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Wednesday, December 30, 2015

Charles's Angels

Charles Dow that is. Famously, he created the first ever index of 12 industrial companies in 1896.
Cotton, tobacco and leather where big businesses of the day. Energy and materials are just as important now, as at the dawn of 20th Century. GE is still here, thou hardly the same as Edison's GE - a merger of Edison Electric Light Co with bunch of others, financed by Drexel and JPMorgan ... ha-ha-ha...

120 years later, Dow Jones Industrial Average has 30 stocks, but only 5 of them (16%) are really industrial.
Machinery GE and MMM, aerospace/defense BA and UTX, and big CAT. That's it.
This is what DJIA has now:


 Definition of word 'industry':
    1. economic activity concerned with the processing of raw materials and manufacture of goods in factories.
Goldman Sachs (GS) don't make shit, and the only thing 'raw' about United Health (UNH) is my ass...
However some other stocks make a lot of sense as 'industrial': XOM is a producer of important raw material and DD is a huge chemical factory. JNJ does everything in consumer goods, drugs and medical devices, while AAPL makes popular trinkets everybody buys. Lest we forget an all-American auto industry (F), huge company that owns all the things worth having (BRK) and biggest food manufacturer on a face of (american) earth (GIS)... and VOILA! - we have...
iBergamot Industrial Average (IBIA), expressed as 12 stocks... just what Papa Dow ordered...

I don't know if IBIA will outperform any of popular averages, but it is not a point of this exercise. For the first time ever, I will be able to see a true price performance of industrial sector - in an index not polluted by unrelated issues (DIS is not a factory - its a doggone la-la land!), not manipulated by market cap size (AAPL is the biggest by a mile, but imnsho the least important one of all), not continuously changing composition in an interest of chasing latest fad. Having said that, I might change some companies in IBIA if I decide they no longer serve as best representatives of important industries. Its my index. Fuck off...

Other part of Dow Theory is a transportation average - originally mostly rails, now has 20 components including Delta airline and Avis car rental. I still give more credence to ol' Charles, who viewed transportation as a vital link in an economy, the means to move raw materials to factories and finished goods to consumers... not as Florida travel accommodations for fat people... Unfortunately good transport index is hard to make, because rails don't have such huge importance anymore, air doesn't move as much stuff as it could and most of biggest shippers are either private or don't trade in US.
Following is my guess of iBergamot Transportation Average (IBTA):

I would be remiss not to mention Utilities average, although not part of original Dow Theory, I see utility industry as solid money making enterprise, vitally important to economy, people's every day life and progress off all humanity broadly speaking. Popular index XLU offers a pretty good representation of stocks involved. Utility portfolio strategy outlined in FMSUP article (link) can be mistakenly classified as 'index', as it has some of the traits of modern structured investing solutions, but I rather see it as a mutual fund of sorts. High position concentration and periodic re-balancing (performance drivers) designed to create an upward equity slope, leading to out-performance of FMSUP vs. industry on average (I hope) and most other mut fund managers (betting on it).
I don't think that my own indexing approach will offer any additional insight, but here it is nevertheless -
4 electric, 3 diversified, 3 gas, 2 water - iBergamot Utilities Average (IBUA):

I will be setting up these as Motifs for easy tracking, starting on a first trading day of the new year.

Programming note: this method is labeled 'IBIA'

Monday, December 28, 2015


We are generally overconfident in our opinions and our impressions and judgments. - Daniel Kahneman

J P Morgan Bubbles. 1901
I have to admit, shortcuts don't work (post link).
Methinks, I got a pretty good beat on things around market. Even with minimal to non exposure to news and commentaries on my part lately, the remarkable ability of some stocks and industries to continuously penetrate collective psyche is simply unbelievable. Sometimes I am almost sure - it's by design. Everybody piles up into same issues all at ones (I'm talking big money) with surprisingly random results. Aren't these people actually suppose to know something? Like certain inside information (legal, of course... ;-). Didn't some of them just spent handful of years (and dollars) in business school, learning every fundamental thingamabob known to men, analyzing balance sheets and shit...?
And what?
Still like throwing darts at a Barron's stocks table.
By their very nature, heuristic shortcuts will produce biases, and that is true for both humans and artificial intelligence, but the heuristics of AI are not necessarily the human ones. - Daniel Kahneman
It is understood that fundamentals of a company can be made look like anything imaginable. Accounting can be stretched beyond any reason, but there are certain traits that are both hard to manipulate and signs of good business at the same time. My focus is on basic and broad characteristics, regardless of how big or small they appear, seeking only binary answer: YES (present) or NO (absent). Following is my hypothesis of what investable stock of prosperous company should look like:

1. Active, tradeable american stock, more than 5 years old. Price >$5; av volume >1M
2. Enterprise is profitable with sales, but not excessive valuations. P/E <50; P/S <10
3. Dividend is a further proof of positive cash flow and shareholder responsibility.
4. Price is above 200 day moving average.
5. Modest amount of debt is permitted.
6. Both earnings and sales exhibit growth over past 5 years.

