"A great trader is like a great athlete.
You have to have natural skills, but you have to train yourself how to use them."
- Martin "Buzzy" Schwartz, aka Pit Bull
Sometime during a smoldering summer of 2016 I noticed an abnormal number of financial stocks in Best List.
I remember seeing a group of technology stocks back during winter of 2015, when DART method was in testing. There were only 10-15 of them, which is not a lot, but that was more than half of Best List - a definitive watch list derived from scan of available database of fundamental information, looking for good business, priced at good value. I made a note in this post (link) and saved a group-chart. Go see what happened since the beginning of this year. I don't think its by chance...
When a new version of Dart strategy was published a month ago in this post (link), I pointed out an overwhelming number of financial stocks in a scan. It may be an anomaly, some industry-wide fluke that makes these stocks so attractive on paper. Or may be its the next fad. I don't pretend to know, but want to test this theory. This is exactly how I developed most of my methods - by trying and testing on paper.
This is a test!
No real money is traded, but I will keep a virtual trading account with (near) real records.
A scan of database with Dart-v2 settings returned 10 results in Financial sector: life and property insurance with some regional banks.
Current Dart-Fin List FinViz link.
I think there is a way to construct a diversified financial portfolio of about 10 stocks and have plenty of candidates for replacement. I will use modified portfolio management strategy, based on Original Dart (post link). Minimum account size required is $35,000 for ten equal size Standard Positions (read 'How to Bet' post link), with cash reserve of about 5K. Position size is expected to change in a couple of months, according to performance.
Dart for Financial Stocks : Dart-Fin Portfolio
a. 10 financial stocks to be selected from expanded version of Dart-v2 scan.
b. One time per week, the worst loser will be sold and replaced with new candidate from the 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 everything moving higher - wait and trail stops.
c. New positions can not be sold for 1 month, to avoid over-trading (except for initial allocation).
d. If stock is sold - it can not be repurchased for 1 month, to avoid wash-sales.
e. Sell and purchase don't have to be on a same day, but every effort has to be made to keep portfolio fully invested.
Dart-Fin Portfolio should to be as much diversified as possible within financial industry. Considering that majority of scan results at this time are regional banks and insurance, I will start with this allocation: 3 banks, 3 insurance, 2 reit's, 1 savings/loan, 1 broker/asset manager. This mix may shift in a future.
I set up a simulated account at Investopedia and bought all these shortly after open on September 15, 2016. 'Dart Fin' game will be accessible there for review and comparison. Note: they don't have an option to set-up a 35K account, so I took next one up ($50,000). Remember to always adjust it by 15K. I will keep my own records to make sure of that.
Dart-Fin experiment is designed to exploit a temporary attractiveness of certain financial stocks. A meaningful amount of money is to be invested in simulated environment in order to realize above-average return. If premise of this test is correct, Dart-Fin will run for a period of 6 months, or possibly for as long as 2 years. It is unclear (at this time) how to recognize a completion of the experiment.
I will return to this in a few months to show what develops, but it should not stop an adventurous investor from running independent simulation and hopefully share the experience in a comment section... No?
update: November 10, 2016. New simulator at MarketWatch:
almost same portfolio:
FAF was sold on 12/22/16 on-stop, due to under-performance. Replaced with CINF.
Position size raised to $3500.
Dart-FIN Portfolio is up about 10% since this simulation begun on Nov 10, 2016.
Original Investopedia simulator from September 2016 indicates possibility of 40% annualized profit, but can not be relied upon for record and comparison and has been abandoned since November.
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