Going green …
No, it has nothing to do with recycling, composting or eating more vegetables. It has to do with making more money … and the green state of my Stock State Indicator (SSI) system.
Let’s face it. We are enamored with the idea of buying things that have fallen in price and buying at a discount. It’s the Siren’s song of catching an investment at the perfect bottom and then watching it take right back off to the upside.
It’s a fantasy … and I’m finally throwing in the towel on this insidious idea.
There are few things that academics, value investors and technical analysts agree on. Momentum is one of them … maybe even the only one. Even the famous academics Fama and French have written about momentum in the stock market.
The simple idea behind momentum is that investments that are increasing in price are more likely to continue increasing in price … and investments that are decreasing in price are more likely to continue decreasing in price.
I recently came across some additional compelling evidence in support of this thesis as part of my own research. I’ll share it with you now.
As you hopefully know by now, my SSI indicator is a three state system – Green, Red and Yellow. Very briefly …
- Green is the strongest state. The investment has risen nicely off of a major bottom. It is trending positive and is only experiencing mild corrections.
- Yellow means that the investment has fallen in price significantly but it’s still within the boundaries of its expected volatility. It’s getting close to being in the Red Zone but hasn’t gotten there yet.
- Red means that the investment has corrected more than it should have corrected based on its expected volatility. In our SSI system, the stock is “stopped out.”
If you want more depth on the three states of the SSI system, you can find it here.
In addition to paying attention to which of the three states an investment is currently in, we pay close attention when an investment changes from one state to another state.
I recently asked my research staff to study which SSI state changes presented the best buying opportunities. We looked at three different state changes:
- Red to Green – The investment was stopped out per the SSI and just triggered a new SSI Entry signal by rising substantially off of a bottom and establishing a brand new uptrend.
- Green to Yellow – The investment was in the Green Zone but has corrected more than halfway towards the Red Zone. It’s getting close to being stopped out but hasn’t been stopped out yet.
- Yellow to Green – The investment corrected into the Yellow Zone and has just risen back out of the Yellow Zone and back into the Green Zone. It has reasserted its upward momentum.
Using our database of several hundred securities with data back to 2000, we looked at which changes of state triggered the best buy signals. Here’s what we found.
Taking the “Buy on Red to Green” strategy as our example, I’ll explain the results.
There were 7,469 trades generated from the historical data. 52.7% of these trades resulted in a positive return. The average gain of all these trades was 36.6%. The average gain of the winning trades was 84.3%. The average loss of the losing trades was 16.4%. The ratio of the average gain of the winners vs. the average loss of the losers was 5.1. Winners were 5.1 times more profitable on average than losers.
OK … I know that’s a lot of data but I want to be sure that you understand the numbers. Now let’s talk about some of the results.
Clearly buying on the change from Red to Green leads to the biggest winning percent … by a substantial amount. Buying on Red to Green also has the biggest average gain at 36.6% and the biggest average winner at 84.3%.
The only category in which Buy on Red to Green doesn’t win is Average Loser. The average loss of a trade that was triggered on a change from Red to Green was 16.4%. The other two strategies had smaller average losses.
The smallest average loss was for the Buy on Green to Yellow strategy. That makes sense because the stocks are already getting close to the top of the Red Zone … where they will get stopped out if they close in the Red Zone.
Having that tighter stop loss point, however, meant more losers overall than winners and a smaller average gain.
Pretty interesting, isn’t it?
I’ll be writing more about this in the weeks to come. For now, I’d say that the evidence is pretty clear that it’s time to go Green,
Richard M. Smith, PhD
CEO & Founder, TradeStops
Oil … feel the burn
As I wrote back in August of this year, oil catches fire … and burns hot. At the time I predicted that more gains in oil were ahead. Oil is up a solid 25% since then … with more room to run.
Of course, as I’ve said many times before, being right and making money are two completely different things … and the energy markets continue to be some of the hardest markets to make money in.
For the gold investors out there, there’s an interesting inverse relationship to note between the gold markets and the energy markets. When it comes to gold, the commodity itself has low volatility (VQ = 11.6%) but the companies that do business in gold are very volatile. The VQ on GDX, for example, is 36.8%.