Finviz scan (link) revealed only 36 such stocks on 12/24/2015 - call it Best List.
I suppose this is the best this market has to offer, but it is not possible to invest into that many with any reasonable amount of money, because this list will fluctuate and cause all kinds of portfolio mayhem.
Then I propose this DART Strategy Portfolio:

a. 10 random stocks will be selected from Best List. Equal position size.
b. At the end of the week the worst loser will be sold and replaced with random pick from new scan.
     b1. If there is no stock with loss from purchase price - sell biggest weekly loser.
     b2. If there are no weekly losers - sell biggest winner
     b3. If there is not a sufficient number of results in a scan - #5 and #6 above can be relaxed somewhat.
     b4. Average volume requirement may be reduced temporarily, to as low as 300K at times.
c. Sell and purchase will be placed on Monday open, or 1st trading day of the week.
d. Estimated commissions ~2.5% of first $35k invested, about same as effective dividends.

DART is an experiment designed to prove that by investing into sensible stocks of best companies, with rigorous risk management, absolute positive returns can be achieved regardless of personal opinion and market timing.

This is a test! 
No real money will be traded, but I will keep a virtual trading account with (near) real records. 

Programming note: this method is labeled 'DART'.

I find it hard to believe this could work, but then again, I used to believe that KREM is the way to go. Originally I thought that "all my efforts need to be confined to this list" (post link), but later I realized that KREM is kind of a "picture of average, active, media driven, collectivist investor horde" (post link). In fact equally weighted KREM index not just lost money this year, it did it continuously with no respite and managed to underperform every index I follow including my own strategies.

GURU method (post link) did no better, as can be seen from namesake etf performance. My analysis of holdings in GURU etf, and also some endowments and big-big money managers portfolios, revealed huge turnover, wide range of opinions and forecasts and amazingly high level of risky speculations with futures and options. What it didn't show was any kind of substantial profits, just a few percent on both sides of 0 at best, with some noticeable cases of near catastrophic losses.
These suppose to be the brightest minds... oh boy...

Large portion of Best List are tech stocks, mostly semiconductor makers and equipment

January 4, 2016 initial allocation for virtual account only!
November 09, 2016. New simulator at MarketWatch

Friday, December 18, 2015


Seeks capital appreciation with focus on absolute returns, irrespective of any benchmarks, but comparative to Utilities Sector of S&P500 (XLU).

Investing in utilities industry in USA, using common stocks, long only, no margin.
Investing in companies principally engaged in utility operations emphasizing power and gas, generally not including telephone and telecommunications utilities. No out-of-index positions allowed.

Within the utilities sector, we believe buying companies with rising share prices and above average dividends can make a boat-load of money over time.
There are about 100 American utility companies currently trading in USA. Half of them are active tradeable stocks, profitable and with dividends. 40 of them are 'electric' and 'diversified', with some discrepancy as how to classify some. For simplicity I will use Finviz's sector designation, but  generally following XLU index allocation.

Finviz Utilities screen (link)
Utilities Select Sector SPDR Fund (XLU) from State Street (link)

Utility Portfolio will consist of 6 stocks, selected on basis of dividend yield, market cap and share price performance. Our investment approach focuses on stocks with reasonable valuations and proven track record, as such we lean towards companies included in S&P500 index and generally avoid recent IPO's. In interest of diversification and with objective of consistently meaningful portfolio impact, we allocate equal standard position size to 3 electric, 1 multi, 1 gas, 1 water, with understanding that substitution is permitted at times.

The value of portfolio investments will vary from day to day... just because..., and money can be lost!
In order to mitigate an impact of chaotic price fluctuations we deploy risk containment measures designed to sell losers and let the winners run, with goal to be near-100% invested on any 30-day rolling period, unless a bear market strikes and all stocks go to shit.

Portfolio is allowed 12 re-balancing per year (200% turnover) or one switch per month on average, for about 1.2% in expenses of first $20,000. Every effort is made to minimize cost, but keeping in mind that quarterly dividends needs to be re-invested as soon as possible, which requires at least 4 round-trips per year.
For ease of tracking purposes, initial allocation will be made on open of first trading day of new year.
Activities will be reviewed on quarterly basis or as need arises.

