Tom Meyer: Hello, everyone, and welcome to TradeStops. My name is Tom Meyer. I’m pleased to be joined today by Naresh Vissa, our director of special events.
Good afternoon, Naresh.
Naresh Vissa: Good afternoon, Tom. It’s a pleasure to be back on another week and another training session.
Tom: We’re very excited to have welcomed thousands of new TradeStops members in the past few weeks. Our customer success team has been working their way through thousands of calls and emails, and they’re slowly getting caught up. We appreciate your patience as we continue to answer these.
Hopefully, today’s presentation will answer many of your questions and help you on your way to using the TradeStops site effectively and easily. We are planning more training webinars this week and for the next six weeks. You’ll see them posted on the website, and you’ll receive emails with the registration links.
We are recording the presentation today, and we’ll send you a link to the recording either later today or tomorrow. If there’s something you don’t understand, you’ll be able to review the presentation at your convenience.
TradeStops is the one tool that can help you become a more successful investor from the very first time you log in. Dr. Smith and his team have spent years analyzing the risks of individual stocks and portfolios, and our TradeStops members are the beneficiaries of this research.
We do have members of our customer success team answering your questions during the webinar, and we’ll also answer some of your questions during and at the end of the presentation. Feel free to ask a lot of them.
Today’s webinar will be full of information. We encourage you to ask these questions. There is a question box on your screen, and you can ask them there. We have Gail, Haidee, Brian, and Chris answering them, so you’ve got a great team working for you.
Today, our focus is going to be on researching stocks using TradeStops.
There are many ways to find stocks and keep an eye on the things that are important to you. This is another way that TradeStops allows each member to customize TradeStops. That way, you can receive exactly what you need and want to best manage your stocks and portfolios.
Let’s go ahead and get started.
Here’s the outline for today. We’re going to be looking at bottom-up investing, which is focusing on individual stocks. We’re going to be looking at top-down investing, which is focusing on the big picture and drilling down to find the stocks.
We’ll look at special situations and unique opportunities, and then we’ll look at how you can measure the impact of adding new stocks to your portfolio.
Bottom-up investing is the type of investing that most people do. They find stocks, love the stories, read the headlines, and then invest their money, without regard to the effect the stock might have on their portfolio — much less the outsized risk that they might be taking.
Let’s start by looking at some individual stocks. Last week, we talked about how the first place we go on TradeStops is to the stock analyzer. Let’s look at some stocks using the analyzer.
Naresh, I know you and I talked a little bit earlier about a few individual stocks. Why don’t we show people how we can use a bottom-up approach to research stocks?
Naresh: That sounds good.
Tom: We’ll start by going to the research tab on TradeStops. I have it set up to automatically open on the stock analyzer. Let’s go ahead and look at a couple of stocks right now. There were some headlines. We’ll talk about those headlines in just a moment, Naresh.
Tell me some of the stocks that you’re looking at right now.
Naresh: Two stocks that I’ve been following have been Netflix and Nvidia. How about we start with Netflix? I’m a big Netflix watcher. To me, it’s worth the $8 a month or $9 a month that I pay.
Tom: You’re following the old Peter Lynch idea of investing in what you actually use as a consumer. We type in the ticker symbol, we’re looking at the trades long right now, we click analyze, and it takes just a moment. I know that many of you have seen this screen before, but let’s look at it a little bit more closely.
Once this comes up, there are three areas that we want to focus on. Netflix itself, we know that there’s the ticker symbol, there’s the name of the company. It’s currently in the SSI green zone — the Stock State Indicator green zone — and it has been for more than seven months.
The volatility quotient is 29.85 percent, which is in the medium risk area, though it tends towards the high risk. 15 to 30 percent volatility quotient is considered medium risk. It’s right at the high end of medium risk.
Next, we look at different stop loss strategies. If we use a stop loss strategy based on the SSI, based on the most recent high price, which occurred late last week on Thursday, our stop price would be $116.42.
If you were to buy it based on yesterday’s close, and use that VQ stop, in other words, 29.85 percent from the close yesterday, the stop price would be $106.23. You could also change. If you
want just a flat percentage trailing stop, here’s 25 percent, would be $113.58, and then you can change that if you’d like.
What is the information that we’re finding here? The chart legend on the left-hand side shows you the lines for the SSI yellow zone, the SSI stop loss, the blue SSI trend line.
If we wanted to follow the VQ trailing stop, we could add that. If we wanted a percentage trailing stop, we could add that. If we wanted to say that today was the entry date, there’s a little vertical dotted line that would follow how long you’ve had this. I’m going to remove that.
