Originally Posted by
Timothy Clontz
Condition Bear Market
S&P Target 960
Position Date Return Days Call
BKI 5/31/2011 5.24% 78 Hold
CFI 6/22/2011 5.13% 56 Buy
SE 6/27/2011 -4.42% 51 Hold
AWR 7/5/2011 -1.31% 43 Hold
CLH 7/6/2011 -3.83% 42 Hold
GCI 7/14/2011 -19.76% 34 Hold
AGO 8/5/2011 -1.38% 12 Hold
DISH 8/10/2011 6.30% 7 Hold
NA NA NA NA NA
NA NA NA NA NA
Mousetrap Return -1.75%
S&P Return -6.70%
Mousetrap Annualized -15.87%
S&P Annualized -60.58%
Annualized Advantage 44.72%
The model is now outperforming the S&P by an annual rate of 44.72%. That’s a little high for the model, and the target performance is S&P + 30% (and most days the performance advantage is indeed in the 30-40% range).
The S&P projection has fallen again, now to 960, which is better than a 20% drop from today’s prices.
So that leads to the question of how I personally use the model.
The model is, first and foremost, untimed. Even though I am projecting a bear market, the model remains long. As a fundamental-technical hybrid model, the only purpose is to beat the S&P500 by a significant enough margin that there is little purpose to actually trying to weave in and out between long and short positions. That said, there are some features of how I am using the model that will show how I plan to use a bear market to my advantage. So, here is how I am using this model with my own funds.
1) I only buy a stock when it is listed as a buy. Buys are at a point of maximum positive money flow in their industry and maximum fundamental characteristics for the stock.
2) All buys and sells are set as a limit order on yesterday’s closing price. I do not chase a stock. If it misses, I’ll catch it the next time it wobbles into a good buy point.
3) Once fully loaded, I will rotate through ten stocks, with an initial investment as exactly ten percent of the last maximum value of the portfolio.
Number 3, as I use it, requires a margin account. If I did not have a margin account, I’d simply use the remaining funds on my tenth position and call it a day. But a margin account could take advantage of a bear market with very little risk.
Imagine if an account started with 100,000 dollars. Each position would have 10,000 apiece. If the account rose to 110,000 dollars each new position would have 11,000 apiece.
If the market then fell so that my account only had 100,000 dollars again, I would still invest 11,000 in each new position.
That would give a slight margin over time, so that I would be slightly more than 100% invested around the bottom of a bear market, and no more than 100% invested at the top of a bull. Since the model rotates rather slowly through each position the total account would not itself be very margined. A 10% margin on one stock out of ten is only about 1% margined on the total account.
While conservative, I don’t have to do much more than that anyway. Beating the S&P by 30% is the target for the model. That’s extremely ambitious as it is. An ordinary investor doesn’t use margin, and in fact the model does not require it.
That said, the performance numbers I show for returns will NEVER reflect any margin. If a stock earned 30% with 10% margin I would not report 33% gain, but only the non-margined 30%.
As it stands the model is still in beta testing. I am using real money in a real account. I have back-tested the technicals and tested the fundamentals in real time – but I have NOT tested them together. The test of this hybrid approach is being done live – right now – in these notes that I am sending. I feel confident about the prospects, but this remains only a test at present.
Tim
On an aside -- the technical aspects of this model are what I am testing on the sector adaptations to the IWM Robot in the Algo forum.
Reply With Quote