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Tuesday, December 23, 2014

System 12 Plus - 12-2014

.this update cover activity from 12/15/2014 to 1/16/2015

As of 12/15 System 12 was in cash

BOT: PTR on 12/23 (out on 1/9); PFE and BRK on 1/16
SLD: NVS, BRK, WFC, AAPL on 12/15; 
DIVI received: WMT

on 12/15/2014

This is MD:
MD Control: CHL out; PTR in
Disqualified: XOM, GOOGL, PTR

This is SD:
HSBC, T out; BAC, BUD in

This is Arnott Overlay (AO) : XOM, GE, WFC, BRK, AAPL
 RAFI 1000 index was rebalanced. Most recent weightings are here (link). Last check 7/29/2014.

 Arnott Overlay and System12 Select Theme (AOS12s) of System9.
in cash

GURU holdings include these S12 stocks: AAPL,  JPM,  WFC
Last check was in November in this post (link)
ENDP is still going

----------------------------------- EEBL ---------------------------------------
 EEBL include these S12 stocks: MSFT, WFC, ORCL

 I've been following this wise and smart writer of  CrossingWallStreet.com for about a year, and remain impressed with his calm composure, even as his portfolio underperformed SandP for a first time since 2006 (my jinx, no doubt). Some notes are here and here (links)

 Eddy Elfenbein Buy List (EEBL) is changed for 2015.
Traditionally, this clever 'buy-n-hold blogger' has dropped 5 stocks - CA (don't remember why), DTV and MDT (because they merged with others), IBM and MCD (because they turned to shit).
Replacements are BLL, HRL, SBNY, SNA, WAB. I started to run a CSI on his entire list just recently, will continue to keep an eye on CA, IBM, MCD (especially looking for turn-around in McDonalds) , all in effort to trade opportunistically the very best, sound businesses.  Happy and a bit surprised to see Hormel Foods HRL here, not just because its one of my 'fetish favorites', but also I already traded it several times successfully and just recently exited with very respectable double-digit gain. Here is looking at you, Eddy

EEBL 2015

--------------------Watchlist Cleaner------------------------------------
Muppet mo-mo favorits
 KREM September 2014


Wednesday, November 26, 2014

The Days of Green Eyed Men

Common Knowledge is a slippery concept that been bugging me for a while. If something that everybody knows is not worth knowing, then what is the point of learning from wisdom of the past? If people learn from history, why are they constantly repeating old mistakes? If human nature never changes, how do I judge progress? The more I think and read about these topics, the more I get confused...

The theory and application of Common Knowledge is a relatively new field of philosophy, only about as old as I am. Wiki has a pretty good summary here (link) with following well known example:
On an island, there are k people who have blue eyes, and the rest of the people have green eyes. At the start of the puzzle, no one on the island ever knows their own eye color. By rule, if a person on the island ever discovers they have blue eyes, that person must leave the island at dawn the next day. On the island, each person knows every other person's eye color, there are no reflective surfaces, and there is no discussion of eye color.

At some point, a missionary comes to the island, calls together all the people on the island, and makes the following public announcement: "At least one of you has blue eyes". The missionary, furthermore, is known by all to be truthful, and all know that all know this, and so on: it is common knowledge that he is truthful, and thus it becomes common knowledge that there is at least one islander who has blue eyes. The problem: assuming all persons on the island are completely logical and that this too is common knowledge, what is the eventual outcome?

The answer is that, on the k-th dawn after the announcement, all the blue-eyed people will leave the island.
 I am a market practitioner, so pure philosophical problems interest me somewhat intellectually, but only to a point where I ask: "Whats the use?" Specifically in financial speculation, 'common knowledge' is misleading and can not be relied upon most of the time.

Federal Reserve (aka The Fed), is sort of 'public' outfit, entrusted to run Treasury Bonds of US... I know, I know... you can spare me a lecture about dual mandate this, and financial stability that... None of it is possible or feasible, at least not in the way they do it for a past few years. Besides, there is very little that monetary policy can influence in general - there is iron-clad statistic showing little or no correlation, but nobody cares to research. Then there is QE, that suppose to influence stock market somehow, while nobody paying attention to the fact that QE is directed towards bonds and not connected to SandPee in any shape or form.  The same nonsense being repeated on Tee-Vee for years became sort of reality, and conditioned investor psychology no doubt ... but I digress.

QE 1 was a bit different animal, but here is what simply happens.
When Fed buying Treasury and Mortgage Bonds on (not very) open market, newly minted cash flows from US Treasury - thru The Fed - to The Banks, to pay for bonds that Banks bought with (non-cash) funds, borrowed ... from The Fed. No new money is effectively created (note - I am not talking about inflation, as prices do spiral out of control, however it has nothing to do with QE). Treasury department just works as a low cost printer and intermediary clerk - small fish. Banks earn a risk-free spread, according to age old banking model "3-6-3 or better" (old joke: borrow at 3%, lend at 6%, hit the golf course by 3pm). Now The Fed returns cash to Treasury and keeps free Bonds to maturity, while receiving their own interest rate. Although it looks like just transferring money from left pocket to right one (I thought so too), its actually a very profitable enterprise. In fact (its a public record, but ones again - nobody bothers to look), The Fed has been kicking hundreds of billions dollars of profit upstairs to US Gov, after paying 6% vig (ahem, statutory dividend) to member banks.