Diversified Utilities
Gas and Water


 A man always has two reasons for doing anything: a good reason and the real reason. - J.P.Morgan
In a previous post (link) I outlined my deep dissatisfaction with performance and management of one of my investments - Fidelity Select Utilities Fund FSUTX (link).
Adorable Mr. Simmons is a really nice guy, I would love to have a beer or two with him while slinging war-stories about dumb investors and gullible speculators ... and a wretched 15% loss in my investment (little less including dividends), while index is down only single digits. I tested my own utility portfolio, based on strategy outlined above. Out of six different runs there wasn't a single case of double-digit loss, with last iteration up 11% -  all during a period when XLU was flat to down.
I am looking forward to putting up some of my own money in a sensible, focused way. Surely it will give me a great pleasure to not only make some profit next year (*what a novel idea), but also at the same time Fuck Mr Simmons's Utilities Portfolio and half a million dollars he dumped on his useless college education...

This is end-of-2015 allocation.
January 4, 2016. Starting allocation:

Sunday, November 29, 2015

System Update. 11-2015


.this update covers activity from 11/30/15 to 1/29/2016.
  ...System12 original rule-set is basically discontinued. I continue to use it exclusively as high quality stock selection tool and timing entry/exit using weekly CSI (Composite Score Indicator)...


BOT: T on 1/13; CHL on 1/27; BUD and GOOGL on 1/28
DIVI received: PFE, WFC

This is MD:


MD Control: PTR and NVS out; AMZN and JPM in
Disqualified: AAPL, BRK, CHL
Earnings: all done

Four stocks in MegaDozen (MD) don't pay any dividends, the rest are barely 3% on average (+/-).
Three have asinine valuations. Four stocks have slightly below average P/E.
Overall its one of strangest and fundamentally weakest mix of index components I have ever seen.

This is SD:
BAC out; KO in (KO was 'coming up' on last update in August)
Some of stocks coming up: C and HSBC; PEP; GILD and MRK; ORCL and INTC (not ibm)
also HD almost at SD, after sitting at #34 in last update (I have HD in System9)
Oilers RDS and CVX hanging out; BABA at #21.


 I have a problem. Its this Utility mutual fund FSUTX, specifically its manager - one Mr. Simmons, Harvard MBA no less.
Now, I've been a long term investor in utilities for a long time and it served me well. The main reason for going mutual fund route vs. ETF is a dividend re-investment, which is free and automatic at Fidelity.
I monitor daily activity via XLU, knowing that mut fund is somewhere close, so noticeable underperformance of FSUTX caught me by surprise. He's got 70% of the the fund in same 10 utilities as everybody else, with all he has to do is re-balance, re-invest divi and sit tight. I pay this guy 0.8% to do this for me, not to have a turnover rate of 63% (as of 8/31/2015, even higher before that). What the hell is he trading out there?- I wonder. Upon further inspection I was shocked to find out that there is gambling going on in here, including some wild bets on renewable energy, speculation on oil and gas and some strong opinions based on vague assumptions. The most egregious transgression is completely out-of-index trades in Time Warner Cable, because he "consider cable & satellite companies modern-life utilities"...
Say, what? WHAT? Do I have to do everything myself? Really..?

System 9 activities.
BOT: TXN on 1/28
SLD: HD on 12/9; HRL on 12/23
DIVI received: HD

Sunday, August 30, 2015

What a gyp

" Historically index moves up and down 10 to 30 percent at a clip without rhyme or reason... There is no dependable set of rules that would enable a person to ride every zig and zag." - iBergamot in 2014 (link)

In order to buy something, you have to sell something first. Its the same money.

In this century, Global Financial Crisis (GFS) and Tech Bubble / 911Tragedy recessions aside, every single drop in popular indexes had been a buying opportunity.
Each and every time the question is: which one is it? Is this a noise or big trouble ahead?
VIX on Friday August 21 - one day before crash
May be just medium size problems, like 1998 and 2011 wipe-outs caused by foreign problems. Asia and Russia started crashing in 1997 and (despite a big rally in between) finished here with a bloody drop in 1998. Greece and rest of ass of Europe in 2011 also ended here, but not until USgov credit was downgraded and MFGlobal blow up and took it's customer's funds with it. Both instances resolved in record rallies.

I did not trade prior to 2002, so don't have a personal experience of the 90's.
It was easy to predict housing collapse, as I was increasingly weary of speculation in real estate as early as 2006. Did I foresee a 50% bear market? Nope. While I significantly reduced stock holdings prior to crash, I never went completely into cash, so there where catastrophic losses on remaining positions by late 2008. Gains on my large US Treasuries holdings offset some of that. By the end of 2009 I was back to even.
Then, there is a flash-crash of 2010. I saw that one coming a mile away.
2011 was a surprise and very difficult time for me. LB account (the one I had long before and since) fully recovered and was making new highs in about a year off that bottom.
October 2014 last year started as a regular seasonal dip (I was expecting it) , but quickly turned really bad and felt really flash-crashy at some point. I pissed my pants at the lows and had to buy all that shit back at higher prices, effectively missing that bottom.
August of 2015... now they did it?... too early to tell. I try to buy the dip until it fails, but carefully. There could be a lower low. There could be many of lower lows... for the next 2 years...

