range of 0.50 and zero.
The Maximum Equity Drawdown (MDD) is another way to measure the riskiness of a trading system. It measures the maximum interim equity loss from a peak to the following trough.
Beta is a popular statistical measure of risk, measuring the model portfolio's volatility in relation to that of the S&P 500 index.
Statistics are used to show that the model is generating excellent risk-adjusted returns, along with a low correlation to the market. A low correlation indicates that the system is appropriate for all market conditions, suitable for holding throughout the complete Bull-Bear cycle.
The CAGR% (Compound Annual Growth Rate) is the total return generated by the model. Many trading systems are optimized for CAGR% alone, with the idea that a higher number is always better. Not always! A better goal is to maximize risk-adjusted return. So in addition to absolute return, this system considers several factors that impact the return/risk.
The Sharpe Ratio is a measure of reward-to-risk efficiency. It measures whether the investor gains at least one unit of return for each unit of risk. The higher the number, the better.
The RSQ correlation coefficient measures the degree to which movement of the model portfolio is related to that of the S&P 500 index. It is a measure of the beneficial effect of diversification. for a diversified portfolio, you want to see the its correlation coefficient within a target range of 0.50 and zero.
The Maximum Equity Drawdown (MDD) is another way to measure the riskiness of a trading system. It measures the maximum interim equity loss from a peak to the following trough.
Beta is a popular statistical measure of risk, measuring the model portfolio's volatility in relation to that of the S&P 500 index.
Thursday, July 3, 2008
Returns for the week ending 7/3/08
Returns for the week ending 7/3/08 (Short week due to holiday):
Strategic Growth Model (SGM) portfolio = +2.4%
Value of $10,000 invested at inception: $50,869
SGM portfolio is on a SELL signal, next week’s holdings:
1/2 of funds in RWM
1/2 of funds in CASH
Strategic Growth Model (SGM) portfolio = +2.4%
Value of $10,000 invested at inception: $50,869
SGM portfolio is on a SELL signal, next week’s holdings:
1/2 of funds in RWM
1/2 of funds in CASH
Saturday, June 28, 2008
Friday, June 20, 2008
Sunday, June 15, 2008
Sunday, June 8, 2008
Returns for the week ending 6/6/08:
Strategic Growth Model (SGM) portfolio = +3.8%
Value of $10,000 invested at inception: $48,193
SGM holdings for next week (10 positions):
Holdings: RIMM MOS CLR BIDU SQM GMXR GEOI PSEM ARD SWN
SELL: none
BUY: none
SGM hedge position next week:
Market neutral - use 1/3 of funds to buy TWM (TWM is 2x inverse Proshares ETF on Russell 2000 index)
Strategic Growth Model (SGM) portfolio = +3.8%
Value of $10,000 invested at inception: $48,193
SGM holdings for next week (10 positions):
Holdings: RIMM MOS CLR BIDU SQM GMXR GEOI PSEM ARD SWN
SELL: none
BUY: none
SGM hedge position next week:
Market neutral - use 1/3 of funds to buy TWM (TWM is 2x inverse Proshares ETF on Russell 2000 index)
Saturday, May 31, 2008
Returns for the week ending 5/30/08:
Strategic Growth Model (SGM) portfolio = +1.4%
Value of $10,000 invested at inception: $46,413
SGM holdings for next week (10 positions):
Holdings: RIMM MOS BIDU SQM GMXR GEOI CLR PSEM ARD SWN
SELL: none
BUY: none
SGM hedge position next week:
net-50%-long – Remove 50% of TWM position, using 1/6 of funds to buy TWM (TWM is 2x inverse Proshares ETF on Russell 2000 index)
Strategic Growth Model (SGM) portfolio = +1.4%
Value of $10,000 invested at inception: $46,413
SGM holdings for next week (10 positions):
Holdings: RIMM MOS BIDU SQM GMXR GEOI CLR PSEM ARD SWN
SELL: none
BUY: none
SGM hedge position next week:
net-50%-long – Remove 50% of TWM position, using 1/6 of funds to buy TWM (TWM is 2x inverse Proshares ETF on Russell 2000 index)
Saturday, May 24, 2008
Returns for the week ending 5/23/08:
Strategic Growth Model (SGM) portfolio = +2.1%
Value of $10,000 invested at inception: $45,762
SGM holdings for next week (10 positions):
Holdings: RIMM MOS BIDU CLR SQM GMXR GEOI PSEM ARD SWN
SELL: SOL CYBS
BUY: ARD SWN
SGM hedge position next week:
net-50%-long – use 1/6 of funds to buy TWM (TWM is 2x inverse Proshares ETF on Russell 2000 index)
Strategic Growth Model (SGM) portfolio = +2.1%
