1/31/2017 Sector Change

The Sector Model called for a sell on XLU and a buy on XLP before the close.  I was personally unable to make the trade, but will do so in the morning if there is a favorable gap.

1/28/2017 What's the difference between stock picking and flipping a coin?

A week of more sweeping change than I can remember.  Eight years of Obama eradicated in eight days of Trump.

Regardless of who you supported, one, both, or neither – the pace of change and the unrest that accompanies it are matters that we often read the market does not like (bad?) – and in other writings we read that the market climbs a wall of worry (good?) – and in other writings we read that the market grows with enthusiasm (good?).  And, finally, we read that the market collapses after euphoria sweeps in the last buyer (bad?).

So which is it? Chaos (down), worry (up), enthusiasm (up), euphoria (down)?

Right.  These are a bunch of useless pieces of speculation that fit whatever random mood the writer is in.

Studies have shown that depressed people have a more accurate understanding of the way the world is, but I like to think that optimists have a better appreciation of what the world can become.

I don’t time, and these useless speculations are precisely why I don’t time.  The only money I’ve lost in the market has been in futile attempts to keep from losing money.

We are in the age of Trump.  Economic forces are larger than one man, and move far more slowly than the news.  Jump to the news and you’ll just sell to a patient fundamental investor and buy from a sneaky high frequency trading algorithm that rode the excitement and left you with the stock that’s ready to fall back to earth.

So where is Mr. Market on my models?  The Sector Model is now in Utilities.  The Full Model is, well, also pessimistic:

CABLETV

FURNITUR

HOUSEPRD

NWSPAPER

REIT

SEMI-EQP

SHOE

TELUTIL

UTILCENT

UTILEAST

UTILWEST

Utilities, utilities, utilities – from coast to coast!  Mr. Market is hiding from the cold weather and waiting for a sunnier day.  He has his shoes propped up on a newspaper that his neighbor highlighted for him in a political argument, and he’s hiding in his rented apartment watching cable tv and occasionally talking to his ex wife about the child support he owes from the construction job he hasn’t been able to get to through the bad weather.

Queue up Archie Bunker and look for a beer.  I don’t see a lot of enthusiasm for economic growth here.

I’m still watching Mohawk Industries MHK in the Furniture industry.  P/E is about average.  They’ve been making a number of acquisitions and their relative price strength is falling.  No one is excited about it.

And that brings me back to the point I started with: when you buy a stock, who are you buying it from; and when you sell a stock, who are you selling it to?  Someone just like yourself?  If you are trading with someone just like you, what’s the difference between trading and flipping a coin?

No – we trade with people who have different time horizons.  In a typical 4-6 year business cycle a sector will have its trough, its initial rise, a late rise, a top, an early fall, and then panic.  Long term investors should focus on stocks no one wants at the moment.  Focus on those last three words: “at the moment.”  Long term investors buy from short term traders at maximum pessimism, and sell back to short term traders at maximum optimism.

Which are you?  Well, the first indicator is how often you trade.

The less often you trade, the longer you’ll hold the stock.  Simple math.

The most brilliant stock pickers are the ones who buy a stock that everyone “knows” will go nowhere anytime soon – and they hold it until “anytime soon” is long past in the rear-view mirror.

Slower is better, in trading, in romance, and perhaps also in politics.  Time will tell.

1/26/2017 Sector Trade

The Sector Model sold XLP and bought XLU before the close.

1/22/2017 Change of Format

Now that the model is no longer experimental, a few changes are in order for the blog.

1)      I’ll do quarterly updates on the performance metrics.

2)      I’ll update the sectors, industries, and market conditions when they change.

3)      I’ll update on trades.

That leaves a lot of empty space, which I’ll fill with weekly trading interests and periodic market musings.