Price action of  popular averages should not be over-analyzed based on technical analysis (TA) and historical precedence. We can't learned from history as much as we need for prediction of future, because history keeps constantly changing.

Plus, there is always a question: what part of history?
For example, they say that we haven't had a bear market since 2007-2009. This simply not true. 2011 was a real deal with S&P500 falling 21.58%, satisfying a -20% classical definition of  bear market. Small Cap stocks in Russell2000 index (RUT)  fell over 30%. Devastation was wide spread, coupled with near-recession economic conditions.
They also said that we haven't had a 10% correction in a market since 2011. Also wrong. S&P500 fell 10.94% in April-June 2012 and almost 10% (9.84) in October 2014, but Russell2000 (RUT) had these 10% drops twice in 2012 and 4 times in 2014. Rather than mulling over chaotic fluctuations of 2000 small stocks in RUT index, I prefer to remind that market cap of all of them combined is smaller than one AAPL.

Which brings me to most important question of all: WHAT IS 'MARKET' ?
Certainly its not S&Pee. S&P500 Large Cap growth index (SPX) may be the best representation of  US market, but only at single point of time. Because of constant changing of its components (and obscure weighting methodology) its hardly the same index as in 1987 or 2000. I prefer to consider SPX a System with certain entry rules  (buy the dip) and exit conditions (death). Over time index destined to increase, as long as US is OK and there is steady stream of new companies and new investors - all according to Dow Paradox (link).

Personally, i like to use NYA - a Composite index of everything trading on New York Stock Exchange, including real reporting common stocks, foreign ADR's,  REITs and more of god-knows-what. I think it's more realistic view of stock-centric financial markets, while still skewed by market-cap weighting, NYA displays different price dynamics than SPX. Observe below how NYA made much higher high than SPX in 2007 vs 2000, and how it failed to do so in 2014-2015 vs last top of 2007.

Really, the only conclusion is: market has been moving up and down over time, and reasonably expected to do so indefinitely into the future. This is what I SEE.

Stock Market (as it can be traded in USA today)  is  2130 stocks, priced over $5 with at least 300K shares daily volume.
Of them:
  • most split rather evenly over market cap size (26% Large; 40% Mid, rest is garbage)
  • a little over half are profitable
  • a little less than half pays dividends 
  • on 8/25/2015 (last bottom) 60% of them where down 20% or more, ie in bear market
What a gyp

One Hindu priest recently told me: "Everything happened before". Such a simple and beautiful concept, somewhat explained by Nietzsche "eternal recurrence" in 1882. Methinks, he got it from Ecclesiastes: "Everything that happens has happened before, and all that will be has already been— God does everything over and over again", but Poincare proved it mathematically as "recurrence theorem" in 1890... See, there are already three of us... and I am in a pretty good company...

Tuesday, August 18, 2015

System12 Plus. 8-2015

.this update covers activity from 8/17 to 11/28/2015.

I am making peace with a fact that original version of System12 is basically discontinued. There is no point in updating its spreadsheet, because it strayed away from MD Control index so much and for so long, its not even close. I continue to use it exclusively as high quality stock selection tool and timing entry/exit using weekly CSI (Composite Score Indicator). There isn't much else to do, with majority of MD stocks continuously dis-qualified or unavailable for most of this year. I don't complain much either, as CSI offers much better technique for intermediate (weeks to months) entry than original System12 rule-set and provides superior exit signal. Still there is hope that situation will improve when market rights itself.

Notably I'm using 'when', not 'if', although upward breakout is not a guarantee - it is a most likely conclusion of present sloppy sideways range. Could it be a huge distribution pattern, can we fall and correct by 5-10-20%? Sure. Anything can happen. That's why I am not about to bet the farm on this bullish notion, carry large cash balance, strictly adhering to CSI rules and position size limits, staying away from speculative and high risk issues, and waiting for some kind of a resolution to manifest itself. This posture served me well this year and prevented large losses I typically suffer in a volatile lateral grind.
I am not going to die on this hill (extra VietCong).

