I’m afraid my recent foray into the land of Mad Max has diluted what I once preached and practiced for a long, long time, which is diversification. Now this post is for those of you who are interested in self-directing your accounts, without big turnover, minimizing the chance of a blow up.
Let’s start with the foundation. Most managers are unable to beat the S&P 500. It’s not that the folks at S&P are great stock pickers, but has a lot more to do with the structure of it. When building a portfolio, you have to think macro, and try not to get hung up on any one cog in the wheel. You can fine tune the wheel as you go; but it’s vitally important to set yourself up for success.
The S&P 500 is made up of 8 principle sectors.
Tech: 20%
Healthcare: 13%
Financials 15%
Energy and Materials: 13%
Industrials: 11%
Consumer Goods: 10%
Services: 15%
Utilities: 3%
What I like to do, just like I did with my semi-annual managed portfolio inside of The PPT, is pick two stocks per sector, weighted equally, except for utilities. With just a 3% weighting, I just go with 1. The stated goal is to assemble a portfolio that will be judged per quarter, adjusted per quarter to correlate with S&P weightings, and of course beat the S&P. In other words, if the S&P is 20% tech and your tech holdings soared, sending your weighting to 25%, you’d have to sell enough to get back down to 20%. The same goes for underperformance. If your energy stocks tanked, lowering the weighting to 8%, you’d add to those positions to get the weighting back to 13%.
Now the median market cap in the S&P is $17 billion. With smaller market caps, more concentrated on high growth, I am confident anyone can crush the S&P; it just won’t be nearly as fun as trading in and out of pin less hand grenades.
Here is what a typical portfolio of this nature would look like:
Tech: SNDK (1.2% yield), SFUN
Healthcare: BIIB, AET (1.3% yield)
Financials: BX (7.8% yield), IEP (6.3% yield)
Energy and Materials: CXO, OII (1.3% yield)
Industrials: ETN (2.8% yield), TOL
Consumer Goods: KORS, CREE
Services: LVS (2.7% yield), EBAY
Utilities: TRP (3.7% yield)
Or, you can just ebb and flow between TNA and TZA positions, using The PPT‘s propietary Overbought/Oversold signals as your guide.
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I stopped checking SPLK’s share price below 60, my average cost is 66 on 2k.
https://www.youtube.com/watch?v=sOi1l_Dkl-A
Love BX – big day tomorrow
So basically adding to the losers and cutting the winners. Guarantying not to get rich.
But I get the concept; it’s the idea that things will revert to the mean.
Better to just buy the spy, as most people are not superb stock pickers. And even if they are, stepping on a couple of land mines will cause underperformance or worse, so in the end, this isn’t a practical strategy.
Jermey
You are far too pessimistic. There’s no point in even debating this any further with you. The s
A diversified portfolio isn’t design me to get rich quick, fucking bozo. If it was, it wouldn’t be diversified.
Can’t have it both ways.
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“Diversification is a Hedge for Ignorance”
~ William O’Neil ~
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He is the founder of The Investors Business Daily
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Ibd is for retards
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Just thought the quote was apropos !
I don’t read the publication !
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Did you deliberately misspell your own name? Why?! My son is so sick of people calling him “germy”; we are thinking of going by his middle name instead.
Hahjaha
This guy gets it. Sorry he is a buzzkill.
Take from winners to add to losers is a moronic plan. Fly should couch this by saying he meant just rebalance into winners on both sides to keep allocations static, in the hope that you will closely match the S&P and if a good picker, beat it.
This is a fools errand though bc a market index doesn’t have high fees compared to ST gain taxes and commissions.
I never said add to losers. I said ADD TO THE WEIGHTING. In this case, you might own XYZ and feel ABC is a better stock, so you’d swap it out. Again, this is to be decided once per quarter. The point of this is to instill a discipline and to make sure you are diversified. Without rebalancing, that is impossible. You can have massive winners, NFLX from 60-400, but you’d be selling little by little all the way up, if the weighting got out of hand.
This isn’t rocket science and is very conventional. Now you’re just arguing for the sake of arguing.
I am just arguing for arguments sake, true
i’m just curious of the PPT math considering it seems like 2 standard deviations.
sorta like how ‘secret sauce’ is usually just thousand island.
The PPT math is simplistic and your analogy is incredibly apt. Repackage a known sauce and call it something else. Charge rubes to use it. Perfect.
I took the trial just to suss this bullshit out, I appreciate it Fly. The technical score is comprised of 5 categories.
— Accumulation Distribution
— Price performance
— Relative Strength
— Volatility
— Volume
The ranking is heavily weighted to the 3-6 months percent return. The other factors don’t really change whatever the price percent score is, it’s highly dominant.
Metrics like volume, volatility, and acc/dist, firstly are not even necessarily predictive of anything, and secondly, due to fly’s general incompetence, are not correlated or relatable in a meaningful way in the “ppt engine”.
—Like is high volatility rewarded because for some stocks this means a better chance of moving a lot, a la beta, or is it a negative, because greater volatility creates greater deviation of return?—
Don’t ask them, because they don’t know.
