houston april, 2009. wall street and my street the following is just my perspective. i was a lookout...
TRANSCRIPT
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HOUSTON
April, 2009
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WALL STREET
AND
MY STREET
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The following is just my perspective.
I was a lookout at Pearl Harbor.
May not be dependable.
Am certainly not responsible
***Redneck disclaimer
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This has my reality written all through the process. It is not necessarily “right” but appropriate for ME.
…it fits my age (old), tolerances (not very) and blood pressure (very high)…
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… it does not matter how frequently something succeeds …
…if failure is too costly to bear…
Optimizing…..over confidence….believing Wall Street
BERNIE MADOFF!!!
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“TRILLION DOLLAR BAND AIDS”
AND
“SITUATIONAL ACCOUNTING RULES”
…in the land of…..
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PLANNING FOR
(AND DEALING WITH)
FAILURE***
***FAILURE = BAD DECISION OR LOSING MONEY
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NONO
INDICATOR OR SYSTEMINDICATOR OR SYSTEM
GIVESGIVES
CONSTANT ADVICECONSTANT ADVICE
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"You can't simply plan to get a 10% return because that's the number you need"
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“I don’t care about the economy,
I just need to make some money”
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20%, 20%, 20%, 5% beats 30%, 30%, 30%, -20%.
15%, 15%, 15%, 5% beats 25%, 25%, 25%, -20%.
20%, 10%, 5%, 5% beats 30%, 20%, 15%, -20%.
5%, 5%, 5%, 5% ties 15%, 15%, 15%, -20%.
Winning by NOT LOSING
It doesn’t matter what year the -20% occurs in examples above
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WALL STREET
•YOU MUST STAY FULLY INVESTED AT ALL TIMES
•IF YOU MISS THE BEST 10 DAYS OVER THE PAST 5 YEARS YOUR RETURN IS _____
MY STREET
•IF YOU STAY FULLY INVESTED YOU PAY THE MANAGEMENT FEES REGARDLESS OF PERFORMANCE (FUNDS)
•IN ANY TEST YOU RUN, IF YOU “MISS THE 10 WORST DAYS” IS ALWAYS SUPERIOR TO THE “MISS BEST 10 DAYS”
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WALL STREET
•ASSET ALLOCATION REDUCES THE VOLATILITY OF YOU PORTFOLIO
•YOU CAN’T TIME THE MARKET
MY STREET
•ALLOCATION REDUCES RETURNS & MAY HELP VOLATILITY
•HAD POSITIVE RETURNS IN 2000,2001 AND 2002
•ASSET CONCENTRATION (INCREASES RETURN AND VOLATILITY)
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WALL STREET
•THE MARKETS ARE EFFICIENT
•THE MARKETS ARE RATIONAL
MY STREET
•WHO BEST TO EXPLOIT INEFFICENCIES THAN INDIVIDUALS
•IF THE MARKETS ARE RATIONAL (THEN MAYBE WE INDIVIDUALS ARE NOT)
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Optimism “Investing isn’t so difficult”
Excitement “I’ll be able to retire early!”
Thrill “I am a brilliant investor” (Maybe I should write a book)
Euphoria The point of maximum risk
Complacency “It’s just a normal correction, a great time to buy”
Anxiety “If I double down it won’t take long to recover”
Denial “Its only paper losses. I’m in it for the long-term”
Range Of Investor Emotions
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Desperation “What’s going on? When will it stop going
down?”
Panic “I’ve lost most of my money. I may never be able to retire”
Capitulation “I’m selling everything and I’ll never own stocks again”
Depression “I wonder how cat food tastes?”
Defiance “Stocks may be going up but I’m not taking the risk”
Range Of Investor Emotions
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HOW FREQUENTLY DO YOU TRADE?
HOW MUCH MONEY DO YOU TRADE?
WHAT ARE YOUR PERSONAL TOLERANCES?
There are no RIGHT or WRONG answers….but we all must know our personal answer to the three questions above.
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Why we do what we do
How we do what we do
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Do you have measures to determine if you have an investment “edge” ?
Do you have a process to identify and purchase leading stocks/funds/ETFs/futures?
Do you have a process to “trade up” positions you own?
Do you have “disciplines” that preserve capital?
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DECISION MODELS
Market Risk Model
Asset Commitment Model
Fund Selection & Management Model
..And how they are linkedlinked to each other..
