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Wednesday, October 17, 2018

Best List notes

'Best List' - a collection of sensibly valued investable stocks - is a cornerstone of DART Method.
Best List is not that big. Over past couple of years it held 30-60 stocks and sometimes less. I also use other similar settings to zero in on faster growing companies, get more yield or better diversification.

Typically, Best List stocks stick for awhile (sometimes for years), often get bought out by larger players or go private, and usually represent REAL companies dealing in non-digital world. Normally, composition of Best List changes slowly, except during major market turns or dislocations. We seem to be having one right now.

About a year ago it looked like this:
Best List select 6/8/17 (finviz link)

Only a month ago I was still working from this:
Best List select 9/12/2018 (finviz link)

Shortly after that DART started to self-liquidate. I wasn't too sure what the sudden softness was all about, but knew better than to disregard sell rules.
Note, this is probably the LEAST diversified iteration of Best List, full of industrial companies that fell thru the fucking floor boards like an anvil.

Now, the all new Best List seems to be developing from October 2018 rubble.
Traditionally, I exclude the biggest mega-cap stocks from Select List, but making a note: JNJ, CSCO, DIS, MDT, NKE, COST are here. Two of them are System 12 stocks (JNJ is an open position right now); Three of them are System 9 stocks (I traded NKE this year up until publicity scandal).
There more of them just behind the fold.

10/24/2018 Best List Select ---Finviz link---
This list looks to be in flux, due to recent market selloff, earnings season that is unfolding and pointless election jitters. As I write this on 11/7/18, full 3 weeks since starting this post, I still cannot make up my mind on a composition of Best List Select. However, now I am hard pressed to allocate into stocks, as MADI went on 'buy' signal yesterday (November 6) and seems to be holding today. This may be a whipsaw move - a counter trend rally in ongoing bear market, or a peak between two bottoms- in which case MADI will stay around zero line for a period of couple of days to a couple of weeks, then markets will tank with horrific stop-outs and bottom some time in December. On the other hand, any further strength this week will solidify October bottom.

I'll start here

DART v2 simulator: https://www.marketwatch.com/game/dart-v2-2018/portfolio

Noting something strange.
DART v2 excludes stocks with short interest of over 10% on premise that short-sellers smell blood and circling the waters, however a certain group of stocks emerged, with abnormally high short ratios for otherwise strong businesses or improving charts. The group is not homogeneous, but rather well diversified with several subgroups of related companies (this is how you can tell that this is an actionable Select List and not just a statistical aberration).


High Short Float List (HSFL) is not meant for immediate investment, although HRL looks really tempting, EGOV is a gov. monopoly, HCSG is a solid business, FANG is a Fast Grower and CALM + SAFM earnings historically fluctuate from nothing to everything and back... yet all of them sport a double-digit short interest.

Let me explain - there is NO way for all of the retail bears in the World to short 20% of the stock's float. It is technically impossible in today's regulatory environment. The only place this type of share-borrowing can happen is at institution, like a major investment bank or huge index fund or big asset manager.
This is why - it is very dangerous for the small operator to get involved with these kind of speculations.
In other words: they will not fight with you, they will fight amongst themselves and mow you down in a process.

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.

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).

Tuesday, May 22, 2018

2018 Spring T

Double top and double bottoms in NYSE Advance Decline line makes for too many possible top dates. I focus on a longest projection targeting mid-August top, unless recent lows gets taken out.
T-Theory has been spot on for few years now, with recent T's overrunning their projected top dates. This is an indication of a very strong, one way bullish market. Spring T of 2018 will show if it remains to be so.

I am making this note before 2013 runs off the chart,
There is a possibility of a very large Rate T, spanning almost 10 years starting in 2013 - Teen Rate T.
30-Year Treasury Bond yield peaked at 3.93% on week of August 19 and then double-topped 15 weeks later at 3.97% on week of December 2, 2013. From there yield collapsed to 2.22% in early 2015 and produced a Rate T (I had it laid out here).

What if that was just a beginning? Next low, the lower low, came on week of July 5, 2016 at 2.1%. The span of left side of the T from highest high to lowest low is 135 weeks, with projection for "Low in Stocks" week of February 4, 2019. Plus / minus 10% margin of error of base range and keep in mind a previous high of interest rates 15 weeks earlier - rout in stocks can last from October 2018 till end of summer of 2019. Difficulty in projecting a very large, multi-year time symmetries is that ripples from price movement gets smeared over extended time-line and lose their predictive powers, making trading on this type of analysis very difficult in real time. I just want to take these measurements before data runs off a left side of free chart. Continue...