Technically,  The Fed is the biggest and (quite possibly) the most successful bond fund in the World.
Observe 10 year note yield chart attached below. (For uninitiated, yield is an inversion of price. When interest that bond pays is rising - the price of same bond goes down, but when interest or yield plummets - bond prices go bonkers to upside).
Evidently, they've been riding this bull train since at-least 2008 and probably much longer than that, with QE (and especially QE3) as a perfect example of 'how to buy the dip'.
I took a liberty to throw in a crayon, projecting 1% 10-year note yield sometime in a year or two, based on rhythm of the chart and slope of blue channel. Not saying it will happen like that or at all, don't care to make predictions either. As a matter of fact, I was short treasuries last year, and long for most of this year (I trade 30-year bond - its a big boys game), without relying on any kind of crack-pot theories or cockamamie squiggly lines on a chart.
I have Gravitsapa for that... err, what are you using for intergalactic travel...?

So next time, when someone tells me that Fed governors is just a bunch of academics with no real world experience - I am going to spit into that person's left eye; and if they yell that "they know nothing" (extra Jim Cramer) - I'm gonna bitch slap them too.

The point of this exercise is this:
What I think is a common knowledge, may not be common at all...
O, and I think - my wife is THAT fucking MISSIONARY

Saturday, November 22, 2014

Private and Public

Value is, therefore, nothing inherent in goods, no property of them, but merely the importance that we first attribute to the satisfaction of our needs, that is, to our lives and well-being, and in consequence carry over to economic goods as the exclusive causes of the satisfaction of our needs.   - Carl Menger

 Over the years of investing I accumulated a list of stocks I call "My Fetish Favorites". The list is not large, as it takes a lot for me to get totally fixated on a company. First of all it has to be a great business - I am talking a leader in its field, an innovator and a pioneer, preferably a monopoly or at-least with very little competition. Secondly, it has to have a charismatic figure at the top - not just any rich white guy, but a real cracker-jack mother fucker, the kind of person that is widely admired for smarts and determination and exhibiting vicious killer business instincts at the same time. Thirdly the company has to be making a boat load of money, have solid fundamentals and good prospects for future. All this is fine and good, but I don't get paid on feelings and I don't participate in their bonus pool - the chart set-up is what I need, but when I believe in stock that much I tend to disregard the price, which inevitably leads to losses sooner or later. Ones the 'fetish' is identified, I stop trading a particular stock, but don't remove it from watch list in order to keep an eye on future action. Usually after a period of few months or couple of years, I become disconnected enough to be able to analyze price plot objectively, find a good entry point, make a conservative bet... and lose money immediately.
Yep, fetish is a bitch.

Enter publicly listed private equity firms. Generally they involved in providing capital to existing companies for expansion or restructuring (glorified loan sharks), venture capital for growth startups (IPO scams), or leveraged buyouts with goal to rip company apart and sell pieces for a sum larger than whole (extra Gordon Gekko). There are not alot of them, with three easily identified leaders - BX, CG and KKR, collectively known as 'smartest guys in a room', connected all the way to the top, corrupt as fuck and loaded with dough up to the gills. Public doesn't follow them, except during scandals (which are rare).
Perfect investment.

My long time favorite (even before IPO in spring 2012) was Carlyle Group (CG), although it proved to be not a strongest chart of this bunch, I traded it successfully several times last year and left it alone ever since. 2014 has not been kind to PE firms, with stocks either consolidating sideways, painting incomplete topping patterns, or in outright bear market (like CG down more than 20% from February top). Hopefully its just a digestion of stellar gains these stocks had in 2012-2013, but it could be an end of their 'harvesting' cycle with much lower profits (and share prices) in near future. I haven't got a clue, and don't need one either, as I will let CSI Trend Method to sort this out.



There is PSP - globally listed private equity etf  from PowerShares with 2% expense ratio, 3 to 8% yield(?) and weird allocation.

Programming note: this theme continues under label 'CG' (fetish is as fetish does).

Monday, November 17, 2014

System 12 Plus - 11-2014. Keep Moving Forward

.this update cover activity from 11/17 to 12/14/2014.

Up into September, down in October, followed by up rip into November... epic!
Bull or Bear - everybody got to be stopped out at least ones on this roller-coaster. I didn't escape that fate either, having dumped most of portfolio just days from the bottom, and then buying all this back and more. Was it a mistake to sell at the lows? Yes and no. My misjudgement was in selling too late. Having already observed sell signals in early September, I held and even started to buy more good stocks before buy signals where registered. As it turned out - CSI (Composite Score Indicator, I developed this summer) would keep me out of trouble, but I didn't trust it enough to obey sell signals and tried to front run buy signals, which led to pissing my pants when market really went into free-fall. We where THIS close from full blown flash crash (no doubt) - the turn around was a straight up miracle. Importantly, it was a good thing I sold a lot, as I became calm and collected, and was able to operate rationally again. I didn't lose much either (just few hundred of capital), but profits evaporated... there where quite a profits... Later I was kinda glad that my portfolio was light, as it allowed me some time to analyze past trades and whole market situation. This review served a solid validation for my CSI Trend Method, so much so I decided to trade based on CSI exclusively from this time on.  Mid October rally produced legit CSI Buy Signals across most System 12 stocks, some areas I've been watching, and even Experimental S&P500 Trading Program.
All is well in a house of iBergamot...
Overall it wasn't a 'hard hit' at-all, just shake it off and move on forward.