Now, we’re looking at a one-year chart that has the SSI entry signal. It follows the SSI stop as well as the SSI yellow zone all the way up for the past seven plus months. If we want to look at a three-year view of Netflix, if we want to go back five years, we can certainly do so.
Now, underneath here, we have the volume of Netflix. We have the historical volatility quotient. We have the historical view of the stock price.
There’s a lot of information on the stock analyzer, Naresh. When you go to the stock analyzer, and you’re looking up something, what are you looking for? Are there any things that catch your eye?
Naresh: The first thing that I use TradeStops for is the SSI. I want to know, for example, if I’m interested in Netflix, what color is the SSI in? Is it green, or is it red, or is it yellow?
If something is in the red, that tells me it is a filter that gets me to not invest in that company immediately. That’s the first thing that I look at.
The second thing that I look at is the VQ. It’s impossible to keep track of stocks on an everyday basis. If I look at Netflix for the first time in, let’s say, a year, I want to know how volatile is this stock, what kinds of ups and downs it’s been having.
I look at those two things first. After that, I move forward with looking at the charts, seeing is it in an uptrend/downtrend, how has it done over the past year, how has it done over the past five years, etc.
Tom: You and I were talking yesterday. It was late yesterday, or early today about a headline that we saw that, I believe, Netflix was part of that headline yesterday that just make both of us laugh.
Naresh: It said that Netflix was correct. I think it was a “MarketWatch” article. It was a piece that talked about, basically, the beginning of the decline of Netflix stock.
Tom: It gave us this big, “Oh, no. Netflix has entered a correction zone.” Now, for those of you who are relatively new to stock trading, a stock or an index is considered to be in correction mode if it’s dropped more than 10 percent.
It’s considered to be in bearish mode if it’s dropped more than 20 percent. Those are just lines in the sand that have been drawn.
Now, you take a look at last Thursday, the high price was $165.88 on Netflix. It closed yesterday at $151.44. Yet, we’re still a long ways away from even touching the yellow zone. The yellow zone is $136. That’s 15 points way. The stop loss is at $116. We’re looking at another 35 points away.
The whole idea of Netflix being in the correction, if you just read the headlines, quite frankly is a bit of a joke. You need to look at what is the volatility of the underlying stock to determine if it’s in a correction or if it’s in a bearish zone.
We’ve lost maybe 14, 15 points in the last couple of days. For a stock like Netflix, this is a bleep on the radar. I think you’d mentioned Nvidia was another stock that you were looking at, right?
Naresh: Yes, Nvidia was another one. They were clonked in with Netflix as, Tom, last week was not a very good week for the NASDAQ in tech stocks. The same, I think, yesterday wasn’t a very good day either.
Usually, the media they’re quick to jump. They quickly jumped on Netflix. They quickly jumped on Nvidia saying, “Watch out for these stocks. They’re about to hit corrections.”
Tom: Here we are. Nvidia, Thursday was the high, almost $160. It closed yesterday, $149.97. Down 10 points, which on a stock that has a 27 percent volatility quotient just doesn’t mean a whole lot, does it?
Tom: This is what we’re looking at when we talk about bottom-up stock research. We’re looking at individual stocks to see how well they have done or to determine if these are stocks that we might want to own.
Again, we’re looking for individual stocks without regard to sector or industry or economic condition. Many investors love stocks with stories. I love a stock with story. You love a stock that has a story to it. Richard talks about loving stocks with stories.
Stocks with stories usually have the potential to be high fliers. They also have the potential to harm your portfolio dramatically. Only looking at individual stocks and filling up your portfolio just with individual stocks can be devastating for an investor’s portfolio.
Here’s another type of popular way to research stocks. It’s called top-down investing. Top-down investing is how many successful investors go about determining what needs to go into their portfolios so that they can have stronger versification.
The way the top-down investing works, we want to find sectors or industries that are performing well. Once we’ve found these sectors and industries that are performing well, we want to drill down and look at the individual stocks within those sectors and industries. This is a great way to fill holes in your portfolio. We’re going to show you that in just a moment.
I want to go to the website. I want to show you some watch portfolios that I’ve set up. We could use these watch portfolios in past webinars, but I’ll show you how we like to use these for top-down research.
One of the special situations we’re going to talk about later on is sector investing. I’ve set up a watch portfolio that has all of the SPDR Select Sector ETFs, SPDR meaning Standard & Poor’s Depositary Receipts.
In all of these, XLB or the basic materials, XLE is the energy sector, XLF the financial sector and so on. You’ll notice that all of these except two are in the green zone. XLRE has a great SSI symbol. That is because it’s been trading for less than two years.