With oil, however, it’s exactly the opposite. The commodity itself is extremely volatile (current VQ = 30.5%) while the companies that do business in oil are lower volatility. The current VQ on XLE, the energy company ETF, is only 18.2%.
Keep that in mind as you think about how to best make money in energy.
Let’s take a look at where things stand today when it comes to oil and the companies involved in the business of oil.
As I said, oil is volatile … and we can see the impact of that volatility in the fact that oil hasn’t even triggered a new SSI Entry signal yet … in spite of being up over 60% year to date. Here’s the current SSI chart on West Texas Intermediate Crude.
We’ve had a strong move off a bottom and the trend has started turning up but hasn’t yet built up a full head of steam. I’m expecting oil to move into SSI Green Zone any day now … but the fact that it hasn’t done so yet tells you a lot about how volatile oil really is.
When we take a step back and look at more of the history of oil prices, we can see the bigger picture … and see what price-levels have had the most volume.
The most amount of activity (volume) in oil prices over the past 10 years has taken place around the $45 price level. That’s been the battle line for the past two years … and the action over the past couple of weeks has clearly put us on the top side of that battle line.
My time-cycles analysis also continues to be strongly bullish for oil through the first half of 2017.
But like I said, oil is volatile … and just because all of the stars are aligned for oil to move higher, doesn’t mean that it’s easy money. Oil could easily drop 25%, scare the daylights out of everyone, and then resume its march higher … all in the normal course of business for oil.
For those lacking the stomach for that kind of volatility, the companies involved in the oil business provide a more stable opportunity.
XLE is the ETF covering the companies from the S&P 500 that are involved in the energy sector. It is a lot less volatile than oil itself (18.2% vs. 30.5%) and is highly correlated to the price oil. It triggered an SSI Entry signal back in April and has climbed steadily ever since.
The two biggest component stocks of XLE are Exxon Mobil (XOM) and Chevron (CVX). Together they make up about 30% of the weighting of XLE. Both have strong SSI charts.
Exxon Mobile is the less volatile of the two stocks with a VQ of 15.0%. It currently has a dividend yield of 3.5%.
Chevron is the more volatile of the two oil majors with a VQ of 19.2%. It has a current dividend yield of 4.2%.
Bottom line … energy prices are on the rise and will likely continue to rise. There are various ways to take advantage of rising energy prices and they’re not all created equal.
Opportunities abound. The question is, which opportunities are right for you?
Richard M. Smith, PhD
CEO & Founder, TradeStops
TradeStops Through the Rear View Mirror, Part 2
As we discussed last week, a number of TradeStops members want to integrate all of the new TradeStops features into their trading, but felt they were a little behind the curve with all of the upgrades we’ve introduced lately.
Last week, we focused on the SSI signals. This week we’re going to take a look at the Risk Rebalancer.
We introduced the Risk Rebalancer not quite a year ago. At the time, there was nothing like it available to individual investors and there still isn’t. We have a large number of TradeStops members who are professionals in the investment industry and they still don’t have anything like this available to them at their firms.
For those new to TradeStops, the Risk Rebalancer is a tool that works on a portfolio level. It looks at the stocks that you have in your portfolio(s) and equalizes the dollar risk that you take in each position. For instance, if you want to take $1000 risk in Johnson & Johnson (JNJ), you could buy $8460 of stock or 71 shares. JNJ is a low risk stock with a Volatility Quotient of only 11.73%.
But if you want to take the same $1000 risk in Agnico Eagle Mines (AEM), a gold mining stock, you could only buy $$2430 of stock or 52 shares. AEM is a high risk stock with a Volatility Quotient of 40.69%.
When we first introduced the Risk Rebalancer, it allowed you to analyze your portfolios one at a time. Here’s a screenshot of what it looked like, then.
You would pick the portfolio you wanted to analyze, decide if you wanted to invest more cash from your account, and then click on the “Rebalance” button.
The Risk Rebalancer told you what the outcome needed to be allowing you to determine the number of shares to buy or sell for each position.
And this was the overview of the portfolio statistics:
This was groundbreaking information at the time it was introduced. It still is. But it feels almost quaint compared to where we are today.