BOT: nothing
SLD: MSFT on 11/19; CHL on 12/2 (damn it); GE on 12/2; PG and WMT on 12/3; JNJ on 12/12
DIVI received: PG, WFC, JNJ, MSFT

This is MD:

MD Control: RDS out, PG in
Disqualified: XOM (by a smidge), GOOGL (as of 11/17 I don't have either)
BABA is out until further notice

This is SD:
 IBM and BAC out; T and ORCL in

This is Arnott Overlay (AO) : XOM, GE, WFC, BRK, AAPL
 RAFI 1000 index was rebalanced. Most recent weightings are here (link). Last check 7/29/2014.

 Arnott Overlay and System12 Select Theme (AOS12s) of System9.
I just took all S12 trades in full position size, ending up at about 30% of LB account. It's a bit more than customary 25% allowed allocation to single strategy, but this method shows superior results comparing to everything else (as long as I use CSI that is...lol)

EEBL include: MSFT, WFC

-----------------------------------  GURU  ---------------------------------------

Since last update in September (post link), there where almost no changes to GURU holdings.
For reasons unknown, they added ALLY, LNG and returned AMT, but in smaller size. All three together are a bit less than their one standard allocation. Nothing was removed.
GURU holdings include these S12 stocks: AAPL,  JPM,  WFC

So far I traded HMHC - stop out at even, ENDP - still going, and i missed TMO entry

Thursday, October 16, 2014

System 12 - Q 3, 2014

 Public Service Announcement:
For anyone following System12 trades (all two of you), I want to caution against buying any of these stocks on what seems to be bottoming price action, as this may be premature. The major trade trigger (both entry and stop) is a Simple 50 Day Moving Average. There are other rules and filters that I will just keep to myself, but just using 50 day MA gives this method positive expectancy enough to be profitable (don't worry about SQN - its a rather meaningless statistical exercise, mostly useless in real world, just like most of Van Tharp's teachings). System12 stocks are the true market leaders, but they will not remain so indefinitely, some will fall and never come back. Buying has to be done on close above 50 day MA, with stop below, but please don't abandon your own risk control methods and position sizing. Understand, that in these market conditions, with heavy distribution and wide-spread damage to most groups of stocks, there will be at-least an attempt to short everything on back-test of this all-important moving average... will they succeed or not - that I don't know ;-)

Disclaimer: this is not an investment advise or a solicitation. If you follow me on these trades, bearded men dressed in black will come to your house to stick a bloody flu up ya ass... and ... you could lose money.


..this update covers activity from 10/16/14 to 11/16/2014.


On 10/16 I hold only PG(stop under83),WMT(stop74),CHL(on-close under58)

BABA was just listed and already in Mega Dozen. First of all, I don't have filters for it and not going to have them for months. Secondly, I will gladly wait and exclude this from MD Control, as I don't expect Alibaba to stay in a company of biggest stocks, because slick Mr.Ma already took his investors for a trip to a poor house once (when company was originally listed in Hong-Kong). Time will sort us out - that I am sure.

BOT: BRK on 10/21; AAPL on 10/22; MSFT, WFC, JNJ on 10/28; GE, CHL on 11/4; NVS on 11/5
SLD: CHL on 10/23 (bought back on 11/4)
DIVI received: GE, JPM, AAPL
 This is MD:

 MD Control: surprisingly no changes, but PTR, RDS and PG are so close - its almost a tie.
Qualified: AAPL. MSFT, BRK, CHL
Toying with "qualified": JNJ, WFC, GE, WMT, NVS, PTR, also PG, JPM
Disqualified: XOM, GOOGL, RDS, CVX
Earnings: CHL Oct 20-21, NVS Oct28, PTR Oct29; RDS (end of Oct?); BRK Nov(1?),
3rd Quarter MD 2014 earnings
(only initial reaction considered, regardless if stock recovers or not):
All  reported: 8 up; 4 down (better than both previous quarters)

This is SD:
I have PG
ORCL out; BAC in

This is Arnott Overlay (AO) : XOM, GE, WFC, BRK, AAPL
 RAFI 1000 index was rebalanced. Most recent weightings are here (link). Last check 7/29/2014.

 Arnott Overlay and System12 Select Theme (AOS12s) of System9.
Took these out earlier than S12 rules and actual BCM sales - was a wise decision based on multiple CSI sell signals.

 EEBL include: IBM, MSFT, WFC
 GURU holdings include these S12 stocks: AAPL,  JPM,  WFC

Hammer Time

.this message will self-destruct in a couple of hours .
(note 11/17/2014. 
On a second thought I'll  keep this post the way it is. Long time ago I decided to never change or erase anything on my blog, like many other 0nalists do. This is my journal - for better or worse, smart or stupid - this is the way it is.
 "Each man practices as he feels inclined" - Miyamoto Musashi)

Don't go buying them hammers
...yea Im talking to you - you know who you are...
Let the bottom to materialize first - everything else is just figment of your imagination and gambling instincts. You got to fight that shit.