Value of $10,000 invested at inception: $45,762
SGM holdings for next week (10 positions):
Holdings: RIMM MOS BIDU CLR SQM GMXR GEOI PSEM ARD SWN
SELL: SOL CYBS
BUY: ARD SWN
SGM hedge position next week:
net-50%-long – use 1/6 of funds to buy TWM (TWM is 2x inverse Proshares ETF on Russell 2000 index)
Saturday, May 17, 2008
Returns for the week ending 5/16/08:
Strategic Growth Model (SGM) portfolio = +3.8%
Value of $10,000 invested at inception: $44,800
SGM portfolio holdings for next week (10 positions):
Holdings: RIMM CLR MOS BIDU SOL SQM GMXR GEOI PSEM CYBS
SELL: TITN ATW MPWR
BUY: GEOI PSEM CYBS
SGM hedge position next week:
Market neutral - use 1/3 of funds to buy TWM (2x inverse R2K Proshares ETF)
Strategic Growth Model (SGM) portfolio = +3.8%
Value of $10,000 invested at inception: $44,800
SGM portfolio holdings for next week (10 positions):
Holdings: RIMM CLR MOS BIDU SOL SQM GMXR GEOI PSEM CYBS
SELL: TITN ATW MPWR
BUY: GEOI PSEM CYBS
SGM hedge position next week:
Market neutral - use 1/3 of funds to buy TWM (2x inverse R2K Proshares ETF)
Saturday, May 10, 2008
Returns for the week ending 5/9/08:
Strategic Growth Model (SGM) portfolio = +1.8%
Value of $10,000 invested at inception: $43,165
SGM holdings for next week (10 positions):
Holdings: RIMM MOS BIDU CLR MPWR TITN SOL SQM GMXR ATW
SELL: POT NGS PSEM PDE ARD
BUY: CLR TITN SOL SQM GMXR ATW
SGM hedge position next week:
Market neutral - use 1/3 of funds to buy TWM (2x inverse R2K Proshares ETF)
Strategic Growth Model (SGM) portfolio = +1.8%
Value of $10,000 invested at inception: $43,165
SGM holdings for next week (10 positions):
Holdings: RIMM MOS BIDU CLR MPWR TITN SOL SQM GMXR ATW
SELL: POT NGS PSEM PDE ARD
BUY: CLR TITN SOL SQM GMXR ATW
SGM hedge position next week:
Market neutral - use 1/3 of funds to buy TWM (2x inverse R2K Proshares ETF)
Sunday, May 4, 2008
Returns for the week ending 5/2/08:
Strategic Growth Model (SGM) portfolio = -4.0%
Value of $10,000 invested at inception: $42,390
SGM holdings for next week (9 positions):
Holdings: RIMM MOS ARD BIDU NGS POT PSEM PDE MPWR
SELL: BUCY WSCI TITN CLR SOL
BUY: POT PSEM PDE MPWR
SGM hedge position next week:
Market neutral - use 1/3 of funds to buy TWM (2x inverse R2K Proshares ETF)
Strategic Growth Model (SGM) portfolio = -4.0%
Value of $10,000 invested at inception: $42,390
SGM holdings for next week (9 positions):
Holdings: RIMM MOS ARD BIDU NGS POT PSEM PDE MPWR
SELL: BUCY WSCI TITN CLR SOL
BUY: POT PSEM PDE MPWR
SGM hedge position next week:
Market neutral - use 1/3 of funds to buy TWM (2x inverse R2K Proshares ETF)
Saturday, April 26, 2008
Returns for the week ending 4/25/08:
Strategic Growth Model (SGM) portfolio = +0.3%
Value of $10,000 invested at inception: $44,170
SGM portfolio holdings for next week (10 positions):
Holdings: RIMM TITN BUCY CLR MOS ARD BIDU NGS SOL WSCI
SELL: TNH
BUY: WSCI
SGM hedge position next week:
net-50%-long – use 2/3 of funds to buy equal positions in the stocks above, use 1/6 of funds to buy TWM (TWM is 2x inverse Proshares ETF on Russell 2000 index), remainder in cash
Strategic Growth Model (SGM) portfolio = +0.3%
Value of $10,000 invested at inception: $44,170
SGM portfolio holdings for next week (10 positions):
Holdings: RIMM TITN BUCY CLR MOS ARD BIDU NGS SOL WSCI
SELL: TNH
BUY: WSCI
SGM hedge position next week:
net-50%-long – use 2/3 of funds to buy equal positions in the stocks above, use 1/6 of funds to buy TWM (TWM is 2x inverse Proshares ETF on Russell 2000 index), remainder in cash
Saturday, April 19, 2008
Returns for the week ending 4/18/08:
Strategic Growth Model (SGM) portfolio = +2.0%
Value of $10,000 invested at inception: $44,022
SGM portfolio holdings for next week (10 positions):
Holdings: RIMM BUCY TITN CLR MOS ARD BIDU NGS SOL TNH
SELL: ISRG
BUY: BUCY SOL TNH
SGM hedge position next week:
net-50%-long - use 1/6 of funds to buy TWM (TWM is 2x inverse Proshares ETF on Russell 2000 index)
Friday, April 11, 2008
Performance since Oct '07 Market Top
Model Returns since 10/1/07 (Market Top):
Strategic Growth Model (SGM) portfolio: +16.4%
Vs. S&P 500: -13.5%
In the 6 months since the beginning of the market correction, the Strategic Growth Model (SGM) portfolio has outperformed the benchmark index by +29.9%. This turbulent market is providing an excellent stress test for the system.