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SOME EXAMPLES OF AND “EDGE”
***DEFINITION OF “EDGE”
A positive expectancy for a profitable outcome
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To trade profitable in the long run, you must know your edge….
If you have no edge, you should not trade for profit…
Establishing and recognizing your edge is a prerequisite to predicting whether trading will be profitable.
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DETERMINING THE MARKET ENVIRONMENT
LONG TERM:
Relative Strength
Price
New Highs / New Lows
Advancing / Declining
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IMPORTANCE OF
LEVEL AND DIRECTIONLEVEL AND DIRECTION
FOR
PRICE OSCILLATOR
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USE WEEKLY DATA
ASSUMES PERFECT TRADES
BIG PICTURE MARKET FORCES
MOST PRODUCTIVE: LONG OR SHORT
WHERE WE ARE TODAY
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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-7.5
-7.0
-6.5
-6.0
-5.5
-5.0
-4.5
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.012/26MACD (-3.00334)
750
800
850
900
950
1000
1050
1100
1150
1200
1250
1300
1350
1400
1450
1500
1550
1600SP500 (1,293.16, 1,333.26, 1,272.66, 1,308.77, -24.9299)
WEEKLY PRICE OSCILLATOR
LEVEL AND DIRECTION IMPORTANT
12/26 MACD
Mid point level 67% of time
Data since 1930
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BIG PICTURE …. LEVEL AND DIRECTION
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WHICH AREA IS MOST PRODUCTIVE FOR LONGS AND SHORTS?
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12 / 26 MACD
((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100
Above 0 level Below 0 level
Going UP 8.40% -0.90%
Going DOWN 1.70% -7.70%
From 1930 to Current
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12 / 26 MACD
((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100
Above 0 level Below 0 level
Going UP 7.16% -0.08%
Going DOWN 0.40% -6.81%
From 1990 to Current
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12 / 26 MACD
((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100
Above 0 level Below 0 level
Going UP +6.3 % +3.0%
Going DOWN -1.1 % -9.7%
From 2000 to Current
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PRICE OSCILLATOR DATA POINTS(level only)
S&P 500 Data: (1930) 62% time >0 level
>0 Level Weekly Monthly Yearly
+0.21% +0.86% +10.32%
<0 Level +0.05% +0.23% +2.76%
OTC Data: (1980) 62% time >0 level Weekly Monthly Yearly
>0 Level +0.50% +2.11% +25.36%
<0 Level -0.11% -0.48% -5.74%
Any conclusions???
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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-7.5
-7.0
-6.5
-6.0
-5.5
-5.0
-4.5
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.012/26MACD (-3.00334)
750
800
850
900
950
1000
1050
1100
1150
1200
1250
1300
1350
1400
1450
1500
1550
1600SP500 (1,293.16, 1,333.26, 1,272.66, 1,308.77, -24.9299)
Level and direction
3-4 up/down moves per year
>0 Level, down direction = correction
<0 Level, down direction = “cat food”
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COMPARING “THEN” AND “NOW”
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2006 May June July August September November December 2007 February March April May June July August September November December 2008 February March
2000
2050
2100
2150
2200
2250
2300
2350
2400
2450
2500
2550
2600
2650
2700
2750
2800
2850
2900ND-COMP (2,263.61, 2,263.61, 2,263.61, 2,263.61, +19.7400)
-9.0
-8.5
-8.0
-7.5
-7.0
-6.5
-6.0
-5.5
-5.0
-4.5
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.519/39 MACD (-4.21493)
OTC WEEKLY PRICE OSCILLATOR (19 / 39 MACD)
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Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2001 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2002 Feb Mar Apr May Jun Jul Aug Sep
1500
2000
2500
3000
3500
4000
4500
5000
ND-COMP (2,263.61, 2,263.61, 2,263.61, 2,263.61, +19.7400)
-20-19-18-17-16-15-14-13-12-11-10-9-8-7-6-5-4-3-2-10123456789
10111213141519/39 MACD (-4.21493)
OTC data (Bear Market 2000, 2001, 2002) 5000 to 1300
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LEVEL AND DIRECTION
USING
DAILY DATA
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Price oscillator using daily data
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DOMINANT MARKET THEORY
An edge
Relative measure
Jim Stack
OTC / NYSE
NDX / SPY
Russell growth / Russell value
Smoothing……macd & stochastic rsi
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July August September October November December 2007 February March April May June July August September November December 2008 February March
-0.45
-0.40
-0.35