The homepage of the Risk Rebalancer still has the same layout, but there are some additional choices to be made. You can still choose to rebalance a single portfolio.
Or you can choose multiple portfolios by clicking on the “Select multiple portfolios” link at the bottom of the dropdown menu. A separate window opens up and you can see the portfolios that you choose to rebalance as a single portfolio.
Once we click the “Rebalance” button, the output is more detailed and, at the same time, easier to understand. There are three tabs. The first one shows the changes that were made on the portfolio level.
And further down, it shows you the percentage breakdown of your risk allocation.
The second tab shows you the results of the rebalancing on your individual stocks.
If you don’t want to make any changes in a specific stock, all you have to do is click on the “lock” icon to the left of the stock symbols. And if you want to exclude a position from the rebalancing, just click on the “X” icon.
You can also see the effect if you add a stock. Click on “Add another ticker” and a new window opens up. Enter the ticker symbol(s) and then the amount of additional funds you want to add, if any. After that, click on the “Save and Rebalance” button and the Risk Rebalancer will reconfigure the new portfolio.
The third tab on the right hand side gives you detailed instructions to take if you want to execute the changes determined by the Risk Rebalancer.
At the top of the Risk Rebalancer page is a new feature titled “Show advanced options”. Clicking on this opens up a new window that allows you to exclude all of the stocks that have red SSI Stop signals.
Go ahead and play around with it. You can’t break the program. Our studies have shown that portfolios constructed to equalize risk are better performing than portfolios that have too much money invested in risky positions. Dr. Smith focuses on this in his investment editorials and during live presentations. Over time, you are very likely to make more money by “right-sizing” your portfolios the TradeStops way.
We are continuing to work behind the scenes to make the Risk Rebalancer an even more powerful tool. In today’s world of fintech and robo-advisors, TradeStops continues to lead the way in helping investors understand and successfully manage stock and portfolio risk for the long term.
Member Services, TradeStops
On Friday morning last week, I awoke to the following dramatic headline …
U.K. pound plunges more than 6% in mysterious flash crash
It was a good reminder of how important it is to tune-out the day to day noise of the markets … and why we focus on end-of-day closing prices and keeping our stops out of the markets.
Here’s what the chart of the British pound looks like for the past few days …
You can see that the current VQ on the pound is only 6.8%. That means that it’s reasonable to expect the pound to move around, up or down, in a range of about 7% over the course of a year or more. Instead, investors saw a 6% correction in the pound in a matter of minutes.
Of course everyone remembers the famous flash crash of May 6, 2010 that saw nearly one trillion dollars of market capitalization disappear and reappear in the span of just thirty minutes.
Such “unexplained” events happen in the markets far too often these days … and it’s not just in the broad market indices and currencies. It happens in individual stocks as well.
Axcelis Technologies (NASDAQ: ACLS) is involved in the semiconductor manufacturing business. It’s a stock that’s been on my radar for a while because it has such a great looking SSI trend dating back several years now.
On February 8th of this year, ACLS opened at $9.64 before suddenly dropping 26% … to a low of $7.16 … and then recovering to close at $9.36. You can see the spike lower in the chart below.
TradeStops uses end-of-day closing prices to evaluate stop losses and other alerts. You can clearly see in the chart above that ACLS dipped below its SSI Stop Loss line on an intraday basis on February 8th (and again on the 9th) but it closed above its SSI Stop Loss on both days.
ACLS went on to make new multi-year highs. Investors that had a stop-loss “in the market” on ACLS had a painful day on February 8, 2016. TradeStops subscribers tracking ACLS didn’t even know anything happened on February 8 and could still be in ACLS today with extra gains of as much as 100%.
FEEU is a leveraged ETF that focuses on the Euro Stoxx 50 Index. The ETF is fairly illiquid. But on the two days of the Brexit event, the trading volume moved to almost 5x its normal and it dropped at the open on 6/27/16.
On June 23rd, the day of the Brexit vote, this ETF was trading at $96.52. The SSI Stop was at $71.98. On Monday the 27th, the stock dropped in the morning to $66.88, well under the SSI Stop. But it then rebounded to close at $71.98.
Today, FEEU is trading back near the $90 level.