The real estate sector itself is a relatively new sector determination by Standard & Poor’s. The XLRE hasn’t been trading long enough to give us a Stock State Indicator symbol. We’re going to not look at that one for a little while.
Let’s look at the energy sector. It’s the only one that’s in the yellow. Let’s click on the ticker symbol itself for XLE. You can see, Naresh, this might actually be surprising, that the energy stocks made their high back in December of 2016. Really, six months ago. They’ve been down-trending slowly ever since.
We broke into the SSI yellow zone almost two months ago. We’ve been trading in that yellow zone, haven’t touched the stop yet. We came close. We came within a couple of points of stopping out, but then the last couple days, it’s moved back higher.
If we’re going to be looking at the energy sector, that looks like it’s the worst performing sector. I’m going to go back to the energy sector here. Let’s take a look at…I’ve set up the top 10 holdings of XLE itself.
Now, we’re doing a deep dive and looking at the condition of the top 10 holdings within the energy sector. Maybe you might want to stay away from this sector right now. Of the top 10 holdings, two are in the red and four are in the yellow. We only have four stocks that are in the green zone.
Now, you can see why that energy sector has been moving lower for the last six months. You don’t have many stocks that would be pulling up the entire sector. You have a few stocks that are OK. You have a couple of stocks that are fair. You have a couple of stocks that you want to stay away from right now.
This is an example of how we want to look at top-down. Let’s look at a couple of other top-down approaches with looking at some different situations. We saw on the Sector ETF portfolio itself…want to open that back up.
Though we have many of these that have been in, for instance, the green SSI state, we go 424 days for the technology sector, 426 for consumer discretionary. Let’s say, we might be looking for a technology stock to put into our portfolio.
We can go into the XLK watch portfolio that we’ve created. We can see that there a lot of good choices here — one, two, three, four, five six, seven stocks that are in the SSI green zone. You’ve got, VISA has been 350 days in the SSI green zone, Microsoft 349 days, Alphabet 340 days, the C shares 349 days.
There are a lot of good stocks here for you to choose from, and you could just click on one of these and you can be able to see the chart from the same view as the chart analyzer.
If you go back three years, look at when Microsoft generated an SSI entry signal, it was back in 2015, October of 2015, and look how many times?
One, two, three times, it went into the SSI yellow zone and bounced nicely, and it´s been on a nice run ever since. These are ways to look at stocks and make a determination if you want to add any of these to your portfolio using this top-down research.
Naresh: Question for you, Tom. If you go back and bring up the list of all, like the oil stocks, and you can see how long they’ve been in their SSI zone, has TradeStops done any studies on the optimal number of days in the SSI zone to buy or to sell a stock?
For example, there was one company that had been in the green zone for like 360 days. Does that tell me, “This has been in the green. It’s been going up and it’s going to keep going up,” or does that mean it’s been here for such a long time, and maybe the bottoms going to fall out and it’s due for a correction?
Has TradeStops looked into any type of data on that?
Tom: Absolutely, Naresh. Great question. We have looked into this a lot. I’m going to go off script here for just a moment. We did a whole series last year about understanding “Going Green.” I’m going to click on the blog, and Dr. Smith wrote a ton of articles.
If we go Going Green, search for that, and this will take you to a number of articles that we’ve written, that talk about this a lot, and our research shows that the best result is by buying a stock after it first enters the SSI green zone.
I’m not going to get into the meat of these articles here during this training session, but I highly recommend that all of our members go and look at some of these.
There was an article here that showed up and it was called, “Dr. Smith’s Investment Articles.” I think that there is a lot that you can find right there, where he has taken…these are the most popular articles that Dr. Smith has done within TradeStops.
You can then go to these and read these articles, including, Going Green, “Capturing Crazy Gains,” “How Much Can I Gain,” and “When is it too late to buy?”
All of these are available, and I believe that these are great places to go for research.
One last thing, we wrote on Monday about looking for stocks that are in the gold and silver arena, so we set up some watch portfolios. I titled one of these portfolios, Gold and Silver, just to give us an overview of the entire market, and this includes the ETF for physical gold, the ETF for physical silver, and the ETF for physical platinum.
It also includes two ETFs for the gold miners and the junior gold miners. As you can see, only GLD is in the SSI green zone right now. GDXJ is in the yellow zone, it hasn’t stopped out yet, but GDX did stop out a while ago, over half a year ago.
If we go now and start looking at, I created a GDX watch portfolio, these are the top 10 holdings that are part of the GDX ETF.
You can see that six of these are in the red zone, two of these are in the yellow, and only two are in the green zone. Now, maybe that tells you that you don’t want to put a ton of money into a lot of the miners, but there are a couple of stocks that are in the green zone.
