i Bergamot: System 9

Showing posts with label System 9. Show all posts

Friday, September 7, 2018

Dow Paradox Strikes Back

Dow Paradox has been my modus operandi for many years.

Five years ago, almost to the date, I wrote here (link):

The purposeful manipulation of index components is designed to produce positive outcome, thus creating an upward equity slope - an illusion of increasing wealth and prosperity - The Dow Paradox!

In a sense of this phenomenon, 2018 is off the charts. A great calamity started in a beginning of this year, when S&P Global (the main purveyor of indexes galore) and MSCI (the other snake oil peddler) announced massive changes to their industry classification structure - GICS. The monumental reshuffle of sectors and industry groups (started with removal of REITs from Financial sector not so long ago) continues with introduction of all new and shiny Communication Services sector.
https://us.spindices.com/documents/index-policies/sector-classification-system-dj-indices.xls?force_download=true

I am not about to second guess wizards of S&P Global, besides it makes a whole lot more sense to keep Google and Facebook out of Technology sector, but this thingy will have quite an eclectic mix. Alongside of presently defined Telecoms (like AT&T and Comcast), new sector will also include publishing, movies, entertainment and interactive media - companies taken from Tech, IT and Consumer sectors.

I will be updating and revising System9 Consolidated Watch List, once 'rotation of 2018' is over. These type of changes are nothing new to me and don't cause any disruption to my investment process, because I operate strictly according to Dow Paradox and generally geared towards capitalizing upon its nature and reality. As for everybody else - watch out when walking under tall buildings - they will be tossing all that laborious intermarket relationship research and weighty sector rotation models right out the fucking windows.

Current S&P500 allocation, according to Spiders (link):

------------------------------------------------------------------------------

On June 19, Walgreens pharmacy (WBA) replaced General Electric (GE) in Dow Jones Industrial Average. GE had been a longest continuous member of DJIA, stayed in it from very beginning, but visibly lost its way over past couple of decades. Formerly the bluest of blue chips, and seemingly perpetually biggest industrial company in the World, is now a pale reflection of itself. GE never recovered from the financial crisis (GFC), moreover - it sits now near 2009 lows, priced at 1/5 of its 2000 high. (chart from Yahoo)

This is not the first rotten 20 years stretch GE had to endure. Presented in a chart below is a period from 1962 to 1982 (prices adjusted for splits and dividends, i think), with big green candle of August 1982 that kicked out a monster 60x bull run culminated in a chart above.

Before my dear readers (all two of you) get all hot and bothered about long term prospects of banned light bulb maker, jet engines and locomotives and nuclear reactors builder, hospital and biomed equipment manufacturer, lending bank and more of god knows what - I want to remind that all this gobbledygook and squiggly wiggly lines on a chart means exactly dick (for making money in trading). GE is sort of an index of itself - a gigantic conglomerate of businesses that changed hugely overtime. So much so, that essence of Dow Paradox must be applicable to this single and somewhat unique stock.

From the same article of 2013:

What is a point of doing long term technical analysis on a price chart of $INDU or DIA, or SPX, or many other so called 'indexes' ,when composition changes so much - its not the same index, not even close. Companies dropped from major index suffer massive outflows, sometimes for years, and often even go bankrupt (remember Kodak).

I don't think that fate of Kodak will befall upon General Electric. Unlike Kodak (who's product went extinct), GE still makes important things, employs 300 thousand people, with sales of over 100Bil (P/S is 0.89!), almost 4% divi, and presence in 180 countries (out of 196 total).

I will not be making any predictions about GE future price movements, nor I will offer a trade recommendations. Rather, I want to make an observation - GE was one of 12 biggest stocks in USA for years. As such, its been a permanent member of System12, and I traded it on several occasions with last trade sold a bit over $30 in September 2016 (post link). System Rules never provided a new entry into GE up until October 2017, when this thing fell off Mega Dozen, tumbled through Second Dozen and became disqualified from System12.
Read more about System12 here (link).

Wednesday, June 22, 2016

System9 Consolidated Watch List

Saturday, February 13, 2016

Anatha Bhaga

Bhaga, God of Wealth...and Love

Lord Vishnu is one of Supreme Gods of Hinduism, master of all, creator and destroyer... and he is slightly blue. (Wait, it gets better). Apart from having four hands, he also has a gang of 12 Adityas - your regular, everyday Sun-Gods. One of them is Bhaga, God of wealth, also responsible for distribution of destiny according to merits of recipient... ahem

God Bhaga maybe an obscure character, but is definitely connected linguistically to Sanskrit word 'Bhagavan', meaning 'rich and prosperous'. Further, it believed to cognate to Slavic бог ("god" /bog/); and to be an original root of Russian богатый ("wealthy" /bagatyi/). Good words do get around...

In Maharashtra state of India (central-left part of country) people speak Marathi, one of 23 official languages of India. According to Marathi-to-English dictionary (here link), the word 'Anatha' means:
either -That is without a master or protector; forlorn, friendless, destitute;
or - Friend of the friendless. Brother of the destitute; protector of the helpless.

India is such a mess.