Yes, My Advance-Decline Indicator (MADI) is in buy-the-dip territory, BUT it has to turn up first, BECAUSE the bottom may be lower and later.
 Go eat a sandwich

I haven't bought a single share yet, but I will.
I don't day-trade, besides how is it possible when yesterday hourly range was bigger then weekly range just a few months ago. Do you have a method to work this madness? Cus I don't...
I don't know if its a bear-market - nobody does

System12 update coming today. It will have a message for you

Tuesday, October 14, 2014

Bear Market of 2014

Its here and now.

A flashy conversational item, like 'bull market' this or  'bear market' that, is not how i operate. I try not to get myself boxed in this one-way thinking. There is always a bull market somewhere, besides by the time certain type of price action is apparent - its usually too late to bet on it. Risk premium is available to be captured (both on down and up-side) before and ONLY BEFORE all information is available. Once move is complete - the game is over, then the reasons of why and who crawl from under whatever rock they where hiding, and become easy to understand in hindsight. This is theory.

In fact and as I observed in real time, this market has been acting weird since spring. It all started in April, when growth stocks, small caps and previous year market leaders shit the bed. I was not expecting this, as I assumed that treacherous range since 2000 is over and market taking off for another one-in-a-generation 20 year bull market. Long term bull market is a wonderful thing. Stocks can be analyzed on fundamental and economical basis, can be held for months (even years), as economy improves, wealth increases and society flourishes in general. I think we are overdue anyway, but its just my opinion. If and when that bull market comes, stocks still are not going to go one way all the time. There has to be periods of digestion, sideways ranges, rotations and corrections along the way, but in a general climate of growth ala "rising tide lifts all boats". Hah, you wish...

Short summer rally was mostly led by big mega-cap stocks, while small caps lingered and growth stocks generally lagged, although some had a double-digit rallies. That didn't bother me much, as I was heavily invested in biggest stocks via System 12. Personally I have mixed thoughts about so-called growth momentum leaders. Most of them are overhyped pump-and-dump scams, companies without profits, only meant to benefit insiders and bankers thru inflated IPO's and secondary offerings. A true 'stock of the future' is hard to find, as they are not widely followed until many years into expansion cycle, while price slowly climbs on no news and lackluster volume. I am always on lookout for one, but with no such luck lately.

May-June rally was nice, but not enough to rekindle animal spirits and market pretty much died going into summer vacations. Startling evidence was delivered by CSI  (Composite Score Indicator - my latest and greatest creation), as it fired a 'Sell all 11s', followed by 'OFF' sell signal across many ETF's and especially 9 Main Spiders on and right after week of June 30th. Of course I didn't know it at the time, I only started CSI testing back then, so its all in hindsight. (Damn thing was so complex - it took me all summer to organize, test and put it to work). Nevertheless, I was alert to sudden softness and while August drop didn't hurt me at all, my portfolios made very little progress on following rally.

I noticed a very careful selling in a beginning of September by some clever operators, and it wasn't unexpected at-all (at least by me). Working thesis was as follows: almost every year there is a 'sell Rosh-Hashanah - buy Yom Kippur' phenomenon, as some heavy hitters sell out most of their active portfolios in order to not to be distracted during high holidays. That was followed by Sukkot, culminating with full lunar eclipse on full moon during last weekend - a truly spectacular display I observed during early morning hours. Knowing about all this coming up, and taking into consideration 31 days wash sales period, and getting confirmation from MADI (My Advance-Decline Indicator) over a month ago, I assumed that they front-running all this shit in order to be ready to buy in October. I lighten up for a while too, then started to accumulate what look good and strong. The problem was - there wasn't too much to choose from, still I waited to see some improvement...  Well, we are here, but I don't see any buying. Quite the opposite - its a full blown panic, a carbon copy of 1987 or 2011 (minus the crisis).

Hopefully, the bottom is within reach, but hope is not a strategy. To be sure I don't get swept away, my account is 50% cash, but I was 150% long like a split second ago, so there is no 'ata-boy pat on a back' for Bergamot. I have tools and methods to buy all this crap back and more, as well as some levels that will take me completely out of the market... one day at the time... This year has been a complete fucking disaster for actively managed BCM account, putting my own equity curve firmly into Bear Market territory (extra Marc Faber).

So far its my 3rd worst year ever... shiiiit

...it ain't about how hard you hit, it is about how hard you can get hit and keep moving forward, how much can you take and keep moving forward. That's how winning is done!

Wednesday, September 17, 2014

System 12 Plus. 9-2014

.this update covers activity from 9/18/14 to 10/15/14.


Still can't get it Fully Loaded.
PS: and then I found out why it was so hard to get it loaded - the whole market crap out.
I held a bit longer than I should. Breaking and bending some of the rules is happening again, and now really costing me more then necessary. Bergamot is deeply dissatisfied...