Those might be good stocks to check out because it looks as if they’re going with the underlying metal itself, and they’re bucking the trend of the overall ETF.
Again, special situations that the people might want to look at for gold and silver. I highly recommend that our members create these own watch portfolios for themselves based on what they’re interested in.
If someone is interested in medical stocks, biotech stocks, large banks, or regional banks, whatever it might be, you can set these watch only portfolios up and then with just a real quick click once a week, you can get a good feel as to where they’re trading.
Any questions that have come through right now, Naresh?
Naresh: We have a couple of questions, but let’s finish up the next feature that you were going to show and we’ll run through about five questions, or so.
Tom: Sounds good. We now look at top-down investing where we look at the big picture and drill down to try to find individual stocks for our portfolios.
The next section we call special situations. There’re different kinds of special situations where you would set up custom alerts as a way, and when the alert is triggered, you know that your situation has been hit.
Dr. Smith’s research, which we just looked at recently, I’m going to show you a couple of other things on that, as well as the newsletter center within TradeStops. Let’s go ahead and look at the special situations. There are a lot of special situations that you can set up. Let’s start with customizing alerts.
I’m going to take a look at…I identified a stock that’s part of the financials, might be a stock that everyone’s heard of, called Goldman Sachs. Goldman Sachs is currently trading in the yellow zone of all of the top 10 holdings within the financial sector ETF. It’s the only one that’s not in the green zone right now.
Let’s take a look at the chart, and we can see that we had an entry signal in August of 2016. I’m going to move this back to one year, so August of 2016, so about 10 months ago. From its high in March, it’s been trending down a little bit. It hasn’t stopped out. It’s just below the yellow zone, but let’s say that I might want to own Goldman Sachs after it’s made a bullish move higher.
What I’m going to do is I’ll go to the alerts on Goldman Sachs. I’m going to click on add alert, and I want to create an alert that’s going to tell me when the 20-day moving average has moved above the 50-day moving average. We click on our volume and moving average. We’re going to go down to the moving average crosses.
I want to know when the 20-day moving average is one percent above the 50-day moving average. Now you can set this up, Naresh, however you’d like to set this up, or certainly our members can set this up however they’d like. We click on add alert. Now let’s go see what this looks like in the positions and alerts tab.
We’re on the positions page. You can see that we just created one alert for Goldman Sachs, and right now the 20-day average of $217.93 is 1.67 percent below the 50-day moving average of $221. We’ve got ways to go before Goldman Sachs makes that move with a 20-day average being higher than the 50-day average.
As we saw on the chart, that could be the impetus for a nice run higher by Goldman Sachs, so that’s what we mean by setting up a special situation custom alert.
Now, we looked at Dr. Smith’s research a little earlier. Let’s go ahead and go back here, and I’ll go ahead and we’ll look up that Going Green again because we know we were able to access the article that way.
There is so much information here. Naresh, I think I saw recently where maybe only 20 to 25 percent, maybe a little bit more than that, actually open up Dr. Smith’s Investment articles, and that’s crazy because there’s so much information here.
Twice a week, on Tuesdays and Fridays, Tuesday morning and Friday afternoon, Dr. Smith sends out an article that’s of interest to TradeStops members, whether it’s specific stocks, or whether it’s investment strategies that we’re looking at. It blows me away that that’s not an 80 percent open rate.
I will have to say that our lifetime and premium members probably open up close to 40, maybe 50 percent rate, but still everyone should be looking at these articles just to get ideas. No one says that you have to do anything that we talk about. We specifically don’t make recommendations.
Dr. Smith will talk a little bit about his investments and what he might be looking at, but use us. Use the information that we put together. We spend a lot of time on putting together information for you to be able to use TradeStops in the most effective way possible.
One of the things that we looked at, I’m going to scroll down here just a little bit, triple the S&P with just nine ETFs. We ran this in August, and you can take a look at what our research showed.
There is another article on the blog. If you type in sector ETF, there we go, here’s a how-to educational on how to put together the sector ETF portfolio. It’s an easy to run portfolio.
It gives you a little bit of a heads-up when the market could be ready to turn over. Another area that is a special situation is our newsletters.
Many of our TradeStops members are newsletter subscribers to Stansberry Research, Oxford Club, Palm Beach, or whoever it might be.
I can’t show those right now, Naresh, because we’re not able to show those to people who are not subscribers to these newsletters. I will take a moment and I will show you our Billionaire’s Club, which we introduced a couple of months ago.