Investors have enough to worry about without having to worry about what kind of intraday shenanigans the market makers and high frequency traders might be up to.
Keep your stops out of the market and use end-of-day closing prices as the basis for evaluating your stops. That’s what we do in TradeStops … all for your peace-of-mind,
Richard M. Smith, PhD
CEO & Founder, TradeStops
The hurricane in the gold market
As my staff and I navigate the twists and turns of Hurricane Matthew here in Florida, it reminds me of another hurricane that’s had our attention lately – the hurricane in the gold and silver markets.
Much like Florida residents trying to anticipate the impact of Hurricane Matthew, gold and silver investors are trying to understand if the recent sharp corrections will be a passing inconvenience or the beginnings of a direct hit on their portfolios.
I favor the former … but with some caution and concerns.
Gold triggered an SSI Entry signal back in February of this year. Gold was on an absolute tear from January through June but has been making lower highs now for the past three months.
I warned last week of my short-term concerns for gold … and we did indeed finally see a breakdown in the price of gold and related assets. Gold did finally cross into the SSI Yellow Zone. It has now corrected about two-thirds of the way to its SSI Stop Loss.
The SSI chart above also shows that the SSI Trend is rolling over for gold. This is a concern. When I see an asset move into the Yellow Zone, I like to see strong support from the SSI Trend. We’ve seen more breakdown in trend than I would prefer to see.
What about the gold miners?
They have also dipped solidly into the Yellow Zone … but they have stronger support from their SSI Trend indicator.
So … what’s a gold investor to do?
Let’s dig a little deeper.
The volume-at-price (VAP) chart on GDX shows strong support at current GDX price levels. Together with the strong SSI support for GDX, I’m feeling pretty good about the likelihood of a bounce in GDX.
On the other hand, when I look at the combined picture of all of my favorite time-cycles on gold itself, I continue to be concerned.
As I’ve said many times, however, time-cycles are part art and part science. When I look at individual time-cycles, the shorter term time-cycles are very bullish while the longer term-cycles are very bearish.
In the following chart I am showing a few of my favorite individual time-cycles for gold. The longer-term 311-day cycle won’t bottom until February 2017. The shorter-term 46-day and 101-day cycles are bottoming together very soon.
Advantage short-term bounce.
Do I “know” that GLD and GDX are going to bounce from here? Absolutely not.
Am I willing to bet that we’ll see a bounce over the next few weeks? Yes.
Do I know what my risk is in making a wager on GLD or GDX today? You better believe it … and I will “right-size” my investment amounts accordingly.
Investors have a lot in common with residents in the path of a hurricane – especially in volatile sectors like precious metals and miners. We do our best to be informed. We’ll never have all the information we want. After that, it’s a matter of making smart bets.
Myself and other south Florida residents escaped the worst-case scenarios of Hurricane Matthew. Hopefully the coastal areas further north will do the same.
I hope I’ll be breathing a sigh of relief about the gold markets next week too.
Richard M. Smith, PhD
CEO & Founder, TradeStops
Investing in biotech … the TradeStops way
It’s said that a picture is worth a thousand words. I agree … and that’s why I’m going to great lengths to paint pictures and tell the stories of real world investors and their experiences … so that we can all become better investors.
Last week I wrote to you about the unclaimed profits that investors are regularly leaving on the table when it comes to their investments. I shared specific examples from one brave soul, Mark, who was willing to take a hard look at his past performance in search of new and improved opportunities.
Let’s pick up where we left off last week and continue examining real investments by real investors and how intelligent position sizing and stop loss strategies can improve performance.
Esperion Therapeutics (ESPR) was a hot-topic biotechnology company in the summer of 2015. It had a candidate cardiovascular / cholesterol drug, ETC-1002, in testing with the FDA. The stock peaked at nearly $115 in June, 2015. Then, uncertainty surrounding the FDA review brought the stock down to $80 by late June – a decline of over 30% – and created an “opportunity”.
Another of the investors in our recent study purchased $22,312 of ESPR on this “dip.” Here’s what the chart of ESPR looked like at that time:
ESPR immediately rocketed back to nearly $100 over the course of just two weeks for a quick paper gain of $5,500.