BOT: NVS on 9/30; CHL on 10/7
SLD: PTR on 9/22; IBM on 9/25; GE on 10/1; GOOGL, JPM, NVS, JNJ, BRK, MSFT, WFC on 10/13
DIVI received: PTR

This is MD:

 MD Control: PTR out; NVS in - both slipping in and out
 XOM, GE, WMT are still toying with 'disqualified'.
I don't have AAPL (for a moment), XOM, NVS, and CHL due to Operator Error.
Earnings start  with JNJ on Oct 13, followed by banks.

This is SD:
I have PTR, PG, JPM, IBM
BHP out, ORCL back in, FB moving towards MD (what??!)

This is Arnott Overlay (AO) : XOM, GE, WFC, BRK, AAPL
 RAFI 1000 index was rebalanced. Most recent weightings are here (link). Last check 7/29/2014.

 Arnott Overlay and System12 Select Theme (AOS12s) of System9.
 As of 9/17 it holds BRK, MSFT, GOOGL, IBM, JPM, JNJ, WFC, WMT, GE , and out of AAPL for a moment. Somehow I forgot to buy PG, when i bot it for S12. It's ok, since I have more than I allowed, waiting for inevitable stop-out to take care of that soon.

 EEBL include: IBM, MSFT, WFC

GURU holdings include these S12 stocks: AAPL,  JPM,  WFC
Since mid August, GURU etf changed about a dozen holdings. MSFT, PG where amongst sold ones.
New additions include FB (omg!), HPQ, TMUS, but these are of interest:

KREM September 2014
Continuing massaging that summer idea   http://ibergamot.blogspot.com/2014/08/krem-v1.html
I changed selection criteria a bit, resulting in replacing SOCL with XRT. There are a bunch of financial ETF's coming up (like IAI, KRE etc), so I decided to go with XLF to cover them all. Swapped XES for OIH - they are basically dupes, but I still can't pick which one is better. I like the fact that different set of guidelines didn't make much difference on index composition. Unfortunately I am not too sure how best to use KREM Index. Its not an index of market leaders, just stuff that moves... up and down.

Monday, August 18, 2014

System 12 8-2014. 'Operator Error'

 .this update covers activity from 8/18/14 to 9/17/2014.


 System 12 is still light with 5 slots available.
I made a serious mistake. While S12 was light, and there was nothing I could take from MD, I was suppose to go for any available of SD. Specifically CHL and HSBC were on my list to buy, but I didn't (for whatever misguided reason). Now China Mobil (CHL) is in Mega Dozen, extended as fuck, without me in it. I don't know how to deal with such 'operator error' - I was supposed to play the system, instead I decided to screw with it. Not good...
I think its only second Emergency Exit (EE) since S12 started, and it happened on AAPL just a couple of days from big announcement... two phones and a watch... lol

BOT: JPM on 8/19; JNJ on 8/21; WFC on 8/29; WMT on 9/3; GE on 9/8
SLD:  AAPL on 9/3 EE!
DIVI received: MSFT, JNJ

This is MD:

MD Control: CVX, NVS out; CHL, PTR in
XOM, GE, WMT are toying with 'disqualified'.
I don't have XOM, WFC, JNJ, RDS/B, GE, WMT, CHL
I don't see any earnings coming up.

This is SD:
T is out; KO is in
I have PG and IBM; PTR moved up into MegaDozen (MD).

This is Arnott Overlay (AO):
XOM, GE, WFC, BRK, AAPL for 20% each
RAFI 1000 index was rebalanced. Most recent weightings are here (link). Last check 7/29/2014.

Arnott Overlay and System12 Select Theme (AOS12s) of System9.
As of 8/18 it holds BRK, MSFT, GOOGL, IBM and i will gladly buy standard size positions of anything that gives an entry (up to maximum allocation of 25% of portfolio)
GURU holdings include: AAPL,  JPM, MSFT, PG, WFC
EEBL include: IBM, MSFT, WFC

Sunday, August 10, 2014


Meaning of word 'krem' from UrbanDictionary (link) :
A crazy ass motherfucker, who can not calm down, doesn't give a shit what he says, and acts extremely black for the white tone of his skin.
No its not that.
I got a couple of interesting ideas from Perry Kaufman (link), about rotating through a list of ETF's. This way of thinking is actually quite natural for me, as I compiled a list of all kinds of etf's over past few years. Actually 55 US long-only, non-leveraged equity etfs, covering soup to nuts of investable stock universe. There are, of course, several ways to use it. Version 1 takes on most volatile and highest performing etf's, with goal to trade them opportunistically for a meaningful swing. In honor of industrious Mr. Kaufman (who wrote 1200 page book, covering every investment topic known to men), I call this thing KREM - Kaufman Rotational ETF Method.

Finviz link
8/2015. add FFTY, HACK, ITB.
10/2015. add MarketVectors retail RTH. Also RTH is bigger than XRT (equal? weight retail from SPDR)
12/2015. add FDN - internet with FANG at 35%

10 most volatile, highest performing funds selected, after removing duplicates and applying a filter. Then 2 additional etf's added to improve diversification. This becomes KREM Index, equally weighted and rebalanced monthly. I will update it between 5th and 10th.

