Mousetrap 7/10/2011

The “Mousetrap” portfolio is half invested now (5 positions out of 10). Current returns are:

5/31 BKI at 25.11 -- up 14.16%
6/22 CFI at 8.29 -- up 20.51%
6/27 SE at 26.36 -- up 4.54%
7/5 AWR at 35.02 -- up .74%
7/6 CLH at 106.30 -- up 2.30%

Although that’s good, it’s important to consider that the market was going up at the time, and this could simply be higher “beta” in those positions. The real test will be on the way back down. The up/down ratio on a portfolio should be better than the up/down ratio for the general market.

Of these positions, SE, CFI, and AWR are in the “buy” positions, while CLH and BKI are holds. I think it’s important to be aware that industry wide money flow is giving strong precedence to two utilities: SE and AWR.

AWR, as a water industry, is especially a concern for the broad market. This is NOT a growth stock by any means. The only reason institutional money flow would be favoring this industry would be a flight to safety.

Since all of my “buy” slots are filled on the “Mousetrap” model, I have no purchases scheduled for Monday. I’ll post an update during the week if a purchase (or sell) presents itself.

As for the general market direction: I'll leave that for the Robot and 20DMF. Long term I don’t presently see a lot of potential for the market. This is a short term timer’s (i.e. Robot) or a stock picker’s (i.e. Mousetrap) market. Index ETFs have more downside risk than upside potential at the moment. That said, there continues to be short term potential on the XLK (technology) ETF, and it has performed rather well since I posted it as a buy some days ago.

For those timing the market,

XLK would still be the preferred long position, or
XLE for a short position (depending on the Robot).

This is a very interesting post.

I will communicate here a little secret that I published some time ago, but which has long been forgotten:
I made a very long back test of the best stocks to enter when the 20DMF issues a buy signal.
I found out that the best was to buy the stocks that showed the strongest thrust in the sectors that had the worst price RS for the past 20 days.

With this strategy, by investing the the five best stocks, I could beat IWM/TWM, but I could not beat TNA/TZA.

If I take your five stocks, you get an average return of 8.45% (the dates are different from the Robot buy date though.)

Since entering on June 10, the robot gained 8.6% while carrying a fully diversified class of equities.

My conclsion is still that it is very difficult to beat a leveraged diversified ETF by trading the "best" selected portfolio.
I supect that traders still trade individual stocks for psychological reasons:
- You have the feeling that you know an indidividual stock better.
- It is good to make good decisions and to see them develop into winners, especially when you quickly tend to forget the bad decisions.

So, I still believe that leveraged ETFs are better. Their only danger is when the whole system collapses, because then you only own a derivative.


Pascal

Pascal,

Although my model SEEMS to be tracking closely with the Robot, that's pure accident -- right now we are on an uptick.

When the Robot goes short it will leave me spinning in the dust.

My model is long-only, and the best I can hope for is 30% or so, while I believe the Robot tracks at 65% per year.

I have friends and family who cannot psychologically short the market under any circumstances, and I've developed this model for people with that sentiment.

The best it can do here is to either offer a diversification of strategies (I personally devote 50% of my portfolio to Robot signals and 50% to the Mousetrap). Most likely I expect it to serve as an interesting control group to show how much better market timing can perform over an untimed model.

On the algo and pivot forum I'll be tracking timed signals against my nine sector selection model. So far the Robot is trouncing my sector selection, but we're not even 1/4th into the test, so we'll have to see what happens. Billy is being very helpful with sector pivot information, and we'll have a good test after 4 full direction signals.

But this model is no competition for the Robot at all. It's not even in the same conceptual framework.

Tim

I have no problem with that Tim and the only competition that is out there for me are the HFTs, the quote stuffers and the front runners.

I just wanted to point out my own experience in trading individual stocks vs trading a widely diversified leveraged ETF.
There are both advanges and risks... but psychology is also probably a big factor.


Pascal