(Update 8/19: found error in calculation - should not have bought PG - no signal... fucking-fuck)

BOT: BRK on 8/20; AMZN on 8/26
SLD: AMZN on 10/21
DIVI received: WFC, PFE, PG, HD and HRL

This is MD:


MD Control: JPM out; FB in
Disqualified: AAPL, BRK, XOM, PTR
Earnings: PTR on Aug27

This is SD:
Oilers RDS and CVX out; financials BAC and V in
BABA continues to slip, but technically still #21
Some of stocks coming up: C and HSBC; KO and PEP; GILD and MRK; ORCL and IBM
also HD at #34 (I have HD in System9)


I'll add System9 to this consolidated systems update for better overview.
Although I call LB account System9, it really allocates only 25%  to it, but I have a discretion to increase it to 50%. May seem confusing, but splitting LB into different strategies is just as true representation of 'Theme Investing' as simply focusing on industry groups. Diversification is the key, but its difficult to keep these methods from overlapping.
LB presently holds some cash, gold, international markets, utilities, SPY_CSI, elements of S14, S12Select and original S9.

BOT: HD on 7/31; HRL on 8/26


 I wrote about S14 "The Equiponderator" in this post (link), while it was still in development. Can't say that its finished, as testing and implementation of long-term system takes a really long time (no shit). I deployed most of cash over this past year, and even went through my first rotation. Results are hard to judge - mainly because major trends in equities and bonds still persist, almost all positions remain open, while I continue to tweak strategy and make tactical changes.

All my methods stand on 'four pillars' - WHAT to buy, WHEN to do it, HOW to bet, and WHY to sell.
The first one turned out a bit more complex than I expected.

Stocks. S&P500 is an obvious choice (almost a no-brainer), as such I bought it first, but there is a problem. S&Pee is a system in itself. A very crude and inefficient, strangely weighted and with no risk control, but a system nevertheless. Continuous rebalancing of large cap growth stocks gives it an incredible edge over most active and passive strategies, but also makes it very hard to trade technically. As a matter of fact, its set up this way specifically to avoid any need for technical or fundamental analysis, and does a pretty good job at that.

I wanted to make a step further with more homogeneous group of domestic stocks I can analyze through ETFs, but trade using Vanguard mutual funds. The best approach I came up with is a combination of market cap with growth and value style in easy to use list: Market Cap Grid.
Lo and behold, I saw immediately that small-cap value VBR (that I had for months) is actually the worst performer, small caps are generally lagging this year, while mid caps deserve much more attention.


How about Harvard Management Co - the biggest college endowment out there.
Some unusual choices among their top holdings and big add's. 
Latest filing for second quarter, reported by 8/14/2015
also GOOGL, AAPL, FB, YHOO; and Vanguard etf's IVV (SP500), VEA developed, VWO emerging.

Tuesday, June 30, 2015

Theme Compound of 2015


This continues a string of posts on Theme Investing - the main approach of System9.
Previous Theme Compound of 2013-2014 got too bulky, therefore its closed and will not be updated anymore. I do expect to continue many of the same research ideas, thus many lists will migrate here, as well as new findings.
Theme Compound of 2013-2014 will remain here (link) for future reference.

Theme Compound is an amalgamation of my current efforts, preset in easy to use format.
I trade only my own watch-list.
Exceptions are futile !


Main 1

Main 2

S&P Sectors+
Market Cap Grid
LG vs SM Perf. http://stockcharts.com/freecharts/perf.php?VUG%2CVBK%2CVBR%2CVTV
Bond Grid
Original Dart : DART Board - AI heuristic stock's selection method (post link)
best list select 6/8 (finviz link)
Utilities Portfolio FMSUP (overview here)
FMSUP Shuffle List

System9 Consolidated Watch List post link 


Daily http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&yr=0&mn=8&dy=0&id=p89818059405
Weekly http://stockcharts.com/h-sc/ui?s=%24NYA&p=W&yr=5&mn=0&dy=0&id=p30393828076
Daily MADI with real-time NYMO
1year MADI with NYSE study

Month to Quarter to Half/Year Cycle Trend Analysis
Half/Year to Year to 2-Year

Composite Score Indicator (CSI)
Total Trend Tool (TTT)

PFT (Point-n-Figure Target Calculator)
A-D T http://stockcharts.com/h-sc/ui?s=%24NYAD&p=D&yr=0&mn=6&dy=0&id=p70639111447
Common-only annotation http://stockcharts.com/h-sc/ui?s=%24NYA&p=D&yr=0&mn=3&dy=10&id=p20563653727

