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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.

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