12/20/2015 The True Endgame

Mouse	XLE	-12.84%
Rabbit	Date	Return	Days
BT	8/11/2015	-5.88%	131
TM	8/12/2015	-3.58%	130
ED	9/17/2015	0.65%	94
DY	10/30/2015	0.31%	51
CVS	11/6/2015	-4.70%	44
TMK	11/23/2015	-8.54%	27
WM	11/25/2015	-1.61%	25
UPL	12/1/2015	-40.40%	19
APD	12/9/2015	-3.85%	11
NVR	12/16/2015	-0.13%	4
Turtle	Date	Return	Days
BT	8/11/2015	-5.88%	131
TM	8/12/2015	-3.58%	130
MMP	9/4/2015	-9.82%	107
ED	9/17/2015	0.65%	94
DY	10/30/2015	0.31%	51
CVS	11/6/2015	-4.70%	44
TMK	11/23/2015	-8.54%	27
WM	11/25/2015	-1.61%	25
CLF	11/30/2015	-32.33%	20
UPL	12/1/2015	-40.40%	19
	Since 5/31/2011	Annualized
S&P	49.09%	9.16%
Mouse	73.06%	12.79%
Rabbit	56.15%	10.28%
Turtle	56.34%	10.31%

The Mouse whipsawed into and out of XLU before the close, leaving me personally in XLU and Steve’s STAR Fund in XLE.

If there is a favorable gap tomorrow I’ll trade back to XLE. Otherwise I’ll recalculate before the close. As always, the weekly updated graph and returns will reflect the actual returns.

Looking back at the last two years, or even the last four years, 2015’s collapse in both models leaves my gut with the question of what the point is.

But that “gut” feeling is exactly the point of this – my gut is wrong. Planned trading based on logical rules at least gives me something to work with. And, as bad as this past year has been, my gut trades of previous years were infinitely worse.

The gut looks at the now, and logarithmically discounts time, both in the past and the future.

What matters is NOT where I am versus last year, but instead where I am in relation to where I need to be when I retire. To calculate that, I don’t just measure the daily line. Instead, I have to measure today’s price against the exponential regression line – projected forward to 4/5/2034, the last day that I want to be ready to retire. If I enjoy working after that, I’ll work doing whatever I enjoy. If I enjoy something better than work before that date, then my target retirement fund will dictate whether I should consider it. Ultimately money determines whether we can retire, and time gives us the opportunity to plan accordingly.

Today’s value of the Mouse (which is the benchmark for all of my models) is -.2696 standard deviations below its current regression line. The total expected return is that of the regression projection for 4/5/2034 divided by today’s value, minus 100%. That is a 2507.45% projected return, which translates to 19.52% per year.

The Mouse has LOST -28.84% so far this year. It’s been a bad year – the worst on record, and even worse than the returns for the 2008 backtest. If I were to listen to my gut I’d throw up my hands at the hopelessness of it all. But if I run the calculations I find that the model is behaving normally and I’m in great shape.

I’m using about three spreadsheets to run the calculations, and they tell me how much to save each month based on my age, what I have in my accounts, how much I need to retire, when I need to retire, and what the current value’s expected return will be.

Once I get all of that into a single spreadsheet I plan to post it for expected returns in SPY. But for now, this is a glimpse of what I personally work with to plan for retirement.

However you do plan, the key is to make the plan and to stick with it. It’s worth the time to consult with a registered financial advisor and to get him to show you his calculations. I’ll be posting my own spreadsheet for reference to help folks ask those questions.

But DO ask, and DO find someone qualified to give answers. And do it as early in your career as you can. The financial markets are kindest to those with modest goals, and cruelest to those who are greedy. It’s tragically ironic, but too often true.

Tim