Given that the percent change over 3/6 month is the highest rated followed by “relative strength”, when the PPT is “OS” it’s basically it’s saying “a large number of stocks are at the lower end of some range”, which is the same, in practice as an low RSI or low stochastic or 2nd deviation from mean. There are literally dozens of indicators that are essentially identical.
That’s also why it looks smart in a buy the dip market as anything near a low end of some range, on average generally speaking, gets bought, while in a rangebound or highly trending market, the signal gets killed.
ALSO why pay for a screener when you have finviz? Or a dozen others?
You weren’t a member of the service to see any of the technical scores change. They are not equally weighted and we also have a “sub-rosa” and “fifth column” category that affects scores, based on popular correlations with treasuries, currencies and commodities.
A lot of research went into it and it blows the door off of any RSI indicator.
Just about everything you said is wrong; but what else should we expect from a professional auditor of things he hates and admonishes on a daily basis? Oh, wait, you do it for fun because, well, I entertain you.
So glad to be of service to you, old chap.
Don’t take my word for it. Ask the people who are members what they think of The PPT.
I looked at the history of the scores pal.
Further, didn’t you admonish/accuse me for “not reading carefully” earlier?
— I know the scores aren’t weighted equally. I made, I don’t know, anywhere from a two to four paragraph point to that effect. —
Try reading more carefully.
A huge portion of the effective change in a given tech score, I’d guess 90%, comes from the singular metric of 3/6month percentage return. ANSWER THE QUESTION. STOP AVOIDING MY QUESTION. If not, please explain why.
No one gives a shit about “sub rosa” you pickle inspector. So treasuries or vxx or gas or natty or gold or whatever moves across some threshold you invent, ahem, with no research into the correlative or predictive value of that threshold — and that effects the score a teensy bit.
Ok. Fine.
Or suppose the score is highly moved by gold / natty / oil / vxx move — well then were back at square one..so fucking what?
You have no data to support that some change in, as you say, gas prices even warrants that big of an effect in a stock for short term price movement.
Sub rosa has either no effect or a pointless one.
That all said, you do entertain me, well done old chap.
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PS: asking people what they think… wait for it… is a strawman argument, your favorite.
What they think is immaterial to what 15 mins of research during my free trial showed me about the PPT, which I highlighted above.
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Honestly, would love to be dazzled by the research that led to the, umm, final product. Seriously please share what was done research wise would be great to attempt to dispute me
^^^ its bullshit like this is which why I work in Aerospace.
Numbers are numbers
I take it you’re a male stewardess , upset over the latest union fight and lack of benefits?
FLY, don’t argue with a rocket scientist.
He’s not a rocket scientist. I believe he said he worked in service, food cart
Aerospace, you shoe polish huffer
Aerospace. What a tool.
I stopped reading halfway in. Predictable rabble.
No , it’s not heavily weighted towards 3-6 month returns, not even close.
BULLSHIT.
Those five metrics
– Accumulation Distribution
– Price performance
– Relative Strength
– Volatility
– Volume
Plus your “sub rosa” comprise the tech score, this is stated as fact in the PPT itself. Not a debate there I hope.
You go on the say, which I already pointed out, that the scores are not weighted evenly.
So what then is the primary part of the score?
Are you now on record now saying that they weight is not on price performance, aka 3 or 6 month return, and is instead on, what, volatility? volume? redundant acc/dist?
What a joke man. You can’t even keep your bullshit straight.
PS: Find the willpower to reread what I wrote, I explain why those other metrics are bullshit.
Ted
Sorry to upset you, as you seem to have a very erect penis over this, but I am not going to discuss the formula with some strange guy pestering me at 1am in the morning. Go to bed. Lots of drinks to serve tomorrow.
It’s a multi million dollar franchise. I’m not going to tell you the formula or how the algorithms are calculated. Feel free to keep guessing.
^ that is preposterous.
I’m not guessing you sausage brained jabroni, it’s stated in the PPT, and I spent about 15 mins reverse engineering it
Hahah
You reverse engineered it!? That is funny. What else did you do in 15 mins? It took us 12 months , but you cracked it in 15 minutes over a beer. Well done!
Well I can do children’s puzzle and other simple math in 15 mins too, it’s not too hard
Ooh, now you are getting personal. Did you read the code? In assuming you hacked our database in the amazon cloud and reverse engineered it there. Very impressive for 15 mins of work
cool. thanks
@teddard. if you had been a member for the past five years , you would have noticed that the ppt algorithm extremes has a pretty good correlation to market extremes. I’m not a great trader, but it certainly helps to have this info when deciding to leg in or out of the market.
added to this is the commentary of many astute but different opinions within the chat room. For those who are not privy to hedgefund or big brokerage algorithms , this is excellent source of info. Many have traded these extreme indicators profitably. to condemn the ppt as ” just easily obtained free info” is ignorant of what it is all about.
No, it’s a lot more than that. Many moving parts affects the score.
IEP looks interesting.
No worries that the pendulum might swing and bring Revenge of the Ackman this year?
Everyone can beat the s
Short iep on every rally, if you can stomach the volatility.