Apparent multi-year resistance at 3.2% level opens a variant of a "last low before the breakout".
Note: breakout has not happened yet. We may be in a process of it now, it may happen later or not at all.
The span of left side of the T is 196 weeks from highest high to last low of 2.65% on week of September 5, 2017, projecting a Low in Stocks around week of June 7, 2021. Since my crystal ball is fuzzy at such distances, I say period of softness in stock prices may last from spring of 2021 to summer of 2022.

In other words, bear market in stocks that started on January 29 of this year (2018) will last 4 long years and will bottom in a first half of 2022 somewhere south from here.

... or
stocks rally thru summer 2018, perhaps making a nominal high above January top
then have a traditional crash in September - October, linger into Spring 2019,
double bottom or new panic lows in Summer 2019,
followed by face-ripping rally till the end of 2020,
culminated with mother of all bear markets in 21-22
... or


Zooming in into 30-year bond yield, I am tempted by a Rate T in development since the beginning of 2017. Presented below is a double top around 3.2% in December 2016 and March 2017. First measurement pointed to week of March 5, 2018 with actual low in stocks arriving 2 weeks later (within the margin of error). The next projection hits on week of May 29. Beyond that i am not sure. To seriously consider 2 green time symmetries I need to see 3.2% level decisively taken out, but so is a Teen Rate T, with corresponding conclusions.

Tuesday, June 27, 2017

VIDEO: T Theory Observations for Summer 2017. Conflict T.

Conflict T projects summer top, while Rate T projects low of stocks. We may see some MOVES...

Winter T of 2016-2017 , mentioned in this video, is here:

Rate T projections of 2017 Low in Stocks was explained in December 2016 video:

Monday, June 5, 2017

Belong Here

Poquessing Middle School Select Choir directed by Jason Leigh.


Amazing video, made by one of parents on iPhone, clocked over 10 thousand views and prompted comments like these:
"Super cool. Love the way it was videotaped"
"I got goosebumps as soon as they started! Sounds great!!!"
"Makes me wish I lived in the area so my daughters could be a part of your group! Bravo!!!"
"Even though you guys are only in middle school, you sound better than some high schools I've heard. Great job!!"

From Jason Leigh Facebook post on May 24 at 8:43pm:
"Last night, the Select Choir tried something new. After the recording session, I hustled the recording company out so we could take a wild stab at our first "music video." It was an interesting experience considering we had never done it before. But, thanks to very patient kids and the kindness of Richard Saxton (our tireless videographer), I think we captured something pretty cool. Please show it to your kids. They are all in it. I edited the footage today with the recorded audio from two weeks ago and, well... I hope you like it. Hopefully the positive message comes through clearly, although I'll never know how we did this on the first (and only) take. Please enjoy!"

On June 5, 2017 at 7:20am Select Choir hit the airwaves.



Mad props to WMMR crew for flawless production, great interview and fantastic sound.
Kate spoke so well... (mama cried whole lot)... with no preparations, girl did it old school - live.
Bergamot is beaming with delight...


Then, at 9:43am at FOX-29 TV studio.
I would be remiss not to mention, that creepy TV anchor needs to lay off the snow.
But more importantly - how do they take a great idea and fucked it up so bad? What, nobody show that clip from You-Tube to TV station editor? People just don't take enough time and care to prepare for their damn job properly. Or maybe those guys missed lectures on select transform and jump cuts, while spending 100 g's on their useless film school diploma. And what's the matter with left cam? Arrrghhh...
Other than that - Mr Leigh is The Man, always super cool, pleasure to see and listen to.
Kids are AMAZING!
That girl in glasses in front of mic... (papa cried a bit)... so proud...


Overnight success couple of years in a making.
In 2015, Select Choir took 2nd place in Christmas Choir Competition on NBC.

Here is The Man behind the magic and The School that makes it all possible.

Thank You.

Tuesday, April 25, 2017

Poor Richard. The Tools.

Poor Richard invests into Standard & Poor’s 500 Index (ticker $SPX).

To be absolutely clear, Poor Richard Method (PRM) is designed exclusively to be used on S&P500 – Index of 500 best large-capitalization US stocks. It will not work on any other index, ETF, commodity or bonds, and most likely lead to massive losses if tried.