Then, as is often the case, disaster struck. ESPR dropped 40% in under two weeks as the sought after FDA approval was unexpectedly delayed:
I give you all of this detail because I know, if you’re like me, you can feel this investor’s pain … and dismay. What the heck just happened? I was doing so well. What do I do now? Is it going to bounce back?
This is a predicament that investors find themselves in far too often … and more often than not, become paralyzed with uncertainty. That’s certainly what happened in this case. The investor finally threw in the towel a year later when ESPR eventually bottomed out near $10 per share for a total loss of 86% or $19,208.
Let’s take a look now at how volatility based position sizing and trailing stops could have helped with this particular investment.
This particular investor had a large portfolio of several million dollars. At the time of the original investment, ESPR had a VQ of 48.3%. That’s a very volatile stock but given the large size of the portfolio, this investor could have invested even more money in ESPR than the $22,312 he originally invested.
Given the portfolio size and the VQ of ESPR, the TradeStops position size calculator calculated an initial investment size of $43,341 – nearly double what he originally invested.
I know what you’re thinking at the moment. “Wait a minute? TradeStops suggested a larger position in this loser?”
Yes, but … it’s position sizing AND stop losses together that have the biggest impact. Let’s see how that played out with this particular investment in ESPR.
The following chart shows where the VQ based trailing stop loss system would have thrown in the towel on ESPR vs. where the investor finally threw in the towel himself.
That was a tough stop loss to execute on … especially if you would have had to watch the stock immediately go back up $15 per share right after you “followed your discipline.”
It turned out to be the right thing to do, however. Here’s a table of how all the numbers lined up for this particular trade:
Both outcomes produced a loss but the “sized and stopped” strategy produced a smaller overall loss, even though it started out with a larger initial position.
Losses in investing are unavoidable … but when you combine smart position sizing and smart trailing stops, your outcomes are going to be better more often than not.
Richard M. Smith, PhD
CEO & Founder, TradeStops
TradeStops Through the Rear View Mirror
At last week’s Stansberry Conference, several dozen TradeStops members made it a special point to congratulate us on all the improvements we’ve made in such a short period of time. It was nice to hear that we’re making a difference for so many people.
A number of people were also complimentary, but commented that they just hadn’t had a chance to catch up on all of the changes and wondered if we could summarize these. Since we’ve also added a large number of new users in the UK and throughout the world, this seems like a good time to get everyone caught up.
The two biggest changes we’ve made the past several months are the introduction of the Stock State Indicators and the tremendous upgrades to the Risk Rebalancer. We will discuss the Stock State Indicators today and give you more information about the Risk Rebalancer next week.
Let’s look at the Stock State Indicators first. Dr. Smith has said that he considers these indicators to be key to helping investors understand the Life Cycle of Stocks. There are only three different indicators. And they’re easy to understand. A stock trends higher for a while, then the uptrend starts moving lower, and finally the uptrend is broken. There is no set time for any of this to happen.
That’s what makes investing such a challenge. How do we know the difference between normal volatility and when that volatility has caused a change in direction? The Stock State Indicators are here to help.
SSI Entry Signal (Green) – Two events need to occur to trigger the SSI Entry signal. The stock must be at least 1 VQ% above its most recent low and the SSI Trend Line must be moving higher. This is a very conservative entry signal and tells us that the stock has definitely entered into a new uptrend phase.
The number and letter inside the green rectangular box tells us how many days, weeks, or months the signal has been triggered. In the example above, the Entry signal was given more than 4 months ago.
By requiring two different triggers, we avoid the head fakes that can be portfolio killers. Look at how this kept us out of Gold for three years when the price of Gold was falling. We first printed this chart in February.
SSI Low Risk Zone (yellow) – The SSI Low Risk Zone tells us that the stock remains above the SSI Stop, but it has dropped more than 50% from its most recent high. It is called the Low Risk Zone because should a person want to buy the stock at this current price, there is much less percentage risk to the downside. For instance, take a look at ABX (Barrick Gold). ABX is a gold miner and these stocks tend to be very volatile. The Volatility Quotient of ABX is 39.36%. It hit the Low Risk Zone three times in the last month.