Price Only http://stockcharts.com/h-sc/ui?s=%24NYA&p=D&yr=0&mn=9&dy=0&id=p79256938928
Price only WEEKLY http://stockcharts.com/h-sc/ui?s=%24SPX&p=W&yr=3&mn=0&dy=0&id=p84625470549
Simple http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=1&mn=0&dy=0&id=p87501533110
Annotation http://stockcharts.com/h-sc/ui?s=SPY&p=D&yr=0&mn=6&dy=0&id=p56621968256
1 Year Trend http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=1&mn=0&dy=0&id=p82716842175
TICK study http://stockcharts.com/h-sc/ui?s=%24TICK&p=D&yr=0&mn=6&dy=0&id=p05493943611
Volume Profile http://stockcharts.com/h-sc/ui?s=SPY&p=D&yr=0&mn=9&dy=0&id=p05091370215
BB Madness http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&yr=0&mn=9&dy=0&id=p18886147708
VIX http://stockcharts.com/h-sc/ui?s=$VIX&p=D&yr=0&mn=9&dy=0&id=p65011065149

C&S dart


Real Gold - sales, earnings, normal debt.  (Finviz link)
Silver and moar Gold
small gold

iBIA - my take on Dow Theory (post link)

DART Board - AI heuristic stock's selection method (post link)

FINANCIALS - Where money eats and sleeps (post link)

food matter(s)




T-Theory and more
A/D T http://stockcharts.com/h-sc/ui?s=%24NYAD&p=D&yr=1&mn=3&dy=0&id=p01998701564
Nasdaq Weekly A/D T http://stockcharts.com/h-sc/ui?s=%24NAAD&p=W&yr=5&mn=0&dy=0&id=p32594983861
VO T http://stockcharts.com/h-sc/ui?s=%24NYUD&p=D&yr=1&mn=3&dy=0&id=p54491867853
UD V T http://stockcharts.com/h-sc/ui?s=%24NYUD&p=D&yr=3&mn=0&dy=0&id=p61792369947

DIVI Hunter (aka 162 Divisadero) Monthly: ORC, PSEC, AGNC
Highest divi
High divi over 200

more Tech ?

INDIA wtf?

Krem v1 - Kaufman Rotational ETF Method - was originally developed in late summer of 2014 in this post (link).
Subsequent updates can be found by selecting label 'KREM'.
Some interesting thoughts and observations in this post (link) from March, 2015.


iBergamot Fetish Favorites 


Friday, June 26, 2015

System 12 Plus. 6-2015

.this update covers activity from 6/29 to 8/14/2015.

Last System12 update was published in March post (link).
There where only a couple trades in past 3 months, because of system restrictions and filters.
The only change to MD Control index happened just recently with Walmart replaced by JPMorgan.
FaceBook is coming up fast through Second Dozen... I never thought it could get this far. Never. Not for a second. Thus is a superior nature of System12 as a stock selection tool, despite personal biases and recent experiences. Speaking of which, BABA will have all filters and indicators up and valid in a couple of months. I am eager to run a CSI on AliBaba and see whats it really made of.

I am writing this on following Monday, June 29. I was waiting for this - a 2% day, a minus 2% as it happen to be. No worries though, System12 had been mostly in cash for months, as I wondered why... why nothing works... why leaders don't lead... why index is so sticky... why no volume... why many of my indicators just pooped on themselves... why so many why's?
Today Greece defaulted on defaulted bonds, closed banks and stock market, limit ATM withdrawal to 60euro and basically turned all markets to shit. Guess Greece matters after all... Wasn't it a common knowledge that... and blah-blah-blah. I don't care, as I am really fucking sick and tired of this range bound, constantly reversing sloppy price action on most of indexes and averages since winter. Individual stocks are mostly no better, and various ETF's gone completely illiquid.
Anywhere is better than here.
Up/down - I don't care. Really


BOT: PG on 7/29
SLD:FB on 7/20; GOOGL on 7/23
DIVI received: none

This is MD:


MD Control:WMT out, JPM in
Disqualified: XOM, BRK, PTR, JNJ
Earnings: start July 14 with WFC, JPM, JNJ, followed with GOOGL and GE on 16th

This is SD:

 I've been mentioning some Mega Dozen (MD) under-performance since the beginning of the year. Its not a lame excuse or a feeling. Equal weighted index of these stocks (aka MD Control) had been visibly lagging behind S&P500 index (SPX), even more so lately. Picture presented below is the reason why I don't just plow all money into these 12 stocks and call it a day. Certain qualifiers has kept me safely off this bunch of laging dullards, until the time they 'be back" (extra Terminator)

Last time chart was updated a year ago in June 2014 in this post (link).

Important notes about use and limitations of KREM index in this post (link) from March, 2015.

Originally I thought that KREM need to be rebalanced monthly. That turned out unnecessary - these ETF's are remarkably sticky. It seems that changes happened about quarterly and may be even less often. This time around I have two replacements:
SOCL and SEA out; SMH and MOO in.