This is available for our lifetime members and we have 14 different billionaires and their portfolios. If you wanted to follow as a special situation, if you wanted to follow Warren Buffet’s portfolio, you click on his name, you click add as watch portfolio.
It’s an easy way to watch the stocks that Warren Buffet owns and to see what condition they’re in. We go to our portfolios. You can see here that we’ve created Warren Buffet.
Naresh: I want to reiterate that this Thursday, we are having another training session all about the billionaire positions, alerts and portfolios.
Tom: Excellent. People can register on that webinar page. I never showed people where to go on that. Let me log out because this is… It’s actually right up here.
Before you even log in, just click on webinars. We’re showing you the upcoming live webinars that we have that you can register for, as well as our on-demand from the last couple of weeks.
We’ll be adding today’s. We’ll be adding Thursday’s to this list as we go along. This is where we’re going to be posting those transcripts. Is that correct, Naresh?
Naresh: Absolutely. They’ll be right there.
Tom: Fantastic. Let’s log in again. Do the keep us logged in for a couple of weeks. Back on. Now let’s go to one last item. Did you want to wait until we do this session, Naresh, or do you want to go ahead and ask those questions right now?
I think we should go ahead and ask a few of the questions because they’re starting to pile up. Let’s take a quick break from the presentation. First question is, “Based on what you just showed me, is the TradeStops algorithm bottom-up or top-down analysis?”
Tom: That’s a great question. The TradeStops algorithm would be bottom-up because the algorithm is based on the movement of each individual stock, without regard to sector, without regard to industry, without regard to anything else other than the individual stock itself.
Naresh: Next question. “What’s better for me to put a stop loss or a trailing stop loss on my stocks?”
Tom: Though we’re not able to make a recommendation, specific recommendation, to anybody, we are great believers in trailing stops.
What we have created allows you to put a trailing stop based on the individual volatility of each stop. You can think of this as the volatility DNA, the volatility genetics of each stock.
For instance, let’s look at Netflix again. If we know the normal volatility of Netflix is 29.85, almost 30 percent, why would we put a 10 percent stop loss on that? If we had put a 10 percent
stop loss on this, we would’ve gotten stopped out yesterday of a stock that is solidly in the green zone.
Yet, does a 29.85 percent trailing stop for Johnson & Johnson make any sense? I would suggest, no, it doesn’t. You’ve got normal volatility of 11.86 percent. The very first thing that you can learn with TradeStops is that we break down each stock into its own volatility.
Thus, you can put a trailing stop on each stock based on that stock’s volatility. Now, if for your own purposes, your own investment preferences, you prefer to put just an actual stop loss, you can set that up within TradeStops.
If you prefer to put a percentage, rather than a VQ or an SSI, you’ve seen that you can do that.
The real strength and the real power of TradeStops is that we tell you what each stock’s normal volatility is and through the Stock State Indicator system, we show you when that volatility has been violated, especially to the downside. Maybe that was a long answer, Naresh.
Naresh: Those are great questions. We have several folks asking about ETFs and how do you generate an ETF watch portfolio?
Tom: It takes a few minutes to do so. You want to go to the ETF sponsor page, whether it be, SPDRS, spdrs.com, whether it be ishares.com, whether it be vanguard.com for the Vanguard ETFs, the specialty ETFs, vanEC.
The beautiful part about these websites, and I don’t have time to go to these websites during this presentation, but the beautiful thing about these websites is that you can know everything about the ETF before you invest your money in it.
You can go to the SPDRS website. You can go to look at the basic materials, the XLB. I’m going to pull that up right now.
You can see each stock that you would potentially own and the percentage that it takes of the ETF itself before you buy it. I think that’s huge. That’s one of the reasons I like ETFs. You can set up these watch lists.
The very first time you go to set up these watch lists, whatever it might be, it’s going to take you a few minutes. It might take you 10 to 15 minutes to find the page, to find the holdings, and then to go back and forth between the website and the TradeStops site to set up the watch portfolio, but practice this. Set up your own watch portfolios.
You can erase the portfolios when you’re done with them if you don’t want to use those going forward. The ETFs are a great way to know what an overall sector, what an overall industry is doing. It could be a country ETF — the FXI for China or EWA for Australia.
Whatever, you’ll be able to see the holdings in the ETFs themselves. I’m a big believer in ETFs as a way to be able to see a particular area of the mark, get a big picture view of it, very quickly and very easily, by setting up the watch list.
Naresh: One really, really cool gift that we’re going to give to everybody and this is something that I’ve just decided because of all these questions that we’re getting about the ETF portfolios.
Because you registered for this event, we will send you the ETF portfolio as a csv file. All you people who are here today, look out for your emails later today or some time tomorrow.