KREM August 2014 Index:
Best performer - XME
System12 Qualified  - GDX, XME, SOCL, XOP, XPH, XLU

They may not look too hot right now, but only 10 etf's are up for a month, so ... One thing I can say about this index components for sure is: They Move! All my efforts need to be confined to this list for the month until rebalanced. The only snag is portfolio impact - I really don't want to heavily overweight anything. Considering that I already have corresponding industry components as open positions, I removed XOP, XPH, GDX and replaced them with SLX, KOL, SEA at my sole discretion.

KREM BCM Action List (KAL):

Understanding, I rather trade correlated stocks in groups vs etf's/funds, still KREM considerably narrows down my instrument selection. This strategy needs to be applied to System9, but i still have some kinks to be worked out.

There is also another possibility, I haven't tested yet.
9 main spiders - is essentially the whole market.
First of all I am curious to see how they respond to CSI, as I think its the best way to construct average market CSI score - an ultimate tool I've been dreaming of... lol. Of course, there is no 'holy grail', its just an illusion (hopefully not delusion), but I would like to add some kind of broad market indicator to compliment MADI. There is nothing out there to help me answer the most important questions: WHAT to buy, WHEN to do it, HOW to bet, WHY to sell. I have to keep figuring this out myself.
Secondly, considering that 9 main sectors are lower-volatility than most on my list, I wonder what will happen to portfolio of corresponding Fidelity mutual funds? I can allocate to best performing, overweight according to CSI, time entry by MADI, re-balance monthly for free. I think S12 exit rules are the best for this, as they allow to stay in the longest and re-enter quickly, but it remains to be seen


KREM 2014:
8/2015. add FFTY, HACK.

Wednesday, August 6, 2014

Guru Puja

I often say that 'Luck favors prepared'.

Apparently this is loosely based on famous Seneca quote: "Luck is what happens when preparation meets opportunity". To the best of my knowledge,  Seneca the Youngest was the earliest recorded bond speculator in human history. While being an advisor to Roman Emperor Nero, he managed to force some 'big loans' on British allies of Rome, only to call them back at most 'opportune' time. Bond panic ensued, followed by revolt led by Queen Boudica, lest not forget almost 100,000 killed in uprising. In a year 62AD, Seneca became one of richest citizens of Rome.

'Guru' means 'teacher' in Sanskrit. I don't have one. Which makes me an 'Anatha', or 'the one without a teacher'.

I had many indirect teachers in a way of books and blogs, but after reading and studying for years, I still have many of same concerns. Especially so with modern day bloggers. I can say from personal experience, that its all but impossible to be an active trader/investors and also pursue a writing/publicity career at the same time. The people who know how to make money in the markets don't need AdSense income, unlike majority of financial blog writers who can't tell shit from shinola.  IMNSHO, reading blogs waists time, is a distraction, often source of misinformation or somebody's agenda, spreads fear (because it attracts muppets like flies), and generally full of bullshit. Plus they always trying to sell me something. I can sell myself, if I would want to... , but I refuse to become a scammer. I rather just to follow the money.

I learned to read stock charts to find 'breadcrumbs'- traces of  Big Money, often buying something alongside famous money managers (of course, that info comes out too late). The problem is - it happens not often enough. The idea of following approach is to position myself in the middle of their universe...

I have to admit, it's a bit of short-cut.

Programming note: this method is labeled 'GURU'.

GURU ETF from GlobalX tracks  Top Guru Holdings Index made by index gurus of Structured Solutions AG, Germany. They compile a list of 50 most invested stocks, reported by top hedge funds in their Form 13F. There is a lag in when these purchases are reported, and again for allocation into etf. Supposedly they lean towards managers with low portfolio turnover, so I assume that stocks are locked away for 6-18 months. It doesn't mean they always right, only that there is (or was) a large monetary bet with reasonable expectation of gain. Composition is rebalanced often, so I will check in the beginning of every month, around 5th. I think that a new positions will have a higher chance for success. I don't know how large the rotation really is, don't have any historical data, so will have to study in real time.

Finviz screen as of 8/5/2014 here (link).
 After taking out stocks I already have in System12 or elsewhere, and focusing only on issues above 50/200ma, I am left with only 11.

 The plan is to take any sound technical entry with stop-loss near by; and then half-out on any pop, to secure early gains. Don't care about any fundamentals or news, assuming that somebody already done that, or maybe there is something else at play. These stocks span the whole gamut of investing universe - variety of industries, from absurd P/E to no/E, from 32% SI in S to no shorts at all in ING, from 52 week high to yearly lows. GURU holdings are big stocks - most are over 10bil market cap, smallest is 1.6bil (CACI).

While Digging (post link) in April, I rounded up some local gurus.

Clever Eddy Elfenbein of CrossingWallStreet.com, proclaimed a 'best buy-and-hold blogger', with his Buy List. A collection of 20 stocks, set in a beginning of the year. He mentioned that not all should be held continuously. This fits with my efforts to trade opportunistically the very best, sound businesses.
Latest rundown: http://www.crossingwallstreet.com/archives/2014/08/cws-market-review-august-15-2014.html

Eddy Elfenbein Buy List (EEBL):

That man has been a fruitful source of great research ideas. One of his latest gems is a list of 52 'dull' stocks of well-run, profitable companies that get very little or no coverage by analysts and media. I have never heard about most of them, which makes me very very very curious.
Thanks, Eddy

Old Man Buffet
 Here is his top 2 dozen as of end 2013, from WFC 20% to MTB at 0.5% of portfolio:
Notable that BAC is not here, but actually its his 5th largest position (thru warrants and shit...).

