Hi Jan,
Recently ran across this great site for P&F chart enthusiasts. I've been studying P&F for a time now, with continual guidance from my well-worn Burke and Dorsey books.
I've scanned most of the previous input and noted that you and a number of other people freely share ideas. So, since this is Sunday, and I won't interfere with market activity related discussions, I'll post a lengthy situation/question.
I could use some help, and would appreciate comments from you or others on a portfolio construction system that I'm trying to create for an upcoming stock portfolio contest. The preliminary rules call for an initial 10 stock portfolio (100 share each).
SOME BACKGROUND:
My goal as an investor is to beat the S&P, with a risk factor at nor near this index. That's how the big boys and girls are graded. I do buy Dow 5's and an index fund to stay even with or slightly outperform the market. But, I want my individual stock picks to beat the heck out "average".
Perhaps you're familiar with James O'Shaughnessy's two books, What Works on Wall Street, and Retire Rich? I believe the former is the ultimate handbook of what to buy, either long or short.
For those not familiar with O'Shaughnessy, he's the only individual researcher to be granted full access to the S&P CompuStat database. From this database he ran every reasonable portfolio criteria using a) 50 stock portfolios, b) rebalancing them ever 12 months (passive indexing much like the Dow 5 and 10), and c) using a 44+ year database. His results clearly set forth the fundamental criteria that consistently beat, or did not beat the S&P. He also took some well-aimed shots at those who think (like me) that they can use TA for better results. He's a firm believer in passive investing and staying in the market through all conditions. I'd like to prove him wrong.
I've just discovered a search engine that provides me with the same 50 stocks that meet O'Shaughnessy's growth and value portfolio criteria. (These are essentially the same stocks that are in O'Shaughnessy's Mutual Funds.) I've expanded the initial list to 100 growth and 100 value stocks, and posted them at the DW site. Interestingly, there are a number of attractive stocks with positive RS that are trading above their BSL. (If anyone wants the criteria and /or list, let me know.)
SITUATION: From the two lists of 100 stocks (what to buy) I want to create growth and value portfolios with 10 stocks in each, using P&F charts to make the selection (when to buy). I'll also create a combined portfolio with the 5 best from the growth and value portfolios, and use this for the competition. Then, I'm going to track my three portfolios against the S&P and O'Shaughnessy's Mutual Funds.
SELECTION CRITERIA: At this point, I'm thinking of choosing stocks from the two list of 100, with P&F criteria as follows: 1) RS must be positive, with priority given to a RS buy signal over a RS sell signal; 2) Must be above their BSL; 3) First stock selected will come from the lowest sector, next stock from next lowest sector, etc.; 4) Then select the lowest priced stock (and maybe the one with the most recent buy signal).
SELL CRITERIA: At this point - 1) If RS turns negative; 2) Penetrates BSL with appropriate sell signal; 3) Will sell 1/3 at 30% gain, 1/3 at 50% gain (I can only hope) and hold the rest until one of the above happens or it drops from original list of 100. (In addition, I'll create mirror portfolios of my 3 groups of 10 and also buy and sell when the NYSE BP reverses to Bear Alert, Bear Confirmed, Bull Alert, etc.)
QUESTION: And finally I get to it. Do you or anyone reading this far too long of a rambling, have any suggestions on selection or sell criteria. For instance, with so many sectors at or near overbought, I may have to take more than one stock from one sector. Any and all thoughts would be appreciated. If you don't want to post it, send me a private message. (As mentioned above, I must select all stocks in the portfolio on one day. No waiting for pullbacks, new White House revelations or certain arrangements of the stars.)
Lastly, a friendly challenge: I noted a number of discussions relative to using VL1 and 2 stocks and massaging them to achieve a certain fundamental. How about a little horse race? Those with a system pick a 10 stock portfolio (maybe two, a growth and value) with at the closing prices on day x. Then, let's see whose system kicks a little S&P ..........
Thanks, and keep up the good work.
Eric |