We’re going to send you the ETF portfolio as a csv. This is just a bonus for joining us. We know that you have a lot of questions about it, so we think this will help clear up a lot of confusion.
Tom: Nicely done. That’s fantastic. Good for you all for being able to put that together, Naresh. You wanted to do one more question and then we’ll go to the next section.
Naresh: Let’s do this last question before going on to the next section. Actually, a pretty good question from Bhupendra. He says, “Netflix on your screen has VQ of 30 percent. Doesn’t that mean that a 30 percent drop is possible? You and Naresh were laughing at the headlines. That’s a little strange to me.”
Tom: You’re absolutely correct on all accounts. The normal volatility of Netflix is 30 percent, or 29.85 percent. This is the normal stock movement for Netflix. It’s not a 10 percent mover like Johnson & Johnson. It’s not a 15 percent mover or 17 percent mover like Microsoft.
It is more volatile. Yes, the headlines can say a 10 percent downward move, they can call that a correction, but wouldn’t you agree that a 10 percent downward move in Netflix is much different than a 10 percent move in Johnson & Johnson?
One of the other stocks in that headline, Naresh, was on AMD. AMD has — wait until you see this VQ — a 48.3 percent is normal volatility. If you want to know the truth, here you had your high price on AMD at the end of February, this stock was down into “correction territory” by April.
Where was that headline? Maybe it occurred in April. I don’t remember seeing any headline that says AMD in correction territory. They lumped Netflix in with AMD. A 10 percent move on AMD is nothing. Not on a stock that has normal move of 48 percent.
Now if you own AMD, if you own Netflix, you’re not happy with that 10 percent move down, but you have to understand that that is the normal volatility and that is the risk that you take to be able to get upside within the stock.
Naresh, if you have anything else to add to that, please feel free.
Naresh: No, I completely understand that. Let’s move on to the next part of the…
Tom: This is a fun part. You know that I like adding stocks to portfolios to see what’s going to happen. Let’s look at majoring the effect of new stocks in your portfolio. You can look at this and this is part of the research that you should consider doing before you actually buy whatever that new stock is.
If we’re looking at adding a stock to the portfolio, we want to look at how is that going to affect our asset allocation, by both sector and industry, and how will that affect our portfolio volatility quotient.
Let’s go back to the website, of course. For those who have watched these last few webinars, you’ll see this blue chip stock portfolio that we’ve set up.
This is a well-diversified portfolio. Few stocks in the red, most of the stocks are in the green. How do we look at the asset allocation? How do we look at the portfolio volatility quotient? We start by going to research. We go to the asset allocation tab. Here’s our blue chip stock.
Now you notice this is by sector. Look, Naresh, we’ve got a nicely diversified portfolio. You can see that information technology is almost 25 percent. Industrials are 16 and so forth. You can click on the pie chart and see that as well. You can see what stocks you own.
For instance, Apple, Microsoft and Visa are part of information technology. We look at consumer staples and we’ve got Walmart and Coca-Cola, Energy, Chevron and Schlumberger.
When we look at the industry asset allocation, we have a lot more that we’re diversified into and that makes sense. Industrial conglomerates, here’s our GE. Oil and gas, Chevron, etc.
What are we missing here? We know that looking at the sector ETFs that we follow all the time, there’s nothing here for basic materials and nothing here for utilities. We’re going to go and look for something in utilities. Let’s look at our PVQ analyzer, by the way.
Our current risk, we are at 36.7 percent low risk, that means under 15 percent VQ. Medium risk is 63.3. That’s 15 to 30 percent VQ. Yet, our portfolio VQ is very low risk, 12.13 percent. Let’s go look at some stocks. Let’s go look at the XLU.
These are the top 10 holdings that make up the utility sector. I’m going to go from the top. I want to find the first stock that has a gain since the 1st of June. The first one that I see here is ConED. ED is the ticker symbol. Chart’s coming up on this. Very nice looking chart.
For about the past nine months, nice up trend here. The high was a week ago. This looks really good. Let’s go back to our positions and alerts and let’s add 100 shares of ED to our blue chip stock portfolio. We’re going to go ahead and add a position. We’re going to go add ED.
We’ll use yesterday’s date as the entry date, closing price $83.30. I’ll just put 100 shares in there. You can see now we’ve added ED to the portfolio. Let’s go look at the effect that this has on our asset allocation and our portfolio volatility quotient. We go to asset allocation, blue chip stock.
There we go. We’ve lowered the amount that we have in information technology and we’ve added a whole new sector. We’ve added the utilities sector right here. 6.6 percent of our portfolio is now in utilities. When we look at the industries, it’s almost the same.
