Kelvin,
Good points and questions. Here are some statistics that indicate we are at least coming close to meeting the original goals of the Z Portfolio:
Profitable trades:
Holding period: 13.0 days
Gain per trade: 4.7%
Losing trades:
Holding period: 26.4 days
Loss per trade: 8.4%
Total trades:
Holding period: 15.7 days
Gain per trade: 1.7%
I definitely agree with you that we need to visit the goals of the thread every now and then to make sure that we are on track, or if the goals need to be adjusted for the better. Here are the applicable goals, two of which you noted. Please note that I am not defending our results. I am simply providing data to see how we are faring against our goals.
Short Term Trading
For the purposes of this thread we have defined Short Term Trading as the buying of stocks with an anticipated holding period of between 2 weeks and 2 months. We will deviate from these guidelines as market conditions dictate.
Our average holding period this year is 15.7 days, so check there. We have deviated from the guidelines on certain days when the market gave us a quick profit,or held longer for a position to get to our target, so check there as well.
Price Gain Potential
We will look for stocks that we believe have a reasonable to good potential for a 5-10% gain in 2 weeks and 10-30% in 2 months.
The average gain on profitable positions is 4.7%. This is a little under our goal, and perhaps we should work to improve it. Some of this may be due to the bear market being fresh in our minds, which has caused us to take profits faster than we would have otherwise.
Risk Characteristics
The stocks in this portfolio will generally have moderate to high risk. These will normally be neither "safe/defensive" stocks nor will they be "high flyers - crap shoots". We will attempt to manage risk by using sell points or sell stops. We will use technical analysis in the hope that it will help us to assess and reduce risk. Generally we will look to exit a position if a stock has fallen 8-15% from our buy price. Macro economic, market, or sector conditions may significantly impact the risk at any time.
For the most part, I think that we are meeting this goal as well. Some of us use mental stops, some of us use actual stops, but our average loss per trade is 8.4%, which is in the low end of our goal. We are also selecting stocks that meet our risk profile with only a few rare exceptions.
Risk/Reward Characteristics
We will try to look for a risk/reward ratio of at least 2:1. We want the potential gain to be at least two times the possible loss potential. The potential gain and loss will be estimated using technical analysis techniques.
Regardless of how we estimated potential gain and loss, our actual results indicate that we are meeting our 2:1 goal. Gains on profitable positions totals $561,173. Losses on losing positions totals $286,555. The ratio of gains to losses is 1.96, and you can't get much closer to 2:1 than that.
Total Portfolio Returns
Given that this is a risk portfolio we look for results to beat the "Market Averages" (S&P 500, NASDAQ Composite, Russell 2000) by 1.5-2 times.
To see how we are doing against this goal, I refer you to a comparison that I posted a few weeks ago through the first three quarters of 2003: members.aol.com It depends on which index you compare our results to, but overall I'd say that we are meeting our goal of beating the market averages by 1.5 to 2 times.
All this said, there is always room to improve, and I am open to suggestions that might expand the number of people who trade the Z Portfolio. You might recall that I have tried several times this year to get more people involved in the Z Portfolio.
In addition to your excellent points, I'd like to add a few of my own issues, which play into your comments. I tend to trade the same stocks over and over again, although the stocks that I trade varies throughout the year. My current obsession is TOY, but earlier in the year my obsession du jour was FLEX, CLS, and semiconductor stocks. The only significance is that if someone isn't interested in TOY, they will pretty much ignore my posts on that stock. That's fine, but what is the point of my posting trades that nobody is interested in? The overreaching goal of the Z Portfolio is to provide trading ideas that others might be able to capitalize on. In exchange for my providing ideas, I might get ideas from another contributor. However, if we are all doing our own thing, then we have lost touch with the main goal of the portfolio. Sure, we are meeting the financial goals of the portfolio, but perhaps we aren't helping each other individually. I will be perfectly honest and say that I rarely trade any stocks posted in the Z Portfolio. The reason has absolutely nothing to do with my confidence in the sponsor or whether I think the trades will work. It's simply that I rarely trade stocks that I am not comfortable with, and I am not comfortable with Internet stocks, housing stocks, or stocks that I have never heard of.
Let's be honest here. How many of you have ever traded a stock that I posted? There's no doubt that you do every now and then. I know that Ron has occasionally traded TOY and MTXX, and Kelvin has traded FLEX. But if others follow my trades only 1% of the time, does it make sense for me to post my trades? If people only follow Ron's trades 1% of the time, does it make sense for him to post his trades?
Another issue that I have is quick trades. First, I understand that the market sometimes gives you a quick profit. But, if someone buys a stock at 11am and sells it at 11:30am, who could benefit from it? You'd have to constantly watch the thread to follow a trade like that. Obviously I am exaggerating, and this doesn't happen often. However I hope that it demonstrates my point, which plays into my main issue of who is benefitting from the Z Portfolio, or are we mostly just doing our own thing.
I hope that nobody gets me wrong. I wouldn't be hurt if people rarely follow my trades, and I hope that nobody would get defensive if people rarely follow their trades. I am simply pointing this out for an open and honest discussion. I suspect that some people follow our trades, but don't contribute. There's nothing that we can do about that. Last, I hope that nobody gets me wrong and thinks that I am suggesting that we quit the Z Portfolio. I am more than willing to continue posting my trades (even if nobody looks at them lol) and doing the bookkeeping next year. I just think that we need to look at these issues to see if they are important to others.
Thanks!
Dan |