Full KREM list has 55 long only stock etf's, but the problem is - good portion of them are absolutely un-tradable. Some of them are so illiquid, with gaps and wide bid/ask spread, its all but impossible to trade on-stop. Since I am working this method into System9 ,where I don't use market or limit orders, there was a need for a more practical list.



Three top slots on first link are an actual Dow Theory: industrials, transports and utilities.
Some etf's here are kind-of the best from the illiquid bunch, currently serving as placeholders of the sorts, until something better comes along or they come back to life: ITA, SKYY, SOCL etc

Full KREM list is here:

An observation:
Some of these etf's are misleading somewhat in their descriptions and composition.
For example, XHB Homebuilders ETF is holding only about 33% in actual home-builder stocks. The rest of it is loosely related, wide array of building supplies, appliances, furniture, security etc ... why not include a woman's shoe store for a good measure... them shoes go into the house too.. no?  ... ehh

more coming... may-be enough for now

Wednesday, May 27, 2015

Other People's Money

I better write this down, before stock-chart and corresponding items slip thru the cracks in a matrix and disappear into internet void. I think I wrote on similar subject a few years ago. It was Teavana ($TEA) back then. Now there is a new addition to OPM (other people money) hall of shame - $GTI - GrafTech International Ltd.

This story is like really straight from the movie, and many similarities kept me glued to real-world drama, even as I didn't have a dog in this fight most of the time. Reality turned out way more bizarre than fiction. 

In one of my favorite Wall Street movies, there is an adorable villain corporate raider (played by Denny deVito) pinned against a white-knight cracker-jack-type corporate lawyer (called Kate) and old-school sympathetic industrialist (foreignly named Jorgensen). Observe:
BTW, proxy blood-bath scene is a classic, in some way even better than famous Wall Street the movie speech, but I digress.
If one pays attentions beyond provocative dialog (and has elementary knowledge of Wall Street shticks) - curiously, Other People's Money the movie, ends with total loss of shareholder equity type of event. In other words - stock goes to zero, everybody loses, except... you know... people who always win... even when they are losing...

I came across this abomination out of state of Ohio during smallest-ever graphite/graphene bubble of 2010-2011. Looking back, its amazing how many stocks jumped on that band-wagon in a shortest period of time. GrafTech was an actual operating company, a real gem in a steamy pile of graphite scam stocks. Not really a new-technology enterprise, it specialized in plain vanilla graphite rods for steel industry - an old and un-sexy use of graphite. I don't remember if it was profitable at that time, but they had factory, clients, sales and GTI stock was going up. Most pressingly, company was doing some research and development into graphene, with rumors of patents and cutting-edge applications. Whats not to like? After Rare Earths boom and bust, I knew exactly what to do... right...

Old Vampire Milikovskiy
I don't know what Mr Milikovskiy did in his early years at Yale, but in his 70's he is somewhat vampire-ish looking and very busy. Back in early 2000's dude was smart enough to buy small graphite company out of bankruptcy, merged it with another and sold them both with himself included into GrafTech in 2010. This Trojan horse maneuver yielded him instant pile of cash with seat on a Board and express access to inside information (quite legally, of course), which our very investment-minded vampire promptly leaked to a friendly hedge fund (allegedly, of course). I don't know if that was the reason why Old White Men decided to kick him off the Board, or some other rich people shit, but in a classic vampire fashion, Mr Milikovskiy came back... and with vengeance.  
He took it all!

Old vampire Milikovskiy prevail in every struggle along the way. Brilliant investor and industrialist, he picks a low hanging fruit, keeps it until ripened and then eats it himself. In the most timeless traditions of corporate raiders, he devours the entrails of a corporation until fully assimilated. Resistance is futile...

Ahem, except stock is down a cool 70%, from 24 in 2011 to 7 in 2013. Lower demand from struggling steel industry, shitty office politics and R&D gone MIA - all lead to massive price drops, but also making GTI a better and better value-investment opportunity at the same time. It is a real company, mind you, with 2000 employees and clients all around the world. 
What A Great Deal!

Enter hedge fund celebrity, TV personality, give-me-a-seat-on-your-board, Fine Woman Karen. I don't know if and how much she invested in GTI, don't know if and when she sold it, but this investment of hers was quite well publicized - even I knew it, and I don't know much of anything. I do know for sure, that weather or not HER own investors in-fact lost money on this stock, there was:
a.) absolutely no possibility of profitable exit after end of 2013;
b.) she gets paid personally, as a Director of GrafTech, no matter what.
c.) Based on publicly available information, some Board members and officers of GTI receive salary and compensation of 500 to 800 thousands dollars per year, regardless of company profit or stock performance.