Strategic Growth Model (SGM) portfolio: +16.4%
Vs. S&P 500: -13.5%
In the 6 months since the beginning of the market correction, the Strategic Growth Model (SGM) portfolio has outperformed the benchmark index by +29.9%. This turbulent market is providing an excellent stress test for the system.
Returns for the week ending 4/11/08:
Strategic Growth Model (SGM) portfolio = +4.1%
Value of $10,000 invested at inception: $43,165
SGM Portfolio holdings for next week (8 positions):
Holdings: TITN CLR RIMM MOS ISRG ARD BIDU NGS
SELL: GHM TNE HOLX
BUY: ISRG
SGM hedge position next week:
market neutral - Market neutral net position using TWM (2x inverse R2K Proshares ETF)
Strategic Growth Model (SGM) portfolio = +4.1%
Value of $10,000 invested at inception: $43,165
SGM Portfolio holdings for next week (8 positions):
Holdings: TITN CLR RIMM MOS ISRG ARD BIDU NGS
SELL: GHM TNE HOLX
BUY: ISRG
SGM hedge position next week:
market neutral - Market neutral net position using TWM (2x inverse R2K Proshares ETF)
Saturday, April 5, 2008
Returns for week ending 4/4/08:
Strategic Growth Model (SGM) portfolio = +1.4%
Value of $10,000 invested at inception: $41,447
SGM portfolio holdings for next week (10 positions):
Holdings: TNE RIMM TITN CLR MOS ARD GHM HOLX BIDU NGS
SELL: ISRG LKQX
BUY: GHM HOLX BIDU NGS
SGM hedge position next week:
Market neutral position using 1/3 of funds to buy TWM (2x inverse R2K Proshares ETF)
Sunday, March 30, 2008
Returns for week ending 3/28/08:
Strategic Growth Model (SGM) portfolio = -0.6%
Value of $10,000 invested at inception: $40,870
SGM portfolio next week (8 positions):
Holdings: TNE RIMM ISRG TITN LKQX CLR MOS ARD
SELL: WDC CEDC
BUY: ARD
SGM portfolio is on a BUY signal, holdings for next week:
net-50%-long...
2/3 of funds to buy ASM-10 positions
1/6 of funds in cash
1/6 of funds to buy TWM (50% hedged)
Returns for week ending 3/20/08 (Market closed Good Friday):
Strategic Growth Model (SGM) portfolio = -1.3%
Value of $10,000 invested at inception: $41,117
SGM portfolio is on a SELL signal, holdings:
1/2 of funds in RWM
1/2 of funds in CASH
Saturday, March 15, 2008
Monday, March 10, 2008
Saturday, February 23, 2008
Saturday, February 16, 2008
Friday, February 8, 2008
Friday, February 1, 2008
Saturday, January 26, 2008
Saturday, January 19, 2008
Sunday, January 13, 2008
Saturday, January 5, 2008
The Real World
While the Efficient Market Hypothesis (EMH) continues to enjoy strong support in academia, I have found that it doesn't hold up in the real world.
In the real world:
- Financial information is neither evenly distributed nor smoothly acted upon. The resulting inefficiencies create trading opportunities. Sales and earnings growth data is an example where the information is not smoothly acted upon by the market. Also price momentum.
- Profit generation processes and forecast techniques tend to be compressed together by the forces of consensus. This results in a "herd mentality" that can take markets to extremes, creating both risks and trading opportunities.
The key success factor is to discover these inefficiencies and use them to develop a "winning edge." Once you have a winning edge, you can develop a profitable trading system around it.
The Alpha Stock Model provides the tradeable edge for the trading system to be outlined here over the next several weeks.
