Profits Expansion
How to Raise Profits from Good to Superb
Using the Continously Top-Ranked Internet Stock
Weekly--100 Stocks Portfolio--Internet Set
9 months August 17, 2007--May 16, 2008
See Comments below
PROFITS EXPANSION
and DRAWDOWN COLLAPSE
Notice the lovely beauty of the timing here. Over these nine months, you are out of the market entirely, holding cash equivalents for 15 weeks, slightly more than a third of the total period (38%, to be exact). The rest of the time, you are invested in a series of number-one ranked stocks, making nine trades during the period, several of them for consecutive weeks at a time. About one trade every three to four weeks.
THE TRADEOFF
. . . is risk / reward. How much risk do you want to take to get how much reward? Risk is losses. They are either realized or 'paper'. Reward is gains--how many, how big, over what period of time?
You may recall that the 'Copernicus' Factor (CF) is the ratio of total % gain divided by worst-case drawdown (dd%) over the period covered. For example, the second row in the table below, top 1 no timing
, shows a 76% total gain divided by 39% drawdown equals a 'Copernicus' Factor of about 2. CF enables comparisons with other alternatives.
|
%gain |
dd% |
CF |
|
top 1 + timing |
168 |
-8 |
20 |
|
top 1 no timing |
76 |
-39 |
2 |
|
SPY |
-1.4 |
-15 |
neg |
Notice how CF soars to 20 with timing, from 2 with no timing. Take me to the Moon!
*
Why are these gains so wonderfully big? Volatility. First, the Internet Set is the most volatile portfolio of the 140 stocks and funds on the website. Secondly, the winners in this study (Baidu and Sohu) are two of the top three most volatile stocks in the Internet portfolio. The theory here is: if your timing is good, you want to own the most volatile stocks when the market is going up. Take a look here at some current typical volatility behavior from an internal weekly R&D Lab report.
Other Statistics. The ratio of winning weeks to losing weeks is 67% to 33%. The average winning week's profit is 8.6% vs -3.7% for the average losing week. The edge or expectation (I call it Profit Factor) is 4.5, that is you expect to win $4.5 for every $1 you lose.
Timing: where to see it. There are two places that track the Money Flow for each '100-Stocks--3 portfolios' portfolio: the portfolio page itself--in the middle (vertically) of the page and at the very bottom of the 'Strongest Stocks /This Week's Best' page. The latter will be better because more precise; starting next week it will show data carried to one decimal point.
Timing: how to use it. When Money Flow is rising, buy; falling, sell and go to cash.
Comments
6/1/2008 3:48 p.m. EDT
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Note. If you are a regular subscriber, you may have noticed that this week's Systems Tips study is a quite-revised edition of the study posted two weeks ago, then immediately withdrawn due to the nasty appearance of an unexpected bug in the works. All bugs have their uses.
This one made me stop and rethink why I had gone outside an integral system of tools (the Internet Set Portfolio) to adopt a timer from another system (Mostly USA ETFs),which I knew worked well in its own context.
What made this a silly thing to do was the fact that each 100 Stocks--3 Portfolios member has its own set of experimental timers, integral to itself, that have been shown every week since 1999. They may be seen, even as we speak, in the small table (third line, Money Flows) in the middle of the big table showing rankings and prices.
Caveat. This study has not been qualified as a valid system for trading or investing. The time frame is too short. I would rather see five years or more of history. The research can be done, but it is expensive--a project for the future. Meantime, this suggestion of a system is offered as a this week's topic. I find it intriguing enough to use experimentally myself.
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