Very Smart Robert Arnott of Research Affiliates and his RAFI family of indexes, providing yet another view of investment selection. Arnott Overlay (post link) in spring of this year turned out to be just a start of this cross-strategy project, in effort to 'follow the money'.

  ...Much to be discovered...

Tuesday, July 29, 2014

System 12 - Q 2, 2014

.this update covers activity starting on 7/15/14 through 8/15/2014.
I am way late on this update, although I recorded the data on time, and there are some changes.


Open positions of System 12 are light. I was hoping that some of stop-outs would recover, but while some are questionable (specifically WFC), others are gone for now (like GE). I can buy back any sold position after 5 day Positioning Period (PP) elapsed, disregarding wash sales. System12 goal is to lean towards Mega Dozen (MD), but I can not stay light - I have to go for Second Dozen (SD). 4 open slots is alot, I am a bit worried.
UPDATE 8/5: after all recent stop outs, now I only have 4 positions left. I wasn't worried for nothing...he-he. System 12 is protecting itself, as it should, but really-really need to be buying something...really...

BOT: WMT on 7/16 (but then out on 7/25); PG on 8/6; IBM and GOOGL on 8/13
SLD: WFC on 7/17;  GE and JNJ on 7/21; NVS on 7/25; WMT on 7/25;  RDS on 7/30;  XOM on 7/31;  CVX and GOOGL on 8/1 (bought Google back 2 weeks later)
DIVI received: GE, PTR, AAPL

This is MD:

No changes to MD.
GE and WMT are toying with 'disqualified'.
I don't have WFC, JNJ, GE, WMT, NVS, and by 8/1 RDS, XOM, CVX, GOOGL
 2nd Quarter MD 2014 earnings score
(only initial reaction considered, regardless if stock recovers or not):
All reported:  6 up; 6 down (just like last quarter).
Earnings: XOM July 31,  CVX Aug1, WMT Aug 14

This is SD:
ORCL and BUD out; BHP and FB in... Facebook!!!???
I have PTR

This is Arnott Overlay (AO):
XOM, CVX, GE, WFC, BRK, AAPL for 15% each
RAFI 1000 index was rebalanced. Most recent weightings are here (link).
Of note: MSFT and JNJ just missed top 12 rafi, while JPM just under MD

 Arnott Overlay and System12 Select Theme (AOS12s) of System9.
As of 8/5 it only holds BRK and MSFT, but i will gladly buy standard size positions of anything that gives an entry (up to maximum allocation of 25% of portfolio)
GURU holdings include: AAPL,  JPM, MSFT, PG, WFC

Monday, July 14, 2014


Summer market leaders.

Simple Finviz scan:  consider any reasonable stock (over 300mln market cap, $10+, at-least 500K volume), of profitable company with very low or no debt. I want something that doubled in past 12 months, and still above 50/200 day ma. With S&P continuously pushing all time highs, should not be a problem to find many of these. Right? Wrong! Only 12 plus FaceBook.
These are the leading stocks: internet and shit, couple of biotechs, airline. Three Chinese. XRS pays 7% divi. AMBA and RGEN unter 1bil. Very high short interest in QCOR, WUBA, LOGI, AMBA, RGEN


Here, courtesy of ZeroHedge, is a  page of 1st issue of Wall Street Journal on July 8, 1889.

Colorful annotations draw shocking parallels between trials and tribulations of distant past and today's news. Like I mentioned before, nothing ever changes. Not in human affairs, nor in markets. Ever...

Thanks, Tyler

Here is more:

Marc Faber, Schiff, and Gartman talk markets
Oy Vey Iz Mir, you know...

 John Williams of ShadowStats talks at length about gov statistics mambo-jumbo, and how distorted it is, comparing to old ways of dicing and slicing of economic data. For only 175/year, responsible Mr. Williams delivers reshuffled economic reports, based on 'right' methodology.... no, I will not be cursing here...
Still, interesting talk, worth a listen... minus f@%#ing statistics

Robert Kessler of Kessler Investment Advisors shorted bonds while long term bullish. ... Because 'its reasonable to be careful'... Classic... But really, these are the guys who ALWAYS win, even when they losing... He-he
Thanks, Consuelo

Old School Charlie Munger in 2009, talks about idiot boom, false competitiveness, and Berkshire investment tricks.
Plain spoken, rare these days.


Saturday, June 28, 2014

System 14 - Equiponderator

I realized the need for new System 14 back in early May of 2014, while sitting in 50 Day Box (post link).

System 14 (S14) invests in long weekly-monthly trends, rotating thru major asset classes of stocks and bonds. It is rule based, with simple set of risk controls and filters, and diversified.
The account is held at Vanguard. I can invest in mutual funds only, long only, no margin. Previously referred to as System 1 account, effectively stopped in 2013.

