Thursday, September 28, 2017

Thursday, September 14, 2017

9/14/2017 Sector Trade

Another whipsaw.  The Sector Model sold XLE and bought XLP.

A cash account would be moving from cash back into XLP now that the previous trade cleared.

Wednesday, September 13, 2017

9/13/2017 Sector Trade

The Sector Model sold XLI and (bought) XLE before the close.

However, in a non margin account the model would be in cash or remain in XLI (user preference) because of the unsettled wait time.

Tuesday, September 12, 2017

Thursday, August 31, 2017

Friday, August 18, 2017

Friday, August 11, 2017

Tuesday, August 8, 2017

Sunday, August 6, 2017

8/6/2017 End of July Metrics

Sector Model
XLU
0.66%
Full Model
Date
Return
Days
BT
8/11/2015
-39.30%
726
TMK
11/23/2015
32.65%
622
NVR
12/16/2015
61.30%
599
CMP
2/19/2016
3.43%
534
NVR
2/22/2016
68.10%
531
AMWD
3/17/2016
41.77%
507
CASY
5/12/2016
-3.37%
451
AEM
6/7/2016
-10.10%
425
ESRX
6/13/2016
-17.63%
419
AMED
6/16/2016
-3.61%
416
FRO
6/27/2016
-21.93%
405
ASTE
7/12/2016
-17.09%
390
MFC
9/1/2016
53.76%
339
SFM
9/8/2016
20.99%
332
CFFN
9/12/2016
4.67%
328
FIG
12/6/2016
60.88%
243
FOSL
5/11/2017
-19.39%
87
HIBB
7/25/2017
14.50%
12
FOSL
7/27/2017
5.43%
10
HZO
8/1/2017
4.71%
5
(Since 5/31/2011)
S&P
Annualized
10.35%
Sector Model
Annualized
16.63%
Full Model
Annualized
13.65%
S&P
Total
83.92%
Sector Model
Total
158.92%
Full Model
Total
120.59%
Sector Model
Advantage
6.27%
Full Model
Advantage
3.29%
Previous
2017
S&P
66.43%
10.51%
Sector Model
120.54%
17.40%
Full Model
91.27%
15.33%


In the current metrics, the Full Model has still failed to find a maximum holding period, even after over 6 years of live testing:




Note on the “Taxed” line that the maximum annualized return rate continues to be the maximum recorded holding period.  Although the factor of taxes does indeed favor a longer holding period because of compound interest, I suspect that another factor is the effect of High Frequency Trading Algorithms eating away the potential profitability of short term trades.  Just as humans cannot compete with these black boxes, neither can my model.  But that’s the point of my model: I’m not trying to compete with the HFTs, but rather to get out of their way.

That said, I still ended up with three trades in the past few weeks, even though a 6 year holding period over 20 positions should have taken most of a year to trade that often.  There were two contributing factors: 1) I need to tighten up my gap threshold, and 2) some of my trades were forced by my companies being bought out for a nice profit.  Holding through the acquisition wasn’t even an option, and I needed to trade.

The Sector Model, on the other hand, has held the XLU position for an unusually long period of time, and the performance graph has become disturbingly quiet:



Note that such close hugging of a trend-line doesn’t always end well for the broad market, and in fact the sector ratios continue to favor defensive industries:





One can never time these things, but it remains a puzzle.  On the one hand, the recent slashing of regulations by the Trump administration typically helps the market for a few years, but on the other hand the failure of any sign of bipartisan healthcare reform bodes ill.

The dollar has been falling lately, which might explain why retail stocks are falling into my model.  But those are hardly bearish moves.

Will be interesting to watch.  As always, I’m happy I don’t have to worry about timing.

Tim


Wednesday, August 2, 2017

8/2/2017 Unscheduled Trade

Because PMC is being taken private, the model sold PMC and bought HZO with a 15% favorable gap.


Friday, July 28, 2017

7/28/2017 Unscheduled Trade

ENOC is terminating its trading next week, so I have made an unscheduled trade.

The Model sold ENOC and bought FOSL.

That makes a second position in FOSL, just as there are two positions in NVR.  Eventually those second positions will be eliminated, but for now they are in place.


Monday, July 24, 2017

7/24/2017 Stock Trade

The Full Model sold AVB and bought HIBB with a 30% favorable gap.


7/24/2017 Long Term Avoids Two Monsters

Sector Model
XLU
-0.26%
Full Model
Date
Return
Days
BT
8/11/2015
-41.27%
711
TMK
11/23/2015
31.39%
607
NVR
12/16/2015
59.67%
584
CMP
2/19/2016
4.35%
519
NVR
2/22/2016
66.40%
516
ENOC
3/15/2016
4.92%
494
AMWD
3/17/2016
45.72%
492
CASY
5/12/2016
-6.02%
436
AVB
5/24/2016
10.18%
424
AEM
6/7/2016
-7.59%
410
ESRX
6/13/2016
-17.67%
404
AMED
6/16/2016
17.80%
401
FRO
6/27/2016
-16.86%
390
ASTE
7/12/2016
-5.08%
375
MFC
9/1/2016
51.28%
324
SFM
9/8/2016
23.78%
317
CFFN
9/12/2016
3.45%
313
FIG
12/6/2016
61.48%
228
PMC
3/16/2017
14.70%
128
FOSL
5/11/2017
-25.62%
72
(Since 5/31/2011)
S&P
Annualized
10.39%
Sector Model
Annualized
16.57%
Full Model
Annualized
13.68%
S&P
Total
83.53%
Sector Model
Total
156.56%
Full Model
Total
119.81%
Sector Model
Advantage
6.19%
Full Model
Advantage
3.29%
Previous
2017
S&P
66.43%
10.27%
Sector Model
120.54%
16.33%
Full Model
91.27%
14.92%

So far doing mostly nothing has worked out rather well this year.  That’s not the same as passive investing, but is instead meant to stay out of the way of high frequency trading algorithms.  If we sit back and let them feed off of each other, they can starve themselves out.

Won’t passive index investing accomplish the same thing?  Sure.  Passive investing and strategic long term investing both avoid the black box and the tax man.

The growth of index investing is either a fad, an evolutionary progression, or both.

Fads are easy to understand, but impossible to explain.

So I’ll focus on evolutionary progression.  Let’s say that there are two investors.  One flips stocks faster than McDonald’s hamburgers and the other holds an index.  The one with the most successful strategy (or the least unsuccessful strategy) will dominate the investment share.  If they start off with the same money then the total amount of money in each strategy is evenly balanced.  If one out performs the other, then the better strategy will eventually have two thirds, then three fourths, of the total money – and that’s even if neither investor changes his style.

For 95% of investors index holding is probably much better than trying to pick stocks or time trades.

And if those investors think they are in the top 5% then they are almost certainly wrong.

As for my own model – I already know I have the world’s worst investment instincts, so I let my own evolutionary algorithm make the decisions for me.

If I'm dumb, but I KNOW I am dumb, then I can have something else be smart for me.  For most of us that’s an index.  For me it’s my model.

In BOTH CASES, the answer is long term holding.  The short term taxes and high frequency algorithms will eat most of us alive if we flip trades.

LESS IS MORE.

Tim