-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
0.55
0.60
0.65
38/76 MACD <> 20 EMA (-0.14994)
2000
2050
2100
2150
2200
2250
2300
2350
2400
2450
2500
2550
2600
2650
2700
2750
2800
2850
2900ND-COMP (2,263.61, 2,263.61, 2,263.61, 2,263.61, +19.7400)
OTC / NYSE RELATIVE STRENGTH 11/2007
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Nov Dec 2000 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2001 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2002 Feb Mar Apr May Jun Jul Aug Sep
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.038/76 MACD <> 20 EMA (-0.14994)
1000
1500
2000
2500
3000
3500
4000
4500
5000
ND-COMP (2,263.61, 2,263.61, 2,263.61, 2,263.61, +19.7400)
BEAR MARKET RELATIVE STRENGTH
5000
TO
1300
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“THEN AND NOW”
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RETURNS FOR DOMINANT MARKET
Daily 1990 SPX & Nasdaq Relative Ave. Ret Ave. RetStrength Nasdaq SPX
SmlCap 3.44% 1.83%LrgCap -0.36% 0.15%
% SmlCap Dominant 57.1%% LrgCap Dominant 42.9%
For period of dominance
Data points from 1980
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J A S O N D 2001 M A M J J A S O N D 2002 M A M J J A S O N D 2003 M A M J J A S O N D 2004 M A M J J A S O N D 2005 M A M J J
0
50
100
150
200
250
300
350
400
450
500
10% TREND, 10% TREND
1000
1500
2000
2500
3000
3500
4000
OTC COMPOSITE (2,233.55, 2,210.13, 2,218.93, -18.8201)
YEARLY NEW HIGHS & NEW LOWS (smoothed)
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COMPARING “THEN” AND “NOW”
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DETERMINING THE MARKET ENVIRONMENT
SHORT TERM:
Price
Highs / Lows
Advancing / Declining
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ALL BUY SIGNALS ARE NOT CREATED EQUAL
VARIED EXPOSURE TO THE MARKETS IS APPROPRIATE WHEN CONSIDERING THE MARKET ENVIRONMENT
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ASSET COMMITMENT
PROCESS
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SELECTION PROCESS
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UNDERSTANDING
“UP FROM DOWN”
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5 YEAR OLD NEPHEW
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THE DECISION ZONETHE DECISION ZONE
SIMPLE DECISIONSSIMPLE DECISIONS
Stoch(28,13)/2+RSI(14)/2April May June July August September November 1998 February April May June July August September November 1999 February
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
14.0
14.5
15.0
15.5
16.0
16.5
17.0
17.5Fid SmallCap Sel (0336)**
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
>65 level = No Sell Zone>50 level = Buy zone<50 level = Sell zone
Negative Environment
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Sep October Nov Dec Feb March April May June July August Sep1997 October
20
21
22
23
24
25
26
27
28
29
30Founders Discove
10
20
30
40
50
60
70
80
90
100
>65 level = No Sell Zone>50 level = Buy zone<50 level = Sell zone
50
65
Negative Environment
Trend measure for all mutual funds / ETF’s
65
50
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Sep October Nov Dec Feb March April May June July August Sep1997 October
20
21
22
23
24
25
26
27
28
29
30Founders Discove
10
20
30
40
50
60
70
80
90
100
>65 level = No Sell Zone>50 level = Buy zone<50 level = Sell zone
50
65
Negative Environment
Trend Measure for All Mutual FundsTrend Measure for All Mutual Funds
Sell Zone <50 No Sell Zone >65
Our trend measures keep us with the trend
FundDecline
FundRise
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THOUGHTS AND POSITIONS FOR THE MARKETS
AT THIS TIME:
Long term: level (low) and direction (up)
Intermediate term: measures positive (but weakening)
Timing signals: 2 of 3 models are positive (long term is negative)
BE CAREFUL: A “trading” opportunity is upon us soon… ….MAYBE….SBIG
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you should expect that the next 10 years won't be anything like
the last 10
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IN CLOSING
EVERY DAY I want to know:
What is the “dominant market”
What is the long term level and direction of weekly measures
What is the consensus of 3 timing systems
What is the intermediate term market environment
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At age 66, I’m
developing a 3rd
and last career path
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OUTDOOR SWING SET $49.95
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ATHENS CAPITAL MANAGMENTATHENS CAPITAL MANAGMENT
1-877-460-79411-877-460-7941
[email protected]@athenscap.com
(returns data up front) (returns data up front)
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Questions?