We’ve added a utility company here and that’s going to be in the multi-utilities right here. There’s our position on ED. Watch, Naresh, what this does to the portfolio volatility quotient. We had it pretty low to begin with, right?
Naresh: Yes, we did.
Tom: 11.59 percent is now our portfolio volatility quotient. Now, we’re at 40.88 percent, just a lower 40 percent low risk, right about 60 percent on medium risk. Now, we’ve added one position. We filled in an additional stock that was part of a sector that we didn’t own.
One more thing. Let’s go ahead and add a volatile stock. Remember we saw that FNV was one of the tickers that was in the green zone for the gold miners. Let’s go ahead and add that position. We know that that’s a volatile stock.
We’re looking at FNV, yesterday’s close, $72.62. We’ll put 100 shares in there. Here’s our FNV position. It’s been in the green zone for three months, so that’s very good.
Let’s take a look at the effect now. We go back to our research page, asset allocation and now we’ve added basic materials. We have a 5.43 percent position in FNV.
Now we’ve got nine different sectors that we’re invested in, a huge amount of industries. This is an incredibly well-diversified portfolio. We added a highly volatile stock and still lowered our portfolio volatility quotient.
We went from 11.59 to 11.4 by adding a stock with a risk of over 30 percent. As you, our TradeStops members, are putting together your own portfolios, you can use this type of research to get a really good view of what your portfolio will look like, what the asset allocation by sector and industry will be when you add new stocks to the portfolios.
Before you actually make the trade, you’ll understand how much risk you’re taking. We’re not going to run this through the risk rebalancer today. That’s not a part of today’s presentation. I would recommend that people take these portfolios and run them through the risk rebalancer.
One other thing. We added a gold stock to a portfolio that was not very volatile. What happens if we add a boring stock like Pfizer to the GDX? What if we had all the stocks of GDX as a portfolio? Pretty high portfolio VQ of 30.13. All high risk and sky-high risk stocks. Kinross Gold is our sky high risk.
Asset allocation, let’s go back to GDX. One sector and one industry. You’d be surprised how many people have portfolios that look like this because they fall in love with story stocks. They fall in love with bottom-up investing.
What happens if we add, I don’t know, Pfizer to our GDX portfolio? We know what’s going to happen. We know the portfolio of volatility quotients is going to come down, etc.
Let’s put 100 shares, we’ll close it. Go back to our research tab, our asset allocation. Now, we got four percent in healthcare, we’re still 95, 96 percent in basic materials. Again, you can see that on the sector and industry.
Let’s look at our PVQ analyzer. We dropped more than one percentage point. We dropped to just under 29 percent by putting a very small position of the pharmaceutical stock into all of these high-risk and sky-high risk positions.
The reason that it lowers the portfolio volatility quotient is because of the correlation. Pfizer is not going to move the same way the gold miners move. Pfizer could be up on a day that the gold miners are down, vice versa. Pfizer would be considered a defensive stock. The gold miners would be very aggressive stocks.
That’s how you can play around with your own portfolios and determine what is best for you, what kind of position is best for you to add that allows you to diversify, potentially lower your portfolio volatility quotient, and just make yourself a better investor.
Why is this important? As Dr. Smith says, “Successful investing is about staying in the game.” You don’t want to blow up your portfolio with nothing but the story of stocks that on bad days, or the market moves against you, you lose half the value of your portfolio.
That’s not what investing is about. For us, investing is about being in there for the long run. It’s not a sprint. It’s a marathon.
The next thing that we need to look at, Naresh, is the help center on TradeStops. The help center, right up here on the upper right-hand side opens up an entirely new window.
There’s so much information here — research about the stock analyzer, the asset allocation tool, the portfolio volatility quotient, and anything else that people might want to know about.
90 percent of the questions that you have can be answered within the TradeStops help center.
As our customer success team is moving through your tickets and your calls, we highly recommend that you check out the help center because there’s a good chance that the question that you have has already been answered right here on the TradeStops website.
For those who want to write in to us, use our email address email@example.com or feel free to call us Monday to Friday, 9:00 to 5:00 Eastern Time, 866-385-2076.
Naresh, what sort of questions do we have that have come in since?
Naresh: We’ve had several people say that they aren’t necessarily subscribers to newsletters. They want to know how can they use TradeStops to go about finding the ideas. In this case, you already went in knowing, “OK, let’s type in Netflix, let’s type in the oil industry, let’s type in this ETF.”
There are people who are basically coming into TradeStops with a blank slate of mind. They want to be able to just log in and find companies that are in the green or companies that just turned to green, etc.