------------------------------------------------------------------

After paying homage to some of biggest swinging dicks of Wall Street in Guru Puja post (link), I am looking around at what I got. This lonely traveler in search of The Way is not doing too bad. There are plenty of good ideas in stocks that I follow based on various reasons, but mainly because of some common sense notions. I call this approach 'Theme Investing' aka System9. I tend to gravitate towards larger companies not just because all the action and liquidity is concentrated in these type of stocks, but also based on appearance of stability and viability of underlying enterprise. It other words there is less of a chance that these corporations are a complete fucking fraud. Mostly all of 'My Stocks' are real businesses, making tangible things or providing valuable service, and with a scale! Every ones in a while their stocks go up 10-20-30% for no special reason at-all.... just because. It happens often enough, sometimes these trends last for months, sometimes they don't happen for years. Sometimes I am wrong, or early.

In order to make money in The Market I need to answer these 4 questions:
WHAT to buy, WHEN to do it, HOW to bet, WHY to sell.

For the task of "WHEN to do it" I developed Composite Score Indicator (CSI) - my proprietary formula to quantify and qualify price action of any actively traded security. CSI is a technique to hook big, major, most explosive trends and continuously know where I am in that trend, including an ample indication when the trend is over. Composite Score Indicator does not tell the future, it can not guarantee that position will be profitable. CSI Buy Signal does not guarantee that trend will indeed develop, but every trend has at-least one Buy Signal in the beginning. It just can not be any other way.

My view of importance or prospects of a Theme is just an opinion. I have to wait and calculate my Composite Score Indicator, because there is no way to know in advance if any group of stocks or industry will become an attractive investment. Financial speculation is a process of making an aggressive monetary bet, based on incomplete assumption, for uncertain period of time. As such it is very risky, prone to misjudgment, as well as susceptible to error in forecasting. By using Theme Investing and System12 for stocks selection, CSI for trade timing and conservative position sizing - I attempt to circumvent these difficulties with reasonable expectation of gain over time. The Market rarely makes sense (and I don't think is has to), but it speaks every day... I am listening...

This Anatha is a man without Guru. Alone, but not lost. Independence is my strength. CSI is my guide.

--------------------------------------------------------------------------------------------

“I can assure you that any specific projections I write down will turn out to be wrong, perhaps markedly so.” – Janet Yellen

“If you’ve followed my forecasts, you’ve probably lost a lot of money.”
– St. Louis Fed President James Bullard

--------------------------------------------------------------------------------------------

Sunday, November 29, 2015

System Update. 11-2015

System12

.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)...

System12BCM:
http://stockcharts.com/freecharts/candleglance.html?WFC,PFE,PG,brk/b|B|P5,3,3|0

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

This is MD:
http://stockcharts.com/freecharts/candleglance.html?AAPL,GOOGL,MSFT,BRK/B,XOM,AMZN,GE,FB,WFC,JNJ,CHL,JPM|B|P5,3,3|0

https://trader.motifinvesting.com/motifs/mega-dozen-Ftnb1cNJ#/overview

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:
http://stockcharts.com/freecharts/candleglance.html?PTR,NVS,WMT,PFE,TM,T,PG,VZ,BUD,DIS,V,KO|B|P5,3,3|0
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.
------------------------------------------------------------------------------------------------------------

System9

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

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).

System12BCM:
http://stockcharts.com/freecharts/candleglance.html?WFC,PFE,pg|B|P5,3,3|0
(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:
http://stockcharts.com/freecharts/candleglance.html?AAPL,GOOGL,MSFT,BRK/B,XOM,PTR,WFC,JNJ,GE,NVS,CHL,FB|B|P5,3,3|0

https://trader.motifinvesting.com/motifs/mega-dozen-Ftnb1cNJ#/overview

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

This is SD:
http://stockcharts.com/freecharts/candleglance.html?JPM,AMZN,WMT,PFE,TM,T,PG,VZ,BUD,BAC,DIS,V|B|P5,3,3|0
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)

--------------------------------------------------------------------------------------------------
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

---------------------------------------------------------------------------------------------------
System14

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.
http://stockcharts.com/freecharts/candleglance.html?$WLSH,$SPX,MGC,VV,VUG,VTV,VO,VOT,VOE,VB,VBK,VBR|B|0
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.
http://stockcharts.com/freecharts/perf.php?VUG,VTV,VOT,VOE,VBK,VBR&n=50&O=011000

---------------------------------------------------------------------------------------------------

GURU

How about Harvard Management Co - the biggest college endowment out there.

http://whalewisdom.com/filer/harvard-management-co-inc

Some unusual choices among their top holdings and big add's.

Latest filing for second quarter, reported by 8/14/2015

http://stockcharts.com/freecharts/candleglance.html?XPO,FTAI,CP,UTX,DHR,SCCO,CST,APC,PXD,HHC,YDKN,HCBK|B|P5,3,3|0

http://stockcharts.com/freecharts/candleglance.html?LVNTA,CBS,TRCO,NLSN,AMT,CCI,VIPS,AMX,TV,EWY,IDX,PRGO|B|P5,3,3|0

also GOOGL, AAPL, FB, YHOO; and Vanguard etf's IVV (SP500), VEA developed, VWO emerging.

i Bergamot

Pages

Daily Global Economic Calendar