The account is a basic retirement structure, common in 401K / IRA, meaning money grow tax-free and not being withdrawn now, nor in foreseeable future. These are all advantages and accumulate over time to the benefit of shareholder. There is no free lunch on Wall Street , so in accordance with Dow Paradox (post link) there is a price to pay. These type of accounts are limited in what they can hold in general, and this one even more so. Why I give myself even more headache? Diversification! That's why. Don't put all your eggs in one basket, as the old saying goes. I reflected on subject of diversification in winter of 2013 in this post (link).
My #1 Big Thought about investments is : Split your money between different institutions!

Every once in a while Shit Hits the Fan (SHTF) in the Markets, bunch of institutions blow up... and take their clients money with them. The last time it happened in a massive way was in financial crisis of 2008-2009, when several prominent firms went under and lost all or some Assets Under Management (AUM) in a process. Panic was so deep, that even Money Market Funds (virtually risk-free very low interest deposit) where threatened. Some of biggest houses made announcements of guaranty and excess collateral for custodial funds. The first two to step up where Vanguard and Fidelity, proving that I picked right place to do business, as I am client of both. I'll call it luck... many people where much less fortunate.

The case of MFGlobal in October 2011 involved outright fraud and theft of clients funds to the tune of BILLIONS dollars! Granted that most of people eventually got most of their money back, resolution took years and completed just recently. Meanwhile  money where not available for investments, and where effectively shut out of chance to participate in tremendous gains of past couple of years. Not to forget that is was whatever money where left after disastrous bankruptcy and liquidation, that had individual and institutional accounts frozen during full-fledged market meltdown. People where unable to close position during unabated market drop, just looking at accumulated losses, only allowed to sell at the very bottom. It looks small and relatively benign now, on a lower left corner of 3 year chart, but 2011 was a real-deal bear market. I remember that nightmare, as if it was yesterday. I traded thru that shit. In fact, and as evident by Commitment of Traders (COT) report, that experience was so dramatic that it caused many traders to walk away and never to come back. October - November 2011 was a true panic bottom from which this current bull market originated.

So I have this sizable account at one of the best houses on a Street, where its safe (no jinx), enjoys favorable tax treatment, luxury of time and some of lowest costs in industry. I can buy any Vanguard mutual fund with all dividends automatically reinvested, based on rules of what to buy, when to do it, how to add and why to sell. The complete balance of all nessesary information - The Equiponderator.
 The Way of the merchant is always to live by taking profit.
- Miyamoto Musashi, 1645
I really don't know the future. I only see what is now, here, in front of me. I am using my life experience, accumulated knowledge and (stunningly uncommon) common sense to guess where it goes from here, in order to invest into instrument offering greatest potential. I have to do it without relying on forecast, because there is no practical or dependable way to know the future. But I know this: Nothing ever changes in a way of human events, because human nature never changes. Life and markets go thru periods that can not be foretold, but emotions never change. Fear, greed, envy, jealousy, etc, etc.  In order to design The Way to win the battle for market profits I want to learn from the original thinkers of the past, but my actions are here and now.

I was the third brother of five
Doing whatever I had to do to survive
I'm not saying what I did was alright
Trying to break out of the ghetto was a day to day fight

Been down so long, getting up didn't cross my mind
I knew there was a better way of life and I was just trying to find
You don't know what you'll do until you're put under pressure
Across 110th Street is a hell of a tester

Wednesday, June 18, 2014

System 12 6-2014

.this update covers activity from 6/18/14 to 7/14/14.

 Thanks to clever Eddy Elfenbein for reminding me about this great quote:
 “In this game, the market has to keep pitching, but you don’t have to swing. You can stand there with the bat on your shoulder for six months until you get a fat pitch.” – Warren Buffett

 System 12 BCM:

I didn't do update on System12 in May, because there where no changes to MD, and with S12BCM fully loaded I decided that there is no reason to mess with perfection. I have 5 positions up more than 10%, and 3 more approaching, led by RDS up 15%+. Dividends piling up. Green across the screen. BRK may be going by-pass, but no worries until 125 is lost.

SLD/BOT: no changes.
DIVI received:  RDS/B


This is MD:
WMT dis-qualified by a smidge.
RDS  not sure when earnings.
I don't see any earnings reports (ER) in June.
WFC July 11; GOOGL, JNJ  July 14; GE July 18

This is SD:
BHP out, BUD in, ORCL moving up to #20.
I have PTR.

 This is Arnott Overlay (AO):
JPM removed due to drop from MD, although it did recover post-earnings gap, I had to close it per exit rules. I would lose less, had I exited promptly without by-pass.
These positions are held at normal size in BCM account, since all (except CVX) where opened prior to my discovery of AO.
I decided to treat Arnott Overlay as a stand-alone System9 Theme in LB account, with several changes. First of all, I want to be able to add 1 or 2 stocks from S12BCM at my discretion. Presently these are GOOGL and BRK. Position size is standard (for LB) to slightly overweight, with System9 exit rules. As such, this new Arnott Overlay and System12 Select Theme (AOS12s) became one of my main Themes, with maximum allowed allocation of (slightly under) 25% of portfolio.
Yep, I believe in System12 THAT MUCH!

------------------------------MID-YEAR CHECK----------------------------
System12 is functioning just fine, thank you very much. All good, or better.
Red Line is where my meat is.
System12BCM AUM real data including commissions, fees and dividends.
Year to date performance is similar to S&P500 (index and SPY)