Karen Fineman of Metropolitan Capital Advisors out of New-York (Wharton graduate, no less) became a Director of GrafTech in May 2014, just when GTI was sliding off $10 for another 70% drop - only this time to $3 per share.

On May 18, 2015 GrafTech was sold to Brookfield Asset Management of Canada for $5.05 per share, valuing the company at less than its BILLION! dollars of annual sales. Moreover, this sale price is less than book value, meaning GTI is worth even less than worthless crap it owns. All this happens at some of lowest prices per share ever - in other words - everybody lost money... 
...every-single-fucking-investorrr is under... with no possibility of recovery... ever...
The offer was supported by investors and new slate of directors.
IMNSHO, in all likelihood,  company will go on and probably prosper as private enterprise.

Herein lies the bitter truth about deep value long-term investing, aka sitting in losses for years while waiting for a company to get its shit together. Some of these takeover raids and turn-around coups get a lot of news coverage and make for ravishing cocktail conversation. Storyteller appears all knowing and well versed, with conservative 3-5-7 years views and reasonable expectation of gain. Personal gain, of course, as salary with benefits, bonus, stock options etc - a compensation for making investments... stocks.... you know... Most of the time shit blows up in their faces, pieces are swept under the rug, analysts flee and reporters are put on 'ignore'. We never get to hear these stories, but tape tells all.  When price goes down, when every rally is sold, when story smells foul - there is always Other People's Money (OPM) involved, inevitably holding the shortest, ever diminishing end of the stick.

One really doesn't need to be hungry to eat a doughnut.

Me? I traded GTI three times. Small gain in 2010-2011, sizable loss in 2011 and decent profit in 2013 - all together amounting to token deficit, just a trifling sum - a price of a front row ticket to a Wall Street Shit Fest, a Dirtiest Show on Earth.


Sunday, March 22, 2015

System 12 Plus. 3-2015

.this update covers activity from 3/23/2015 to 6/26/2015.

There are no changes to MD. XOM slipped 2 spots to #4. BABA keeps coming down, like I was expecting ever since ipo.
Overall Mega Dozen is in a difficult condition, with half stocks either outright disqualified or unavailable. I'm not surprised, as I noticed weakness in large-cap stocks awhile ago (and wrote about it back in February here (link)). This rally off March 11 low was led by small-cap stocks, with S&P500 lagging notably, and NYA still under February 25 high. Comparing 'internal conflict' metrics today with what I observed a month ago (at almost same SPX level) - I see a slight improvement in number of stocks near 52 week highs. This looks like a broad based rally, not led by mega stocks. Good or bad... I don't know.

I remain very pleased with System12 performance. Risk control filters (designed for keeping me from buying Mega Dozen (MD) stocks during correction or in downturn) did just that - kept me away from bad risk. MD stocks are the biggest and the best, but its not written anywhere that they must remain to be so. Some will fall and never come back. I don't know which ones and when. I don't know the future. Really. I just know that System12 hasn't been fully loaded for months. I'm not arguing. I'm glad.


BOT: (LB)PFE on 5/28; (LB)FB on 6/2
SLD: BRK on 6/5.
DIVI received:WFC

This is MD:

MD Control: no changes
Disqualified: PTR, XOM, MSFT, with GE, JNJ - borderline

 This is SD:
HSBC out, DIS in

KREM update.
Last time I looked at KREM concept back in September last year post (link). Back then I wasn't sure how to use it, but mostly because I had time to look inside the market and KREM didn't give me anything I didn't already had or used, so I left it be. Now, with severe time constricting personal limitations, this thing will become handy. Especially in System 9.

KREM has only couple of changes under last selection criteria. In an interest of index manipulation, I substituted XOP and XES/OIH with single position of  XLE. There is no way out of energy losses for this index.  SOCL is added back. I decided to remove URA for now - this thing is really tiny and industry deemed completely irrelevant (my personal fetish aside). SEA will take its place, although it was a tie with SLX. Other notable etf's coming up in scans: XLV, SMH, and old GDXJ/SIL with craziness completely off the charts.


KREM is not an index to blindly invest into. It is not intended as model either. Methinks, its an index of 'active' market, as such it has top winners, and bottom losers, and volatile movers, and few of other extremes. One thing is for sure - its components MOVE! I am trying to get my mind around this index, understand its nature, but some vital point evades me still.

Chart presented is an equal allocation portfolio (no commissions, no dividends, fractional share count) of original KREM composition (red), current KREM2 (blue) and S&P500. Under-performance is notable, but (again) this index is not meant to be an allocation model. Rather, its a picture of average, active, media driven, collectivist investor horde.