Mousetrap 7/10/2011

[Pascal]

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