For someone who wants to enter ABX at the Low Risk Zone, and keep the SSI Stop at $14.03, the risk is only 20.55%, not 39.36%. That’s why we call it the Low Risk Zone.
By the way, there are three additional designations when a stock is in the Low Risk Zone. These designations have to do with the direction of the SSI Trend Line, the dotted blue line on the TradeStops charts. They tell us if the SSI Trend Line is moving higher, is flat, or if it is moving lower.
SSI Stop Zone (red) – The SSI Stop Zone tells us when the stock has moved 1 VQ% lower from its most recent high. This means that the uptrend that was identified by the SSI Entry Zone has been broken. It does not necessarily mean that a new downtrend has been initiated. After hitting a new SSI Stop, it could take a long time before a new SSI Entry signal is generated.
For new subscribers, seeing a number of their stocks with current SSI Stop signals can be discouraging and confusing. Dr. Smith wrote an editorial about this and we recommend that you read it to help you with your decision-making. How to Buy with Red SSI.
The Stock State Indicators are available as alerts that you can set up for any stock or fund that you are following in an Investment Portfolio or a Watch Only Portfolio. This is what these look like:
A big advantage of the SSI Alerts is that they only count as one alert in the number of alerts that you have available, but they act like five different alerts. Each time one of these indicators has been triggered, you will be notified via either email or text message.
We conducted a video webinar recently about the Stock State Indicators and Alerts. That webinar is available here: The Life Cycle of Stocks.
We are continuing to make upgrades to the SSI Signals and will notify you when they are ready for you to use.
Member Services, TradeStops
Headwinds continue for gold
Gold had a tremendous run higher in the first half of 2016, up almost 30% in six months. I’m a long-term gold bull but I continue to see headwinds in the near-term. Let me show you why.
GLD, the ETF that represents physical gold, hit its high of 130.52 early in July. Since then gold has traded in a very narrow range of only 4%. It’s made a series of lower highs but seems to be holding the recent lows, as highlighted by the blue lines in the chart below.
The SSI Trend is also flattening, following the powerful move higher over the first half of this year.
My proprietary time-cycles analysis continues to paint a tough picture for gold as well.
Seasonally, gold tends to peak in early October as the Indian wedding season and pre-holiday buying of the jewelry makers wind down. The time-cycle chart above is running a bit ahead of the seasonal trend, but is clearly consistent with this trend.
The volume-at-price (VAP) chart on gold shows that gold is smack-dab in the middle of its strongest overall price-volume resistance for GLD just below $130. More GLD shares have changed hands around $127 – $129 in the past four years than at any other price level.
Finally, we look at some key indicators from the gold futures market. Commercial hedgers (aka smart-money sentiment) continue to be bearish at historical levels while open interest (aka the number of open futures contracts) continues to be very high.
We wrote earlier this summer that these extreme levels of smart-money bearishness and high open interest could have miners locking in prices that they felt were too good to pass up. We continue to believe that to be the case.
The same headwinds working against a rising price of gold are also holding back the gold miners. The SSI chart on GDX, the ETF of the largest gold miners, shows the picture very clearly.
I’m definitely not selling but I’m still holding out for a shakeout in the precious metals sector before I add to any of my positions.
To the patient go the profits,
Richard M. Smith, PhD
CEO & Founder, TradeStops
Your unclaimed money
“How much unclaimed money do you have in the stock market?”
That’s the question I asked an audience of several hundred in Las Vegas this past week … and I wasn’t joking.
I’ve been researching investor performance in the stock market for over a decade now. If there’s one thing that I’ve learned, it’s that investors are leaving money on the table all the time … with nearly every investment.
There are two main ways that I’ve found that lead investors to leave money on the table with their investments – selling at the wrong time and investing the wrong amount. Let me illustrate my point with the story of one investor who recently shared his investment history with me.
Mark is an airline pilot with a major domestic airline. He’s been investing on his own for at least 7 years now and has multiple investment accounts in which he manages his investments. Like most of us, he has a hard time keeping up with his portfolio and investment opportunities given his other responsibilities.
In spite of the challenges, Mark has done a decent job. Here’s a picture of Mark’s performance in one of his accounts over the past 7 years.
