Mousetrap 12/4/2011 (lessons learned six months in)

Secular Hold IAU & XLF 6.25%
Condition Bear Market Rally
S&P Target 940
Hedge XLU -1.65%

Position Date Return Days Call
SE 6/27/2011 12.51% 159 Hold
CLH 7/6/2011 11.82% 150 Hold
GCI 7/14/2011 -12.49% 142 Hold
WHR 11/30/2011 1.84% 3 Hold
CSGS 10/3/2011 19.25% 61 Hold
NLY 10/25/2011 -1.04% 39 Buy
DD 10/27/2011 -2.77% 37 Hold
TTM 11/30/2011 6.89% 3 Hold
KBR 10/27/2011 -2.04% 37 Hold
VG 10/27/2011 -24.15% 37 Hold

S&P Annualized -14.73%
Mousetrap Annualized 4.34%
Hedged Annualized -2.22%
Secular Annualized 12.27%

Six months into the experiment, the advantage of adding fundamentals to the strictly technical model are small but measurable.

A trading account of less than 30,000 would probably have done better simply following the Secular Hold (i.e. holding 50% gold and 50% the chosen sector). This would have given a secular return at a 12.27% annual rate, against the S&P annual rate of -14.73%. That’s an annualized advantage of 27%.

A 50% gold and 50% hybrid (Mousetrap) return would have been 15.30%, for an advantage of 29.95%.

For a smaller account, the 2.95% gain would not overcome the trading costs.

So, lessons learned six months in:

1) Using a hedged account may not offer any advantages even in a bear market once the 8% hedging fee is given up to the broker.
2) The secular hold cannot be ignored; in this case gold.
3) Only larger accounts should attempt a fundamental hybrid, while smaller accounts should merely stick with the secular trades (the first line, alone).

Incidentally, the annualized hedged returns (above) are NOT factoring in those 8% shorting charges.

Granted, more sophisticated market timing, or an actual crash, could change these takeaways, but we are only six months into the experiment.

Tim