My current interest is BZH (Beazer Homes USA) in the HOMEBILD industry.  The stock looks interesting, and the industry makes sense given our current President, so I found it intriguing that it’s popped up on my model.  I’m not due for a trade this week, but a huge gap up in one of my stocks or a huge gap down on BZH may prove interesting.  The current price is 12.7 and I estimate it’s likely worth about 22.  It has a high Beta and horrible earnings this past year.  It’s the kind of stock that has scared away both human beings and black boxes, which is the type of stock I’m looking for – one at maximum terror for any sane investor or logical machine.

1/12/2017 Don't Panic, But...

The industries on the full model are exceptionally defensive at the moment.

CABLETV
FURNITUR
GASDISTR
PAPER
REIT
SEMI-EQP
SHOE
TELUTIL
UTILCENT
UTILEAST
UTILWEST

Mr. Market is planning to sit on his couch watching cable-tv with his shoes propped onto the coffee table.

He's renting, with his resume printed on fine paper as he seeks a blue collar job in semi-eqp, and the only thing that's truly dependable are the utilities, utilities, utilities, utilities, as long as the unemployment checks don't run out.

If we are looking for an explosive economic expansion, this isn't quite how it should start...

1/10/2017 Sector Trade

The Sector Model sold XLB and bought XLP.

1/5/2017 Sector Trade

The Sector Model sold XLU and bought XLB before the close (whipsaw from yesterday).

1/4/2017 Sector Trade

The Sector Model sold XLB and bought XLU at the open.

01/02/2017 The Saner Path

Sector Model	XLB	1.79%
Full Model	Date	Return	Days
BT	8/11/2015	-33.14%	510
DY	10/30/2015	5.31%	430
TMK	11/23/2015	23.02%	406
UPLMQ	12/1/2015	80.80%	398
NVR	12/16/2015	0.62%	383
CMP	2/19/2016	16.91%	318
NVR	2/22/2016	4.86%	315
ENOC	3/15/2016	-18.03%	293
AMWD	3/17/2016	10.10%	291
CASY	5/12/2016	4.25%	235
AVB	5/24/2016	0.58%	223
AEM	6/7/2016	-16.08%	209
ESRX	6/13/2016	-9.38%	203
AMED	6/16/2016	-15.38%	200
FRO	6/27/2016	-7.22%	189
ASTE	7/12/2016	15.07%	174
MFC	9/1/2016	31.61%	123
SFM	9/8/2016	-3.86%	116
CFFN	9/12/2016	18.53%	112
FIG	12/6/2016	-4.33%	27
(Since 5/31/2011)
S&P	Annualized	9.53%
Sector Model	Annualized	15.19%
Full Model	Annualized	12.29%
S&P	Total	66.43%
Sector Model	Total	120.54%
Full Model	Total	91.27%
Sector Model	Advantage	5.65%
Full Model	Advantage	2.76%
	Previous	2017
S&P	66.43%	0.00%
Sector Model	120.54%	0.00%
Full Model	91.27%	0.00%

Now that the short term (Rabbit) and long term (Turtle) strategies have been recombined, I will be listing the total returns for all stock trades from all iterations of the model, and proceeding with the long term holding period of the Turtle.

With a single stock model and a single etf model, I’ll go back to the simpler naming convention of the ETF “Sector Model” and the Stock “Full Model”.

As can be seen from the graph, the Sector Model continues to behave consistently between the backtested and live traded returns.

Both models are, as they say, “ready for prime time”.  I’ll continue with the blog, but allow the models to self-evolve according to the performance metrics embedded into them.  The average holding period on the Sector Model is just shy of a month – with some holds whipsawing a few times in a week and others lasting for months.  The average holding period on the Full Model is five and a half years, and growing.

That translates to an average trade on the Sector Model to once a month and on the Full Model to once a quarter (i.e. one out of twenty stocks).  It’s possible to have several quick trades on the Full Model, but those will be extremely rare.

And that’s that.  The Models are complete.  It’s just a matter of continuing to invest and plan for retirement.

Good investing everyone.  Let’s have a saner path to retirement than the stock flippers and day traders do.

Tim