Mark experienced muted but steady equity growth over the period of 2009 – 2015. Then in early 2016 his equity took a brief hit before soaring in 2016. Clearly Mark has been involved in the precious metals sector, amongst other things.
One of Mark’s investments was in CVS, the drugstore retailer. Mark bought CVS in early 2011 and was still holding it at the time of this study. He originally invested $2,696 into CVS. As of the middle of September, Mark was up $4,133 on this investment or about 150%.
CVS had a VQ of 24% at the time of Mark’s original investment. Given Mark’s interest in the precious metals sector, CVS was actually one of his more conservative investments. Let’s take a look at how Mark left money on the table with this investment.
The first and biggest opportunity to have claimed more money from this investment would have been to invest more money in it. The volatility-based position sizing algorithm that TradeStops offers helps investors to put more money into their more conservative investments and put just the right amount of money into their more speculative investments.
For Mark’s portfolio size and the relatively conservative nature of CVS, he could have invested $17,202 in CVS instead of his original more modest investment of just $2,696.
The second opportunity Mark had to maximize gains was to sell CVS at an optimal time. CVS has done well for the first 4+ years Mark owned it. I mentioned that the original VQ on CVS was 24%. As CVS rose and volatility contracted, the VQ on CVS also contracted to a very conservative 12.4%.
When CVS started to fall in 2015, the VQ based trailing stop system that TradeStops offers, stopped the stock out at around $98 in September of 2015.
Here’s how that all looks on a chart:
By putting more money into a conservative stock like CVS and exiting based on an intelligent trailing stop system, Mark could have claimed an extra $26,124 dollars of profit on just this one investment.
Impressive, isn’t it?
When we looked at all of Mark’s current investments and applied intelligent position sizing and stop loss strategies, we found a very compelling picture.
Using Mark’s exact same investments with the exact same entry dates and only changing the amount invested in each position and the exit point, Mark could have claimed an extra $132,589 from just this one portfolio.
That’s 73% extra in unclaimed profits … while taking the guesswork out of critical investment decisions.
So I ask you, how much unclaimed money are you leaving in the stock market?
Make more. Risk less,
Richard M. Smith, PhD
CEO & Founder, TradeStops
Stump the TradeStops Experts
Last week at the Stansberry Conference in Las Vegas, a Lifetime member asked us how to use the Risk Rebalancer to pull money out of the market.
We’ve never had anyone ask us that and it’s a great question.
It also makes good sense.
If you have an IRA and are over age 70½, you know that you have to take a required minimum distribution (RMD) annually. So, why not rebalance your portfolio and take the RMD at the same time? It’s a great idea.
Even if you don’t need to take the RMD and just want to pull some money out of your stocks, it makes a lot of sense to optimize your risk at the same time that you pull money out of the market.
Fortunately, Dr. Smith and his development team have already figured it out.
For this example, let’s look at a sample portfolio that contains stocks and cash. The portfolio has about $79k in stocks and $10k in cash.
This is the first page of the Risk Rebalancer. The key number here is the $79k in stocks invested. If you want to pull $5000 out of your investments, that will leave you with $74k in stocks. Here’s how to do it.
Do you see the pencil icon next to the cash amount? Click on this and then enter the amount that you want to withdraw as a negative number.
After entering the amount you want to remove from the market, click “OK”.
You’re now telling the TradeStops program that you want to remove $5000 from the current stocks you own.
When you click on the green “Rebalance” button, the Risk Rebalancer is going to rebalance the stocks so that the total of the stock positions will be $74,385.87.
This is what the screen looks like after the Rebalancer has been run. Click on the “Steps to Take” tab.
You can see that the “Total Value” is now $74,385.87. The “Steps to Take” tab shows you the new number of shares you should hold in each position.
You can save this new allocation by clicking on the “Save as New Portfolio” button.
Here’s the new portfolio. Be sure to add the $15,000 cash that is not showing up here ($10,000 that was in the portfolio initially and the $5000 that we sold).
If you need to take an RMD or are just concerned about the markets, this is a smart way to accomplish your financial goals and remain intelligently invested. This also lines up with Dr. Smith’s approach that rebalancing annually is sufficient for many, if not most, investors.
Now, you can take your RMD and rebalance at the same time.
Member Services, TradeStops