Many people call S&P500 ‘The Market’, but it is an erroneous assumption. ‘The Market’ is over 7000 issues traded on major exchanges, of which about 4000 are American stocks (and only half are really tradable). The rest of them are ETF’s, bond funds, foreign stocks and more of god knows what. S&P500 is not ‘The Market’, but it is an accurate representation of the leading, most prosperous and the biggest enterprises in USA, as well as true reflection of THIS particular slice of economy, at the time. Index is re-balanced quarterly so weak companies and declining stocks are removed and replaced with new rising stars. Weighting of stocks in Index also changes and shifts over time according to their methodology, which (understandably) is a closely guarded secret.
S&P500 is not a static, frozen in time list of stocks, but a dynamic rotational system – An Active Index.

S&P500 has been ‘fixed’ so good, that (on average) investment fund managers are not able to beat it performance for years, and may be at-all. It is really A System – very crude, but extremely robust if used correctly. S&P500 index was never intended for day-trading and short-term speculation, but unfortunately it’s all we ever hear about. What is mostly absent from discussion is the true purpose of Index: a meaningful and rational investment of savings into diversified group of best stocks for tax-efficient accrual of ultimate surplus value.

Poor Richard’s investment of choice is Vanguard 500 Index Fund (ticker VFINX) – a mutual fund closely tracking an Index itself. VFINX is passively managed - simply replicating weightings, composition and all the ‘voo-doo’ done by wizards at ‘S&P Dow Jones Indices’ (link at the top of article). Vanguard funds are very well managed and have some of the lowest expense ratios in the business. They are bought and sold without commission, offer free dividend reinvestment and can be traded on their easy to use website.

Mutual Fund is The Best way to reach a ‘Holy Grail’ of investing – a Compounding Interest. When investment pays a dividend, which is promptly re-invested by purchasing additional shares, these new shares will also accrue dividend in due time, and so on continuing to compound these by generating 'interest on interest’. Albert Einstein called Compounding Interest an 8th wonder of the World, the most powerful force in the universe and the greatest invention in human history. He also pointed out that those “who understand it – earns it; who doesn’t – pays it”. Mutual funds are traded in fractional shares, so entire dividend can be fully re-invested, making compounding even more efficient. Practicing Poor Richard Method will lead you to deep understanding of this (almost magical) feature of financial markets and give you a REAL EDGE for investing in stocks.

Poor Richard should be traded in tax-efficient account, where taxes are delayed for many years. The easiest way is to open a 'Traditional IRA' (Individual Retirement Account) at Vanguard, which will give commission-free access to all of their mutual funds. Money should be transferred from your bank account into Money Market Fund (ticker VMMXX) first, and stay in there until it’s time to make a ‘Trade’ – an ‘exchange’ between your Money Market fund (cash) and S&P500 fund. The ‘Trade’ of mutual funds happens once a day, on a close of market at 4pm ET, but you have to make sure to have your order in by 3pm. Mutual fund’s end-of-day price is called NAV (Net Asset Value). It’s published couple of hours after market close. NAV is kind of meaningless number, because trade is set in dollar amount (not a share count) – investor gets fractional shares to cover whole amount precisely.

Not all mutual funds created equally, especially when it comes to what they charge. All this great commotion isn’t exactly free, you ‘no. Vanguard is famous for ultra low cost funds. Their ‘500 Index Fund’ VFINX has expense ratio of 0.16%, meaning you pay them $1.60 for every $1000 invested per year. They require $3000 to get started with no minimum for additional contributions.
This and other information is available here:

Another popular kind of retirement account is '401K' – same thing, only you get it thru your employer. 401K will come with a list of different mutual funds, often from non-related providers. In this case your choices are limited by whatever somebody picked for investment options. Usually, there will be some kind of S&P500 fund, but don’t trust the name – find this fund’s information, its description and facts from their own website. By law, everything has to be explained in plain English.

401K from your job may be the way to get into some mutual funds you wouldn’t qualify for on your own. For example, Vanguard offers that same ‘500 Index Fund’ as Admiral Shares (VFIAX), that have even lower expense ratio, but require $10K initial investment. 401K removes this obstacle – they allow you to start from zero. And of course, there is a mother of all S&P500 funds – ‘Institutional Index Fund’ (VINIX), with 5 Million minimum and unbelievable 0.04% cost. That is 40 cents for $1000 invested per year… I have seen it. It was used in relative’s 401K without minimum requirements. No problem.

Vanguard family of S&P500 Index funds is the largest in the World, running nearly 500 Billion dollars!

