If we make mistakes, Buffett confesses, it is either because of (1) the price we paid, (2) the management we joined, or (3) the future economics of the business. Miscalculations in the third instance are, he notes, the most common.* Robert Hagstrom, Warren Buffett Way*Original DART Strategy is based on principals of common sense investing into prosperous American enterprises. Although it has foundation in fundamental analysis of securities, DART looks beyond income statements and balance sheets. Our focus is on basic and broad characteristics that are both hard to manipulate and signs of good business at the same time. This prudent strategy attempts to deliver a narrow dynamic list of sensibly priced stocks of best companies in USA, for immediate investment. Although statistical lens is impartial, it can not see what is hidden, nor it foresees the future. I don't pretend to predict prospects of stocks I invest in, and apparently Mr. Warren Buffett ain't got a clue either. Good, there are already two of us and I'm in a pretty good company...
In order to function properly, Dart Strategy Portfolio has to deploy multi-position rotational methodology, in which both winners and losers are being sold in efficient manner. I personally designed and traded several systems with 10-12 positions and can attest that it was sufficient. The most recent example was a test run on this very strategy, discussed in previous DART post (link) Loaded Gun. But can it be done with less? If investing in stocks is nothing more than throwing darts at stock-tables, can we get a better dart-board? DART v2 is expected to do it with 6 Standard Position in $20,000 portfolio, but even I am not sure if it is possible.
Dart is a strategy to scan available database of fundamental information, looking for good business, priced at good value, in order to build a definitive watch list from which to select a trading candidate. Call it Best List because, believe it or not, this is the best this Market has to offer. Not my opinion, its just is... I outlined basic selection criteria in original Dart article post(link), and they proved to be absolutely valid. This Best List is remarkably small, but has to get even smaller for DARTv2.
First consideration is 'plaque of all small accounts' - costs! The commissions really add up and eat into any gains, while accentuating losses. Luckily, Best List already has a solution available - many of these stocks pay a dividend of 1.5% or more, which according to past tests more than offset costs of Standard Position Sizing. I think that to run this method in less than 20K account is not feasible, while employing multiples of this amount will effectively negate costs and increase dividend income. I estimate that portfolio will need a trade every two weeks, with expectation for a rocky start. System start is always rocky. Always!
Secondly, I don't want to buy high price/sales ratio. Generally its a recipe for disaster, because price already risen far enough for somebody to take some profits... and its never yours truly... At the same time I don't want any huge mega-caps, because I have other methods to deal with those (System12). Besides, if second objective of Dart is to hunt for companies to be bought, then its not a 100Bil behemoth - they are the ones who doing the buying... lol
I added a 'short' qualifier, based on this simple logic: Shorts are smarter than me and they are sniffing something. Short interest of more than 10-20% of the float is especially alarming, considering how financially sound these stocks look on paper. Do I really want to be on the other side of THESE GUYS trades? Don't get cute with money, son.
Practically, there are only two ways to Start a System - you buy them all at once, or you don't. :)
Guess how I operate?
Strictly according to rational position sizing and portfolio management, as discussed in 'How to Bet' post (link), I will buy about $3000 worth of each, keeping the rest as cash reserve for future replenishment. (Trust me, these flowers will need a lot of watering).
Next update will be published in a week to ten days, so we can analyze portfolio initiation, see about changes that needs to be made and review rules for selling. Do you know 'WHY to SELL"?
Meanwhile, I remind that this is still a simulation, although set up as realistic as possible. I will host it at Investopedia
November 10, 2016. New simulator for fully synchronized DART v2:
New version of scan (Finviz link) is definitely something of extreme, as evident by small number of results. I am sure that somewhere between this and the original settings are a lot of great stocks that can be found and traded. Specifically, if curious learner follows scan link he may discover a small group of financial stocks. What are they doing here, I wonder. I remember back in December of 2015 I noticed another peculiar looking group of similar stocks. Go look what happened to them since... I can smell an experiment! Can you?