In the real world:
- Financial information is neither evenly distributed nor smoothly acted upon. The resulting inefficiencies create trading opportunities. Sales and earnings growth data is an example where the information is not smoothly acted upon by the market. Also price momentum.
- Profit generation processes and forecast techniques tend to be compressed together by the forces of consensus. This results in a "herd mentality" that can take markets to extremes, creating both risks and trading opportunities.
The key success factor is to discover these inefficiencies and use them to develop a "winning edge." Once you have a winning edge, you can develop a profitable trading system around it.
The Alpha Stock Model provides the tradeable edge for the trading system to be outlined here over the next several weeks.
Other things I learned in college...
that later proved to be wrong!
Myth #1: "Fundamental Analysis and Technical Analysis are mutually exclusive approaches to investing and trading."
What I've found: William O'Neil's classic, "How to Make Money in Stocks" shows that Fundamental and Technical Analysis can be used together to indentify likely stock market winners. Some call this hybrid approach "Techno-Fundamentalism."
Myth #2: "Market timing is a fool's game... You can't use market timing strategies to enhance risk adjusted returns."
What I've found: Patterns in human behavior repeatedly drive stock market cycles, which can be exploited to enhance risk adjusted returns over time.
Myth #3: "Beta = Volatility = Risk = Bad"
What I've found: Some types of volatility are good, for example when a stock you own explodes to the upside! The challenge is to harness the volatility and retain your trading gains over a complete market cycle. e.g. peak-to-peak or trough-to-trough measurement.
Myth #1: "Fundamental Analysis and Technical Analysis are mutually exclusive approaches to investing and trading."
What I've found: William O'Neil's classic, "How to Make Money in Stocks" shows that Fundamental and Technical Analysis can be used together to indentify likely stock market winners. Some call this hybrid approach "Techno-Fundamentalism."
Myth #2: "Market timing is a fool's game... You can't use market timing strategies to enhance risk adjusted returns."
What I've found: Patterns in human behavior repeatedly drive stock market cycles, which can be exploited to enhance risk adjusted returns over time.
Myth #3: "Beta = Volatility = Risk = Bad"
What I've found: Some types of volatility are good, for example when a stock you own explodes to the upside! The challenge is to harness the volatility and retain your trading gains over a complete market cycle. e.g. peak-to-peak or trough-to-trough measurement.
Ivory Tower Theories
While earning my degree, one of my finance professors required the class to read Burton Malkiel's "A Random Walk Down Wall Street." Malkiel's book preaches Efficient Market Hypothesis (EMH), which has become dogma for many in the financial world. For a time, I became a believer in EMH.
Efficient Market Hypothesis (EMH)
- The stock market is a perfectly competitive market
- All information is known
- Prices reflect all information
- The only way to beat the market is luck
- Luck will run out quickly
I later came across the "January Effect" and the "Persistence of Performance" mutual fund study (Sheldon Jacobs) which further motivated me to look beyond EMH for some explanations.
“What could be more advantageous in an intellectual contest — whether it be chess, bridge, or stock selection — than to have opponents who have been taught that thinking is a waste of energy?” -Warren Buffett
The Challenge
It is an extreme challenge to consistently beat the market. While there are some notable exceptions, professional fund managers do not have a good track record.
I recently came across these sobering statistics from Lipper Research...
I recently came across these sobering statistics from Lipper Research...
- The average mutual fund returns 2% less than the stock market in general
- 80% of mutual funds under-perform the market in any given year
- From 1984 to 1999, one of the largest bull runs in history, the majority of North American mutual funds failed to outperform the Wilshire 5000 index.
- Most mutual fundsd have Sharpe ratios (a measure of risk adjusted return) of less than 1.0
Developing a Trading System
The Alpha Stock Model (ASM-10) is the core of the trading system being tested here. The ASM-10 portfolio is the "alpha engine" that primarily drives the portfolio's returns. After developing the predictive model to identify the next big stock market winners, my attention turned to risk management and how to determine the ideal long-short hedge allocation to be aligned with the market conditions.
The goal of developing a trading system is to consistently (systematically!) beat the market while managing risk. The system is optimized for risk adjusted return. Another goal is to make it easy to fine-tune in accordance with the trader's risk tolerance.
Trading System = Stock Selection + Risk Management + Market Timing
The goal of developing a trading system is to consistently (systematically!) beat the market while managing risk. The system is optimized for risk adjusted return. Another goal is to make it easy to fine-tune in accordance with the trader's risk tolerance.
Trading System = Stock Selection + Risk Management + Market Timing
Subscribe to:
Posts (Atom)
Posts