Few more things.
     There are limits to how much of tax-deferred money can be contributed every year. You can’t just move a load of money into tax-deferred account – they have to be accumulated there over time, year after year. “Little strokes fell Great oaks”, as Poor Richard said.
     Many 401K offer ‘A Match’ – when your employer is matching some of your contributions. Make sure to set up an account in such way that all deposits/contribution go into Money Market Fund, otherwise they could just deposit it randomly into any mutual fund in account or even open a new one (I’ve seen it. Stupid, right).
     Don’t go buying mutual funds thru your local bank branch. They will charge you commissions, or there will be a ‘Load’ (fee for selling), or something else. It’s just not the way to do it. Be serious and treat this thing like your own little business on a side. Open an account at Vanguard or Fidelity. Consider it carefully. You may have this account for a long-long, long, long time.

I am not affiliated with Vanguard and not making an advertisement here.
I have been a client of Vanguard for many years and own VFINX because of reasons outlined above and some others. There are many other mutual funds based on S&P500 Index, so if you happened to get a different ‘Tool’, make sure to do RTFM – Read The Fucking Manual… (tips hat)

.this is a second article in 'Poor Richard' series.
Read Part 1: Poor Richard. Introduction.
-reading part 2-

Saturday, April 22, 2017

Poor Richard. Introduction.

It was a windy and cold winter of 1992. George Bush (father) threw up all over Japanese Prime Minister, Boris Yeltsin decided to stop targeting US cities with nuclear bombs and one young Russian immigrant got his first job in America. Guy knew nothing about stock market, and everybody around him were in a same haze of ignorant bliss, infused with taste of Corona and sweet aroma of fine Mexican bud. Nobody told that young lad about importance of saving, retirement, inflation or a growing tech boom, about to sweep this young continent from West coast to his nearest suburbs. It would be nice to send him a letter from 25 years into the future: "Goblin, put $100 into certain mutual fund according to this specific plan, based on these few rules. Do it once a month, spending only 30 minutes, and after a while you will have a life-changing sum of money. Use this 'Poor Richard' method diligently and do not waver from the original plan - for your rewards will be plenty and satisfaction immense."

I am sending this letter from the future to a new generation of green whippersnappers: Goblin, do it now!

Let’s face it, a young single foreigner or a kid out of school, or a college graduate with student loans and uncertain prospects, all are highly unlikely to be savers and investors. First of all, it is nearly impossible to save any money at-all if you don’t have a steady income. Budgeting is very hard without a regular job, because you never know when your next pay-check is coming, so whatever cash is saved should be kept for a rainy day. Secondly, even if you have a job, there are never-ending expenses, bills, ‘keeping up with a Jones’s’, vacations that always cost more than anticipated, kids, gifts… there is never any money left over… 

As Poor Richard said (in 1749): “The Art of getting Riches consists very much in THRIFT. All Men are not equally qualified for getting Money, but it is in the Power of every one alike to practice this Virtue.” The trick is to save so little, that is makes no difference on your monthly budget. The kind of a sum that can be chipped away little by little from everyday expenses by frugal and sensible money management. 
“Save and Have – every nickel makes a Mickle”, instructs Poor Richard.

One Hundred Dollars per month. A cup of Starbucks coffee per day. A movie for four, or a dinner out for two. Bottle of whiskey and an 1/8th. Only $100 per month… will become a very serious pile of money, if you wait, save, invest and practice basic money management skills. In this series of ‘Poor Richard’ articles I will explain exactly how to do it, with step-by-step instructions and my own observations, but I want to caution my dear readers that (in words of Jesse Livermore) “the fruits of your success will be in direct ratio to the honesty and sincerity of your own efforts in keeping your own records, doing your own thinking, and reaching your own conclusions."

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.

I will address all these topics in due course, and will lay out my logic as best as I can, so a patient reader can absorb this method, shape it to fit his own personality and circumstances in order to continue using it on their own for many decades into the future. The goal is to use ‘Poor Richard Method’ objectively and independently, without relying on (always) fake news, vague economic theories and unscrupulous market commentators.

Basic tenets of Poor Richard Method are really not a secret and plastered all over the internet as well as numerous books. You can go to Vanguard.com for all the charts and graphs you ever wanted to see, with loads of ‘scientific’ papers used to support their wild claims. Or you can read Malkiel’s “Random walk down Wall Street” for everything you ever wanted to know about financial markets and investments, but where afraid to ask. Everybody talks about ‘long-term’ investing, buy and hold, stay the course, don’t worry… and all their results are ‘hypothetical’ or estimated. 

In reality – something completely different happens… and you lose money.

This ‘Poor Richard’ series of articles are designed as a process of self-discovery, guided by solid principles and strict rules. 

It offers a sensible roadmap for a responsible investor, the one that understands meaning and value of Wealth.

"The design is to let the reader form his own opinion in a sensible way". - W.P.Hamilton

.this is a first article in 'Poor Richard' series.