Tom: We don’t have that ability.
Naresh: Can you help them out there?
Tom: Unfortunately, we don’t have the ability to search for stocks. There has been discussion of developing that, but we’re not there by any stretch of the imagination yet. That’s where this watch portfolios come in.
Yes, it’s going to take you some time to set up your own watch portfolios. There are a lot of good sources for information for those who subscribe to “Investor’s Business Daily,” getting their top 100. You could create a watch list of their top 100.
You could create a watch list of the 30 stocks of the Dow Jones Industrial Average. You could create a list of the S&P 100, the 100 largest companies in the S&P 500. All of this takes a little bit of time, takes some energy to get set up. It’s an ongoing process.
Once you have the skeleton in place and once you start doing this, it will help you research. It will help you to determine the stocks that are best for your portfolio. Just within a couple of quick glances, you’ll know the condition of so many different sectors, industries, countries, and so forth.
Naresh: Can you talk a little bit, Tom, about re-entry? We have several folks asking about strategies, and how TradeStops helps with re-entry.
Tom: There are a couple of ways to do that. I think the best way to look, at this exact moment…let’s go and look at that energy sector ETF, XLE. I guess we could have done that with the gold as well.
Now, I purposely don’t have any alerts set up here for XLE but you notice that Occidental, a little bit more than a month, it stopped out, almost a month and a half. Schlumberger just stopped out a few weeks ago. If I want to get notified when those are back in the green zone, there’re a couple of ways to do it. The easiest way is just to set up SSI alerts.
Let’s go back to our positions. We’re going to do a group SSI alert. Click on this box at the top.
Now, all of the tickers are highlighted. Add an alert. We’re going to add the SSI alert, add, and there we go.
When Occidental, when Schlumberger, when their stock price movement causes a new SSI entry zone to trigger, we’ll send that alert out to everybody. Also, you can close a position.
Let’s go back and look at our blue chip stock portfolio. Let’s say that we’re going to get out of our GE. We can close this position.
If you have it automatically set up, within your settings, to create a watch portfolio with a re-entry list, when you close a position that’s synchronized, this will automatically set up a whole watch list of your closed portfolios that will tell you when a new SSI entry signal has been triggered. I can delete this.
Because this is a manual portfolio, it did not create a re-entry, but you can do that on your TradeStops website. If you are synchronizing a portfolio, you can set it up so stocks that you close are going to show up in the re-entry. It’s a powerful way to get it done.
We’re at the one question mark, maybe we take one or two more.
Naresh: Sticking with the topic of SSI trends, we’re getting this question over and over again. I want to reiterate to people tradestops.com/webinars. It’s tradestops.com/webinars.com. You can get all of our old training sessions. They’re available there.
Tom, let’s answer this question I’ve got. That is, “What does the yellow zone mean exactly?”
Tom: Let’s take a look at that. Let’s take a look at the Goldman Sachs example.
We’ll go to our research. We’ll go to stock analyzer. We’ll type in GS. Now, this has been in the yellow zone for the past few weeks. It entered the yellow zone on May 17th, so almost a month ago.
What that means is that the stock has dropped more than 50 percent from its most recent high in March, between the most recent high, and the stop price. The stop price here was $206.12. It’s $206.22 right now. The stock price has dropped down to $221.91. That’s more than a 50 percent drop between the high price and stop price.
I’ll give you a comparison. It’s not a perfect comparison, but it’s close. We did a lot of research and you’re familiar with stocks that drop, and people are looking at stop drops by more than 50 percent, and then think that, “OK. You’re taking less risk in this stock. You’re going to bounce higher.” That’s what this is. That’s exactly what this is.
This is something that allows people to know the stock has dropped. It has not hit the stop. If you go into this stock, you’re taking much less risk if you use an SSI stop.
For instance, the stop right here, when it was at its very top at $252, you had the stop loss of $206. You are 46 points away. If you go into it now at $222, we are only 16 points away. You’re not taking this much risk and yet the stock has not stopped out.
Naresh: That just about answers it. I know, Tom, we’ve run over again, which is a good thing.
Thank you, everybody, for all this awesome, awesome questions. Again, tradestops.com/webinars, tradestops.com/webinars. Signup for our next training session this Thursday. All the replays are available here.
Tom, any parting words?
Tom: We appreciate everyone joining us. It’ll be probably later this afternoon that we do have the recording processed and ready for you. I’m going to end the webinar in just a moment so that we can start processing that and get it up to you as quickly as possible.
Thank you, everyone, for joining us. If you have some other questions, certainly let us know via firstname.lastname@example.org.
Transcription by CastingWords