So short the best investor of our generation?
Makes sense.
You and I agree on this one FLY shorting Ichan is a mistake
Haha in not the bozo. You take one sentence from my post and blow it up. I know diversification is for wealth protection and not getting rich. But I was just making a side point, which you obv didn’t pick up. But overall, the strategy you proposed isn’t sound in my opinion. Maybe it’s sound for a super hero like you.
I’ve been told I am too pessimistic but it’s worked for me. I just come off that way, I don’t think I really am.
There isn’t anything wrong with being pessimistic, as long as it doesn’t stop you from making money. This plan is the only acceptable form of diversification I’d ever accept. I am sure you can’t do better.
“You take one sentence from my post and blow it up”
That’s his deflection method when he is unable to think up any actual cogent reply.
Who’s deflecting? I am sure this is the highlight of your sober day. Fire away.
Conventional wisdom but as a value investor it makes no sense to me in the current environment.
In 2009 when the sky is falling, sure it was a good idea but in today’s market where so many sectors are way overvalued, it’s just crazy.
I am heavy into REITs, utils and energy because those were the few sectors with any value left but they’re no longer the discount they were 4 months ago.
For instance healthcare and staples are the most overvalued out there, people are paying 22 PE for no growth PG?!?!?
In fact in today’s market, everything outside of mREITs and the odd stock like PM is either fully or overvalued.
Couldn’t agree more. Finding value has gotten really tough.
About the iep comment….shorting it on every pop is same as reverting back to the mean isn’t it? Stay consistent.
I am not buying Iep and never ever suggest shorting stocks as a viable long term strategy. You’re just a loser.
Very interesting. Thanks! I know about portfolio rebalancing in terms of stocks vs bond, and also how index funds weighs individual names, but never had thought of a personal weighed portfolio.
I will let you know when I pull the trigger on the short of the year. I may scale in, though. My stop will be 1900.
maybe 1910. Depends on earnings next couple of days.
So you must be looking for the hardest correction in the SPY to catch in history. It will take the hide trade blow up to happen. If MCD follows IBM into the garbage can it is possible.
Loser–a person or thing that loses or has lost something, esp. a game or contest.
Yes I have lost many many many so that would be me.
Enough with the name calling, you big fat bobble head. Good night.
First spell your name correctly, then you can begin to strike back.
I can be a friend to you
I hate open mic at IBC.
I hate retards who don’t understand the nature of a COMMENTS sections
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… ah hem … ME TOO !
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Don’t use the R word around here. It’s offensive to Jermy.
100% – EXEL. Am I diversified?
Thank you Fly for a succinct and sober post. I am moving my port in that direction and was having similar feelings these last few weeks.
I’m glad my portfolio was able to inspire in him an iota of … portfolio management :p
Sorry, your portfolio is shit and unsuitable for anyone with large assets.
My guess (correct me if I am wrong here), your portfolio is less than 200k?
I love the logic of you idiots. You argue diversification isn’t a great way to get rich, so what do you do? You don’t diversify and then lose FAR more than if you had.
There you go. Maybe you should just ban me before you get a heart attack.
Bannings are banned. Fire away. I can take it
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… I’m still trying to wrap my head around the idea that Carl Icahn is …
…”the best investor of our generation” !
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News to me !
I thought Buffet had that moniker sewn up !
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Alf
I am partial to Carl. He’s worth 22 bill all from investing. Buffett is great too: but Carl is more of a stock trader than long term investor, which makes him much better than warren, in my opinion.
I too walked the high wire last 2 years or so.. Did good, did good, who didn’t who loves the action, now, I am tired of it, kind of spent, for me and mine, 800k into the top 5 etfs averaged in over 3 years. Down by the sea is where you can find me, rooting around tide pools, looking for a piece of sea glass Bye Fly, thanks for so much,
Don’t go yet. It’s just getting interesting.
confused between Jeremy and Jermey, last couple days?
Do do you think luck or circumstance has played any part at all in how much money Icahn or buffet have made? Or it’s just all pure skill, down to every billion
Not in Carl’s case. He pimps the market year in and year out.
Go to sleep people, doesn’t anyone on here work?
Obviously not
Whatever you younger plebs do? Do not give up. The diversified port is great for a retirement account or if you are old and already have enough money. The market is fucking with your head of late. The game is playable and with IBC at your side it is beatable.
Work ?
Another funny post.
Fly, is this post a joke?
He has commenters telling us about laddering CD’s then this comes out, The Fly may have chopped off his dick and jumped out of a first story window, concussing himself.
I am not doing this, Mr. Trail of Blood. I stopped doing this many years ago. But some of you might have an interest in longer term, less volatile, ideas. I am simply providing a public service, much to the chagrin of those who enjoy throwing meatloaf around here, messing up the halls.
Dear Baltic Dry Index,
under 1000. RIP
Dear Copper,
under 3. RIP
Dear Rong Xu,
RIP
Is tomorrow Showtime?
TRP is not a utility, it’s a midstream pipeline company. Won’t be as correlated to the utility group or to treasury yields. Not that you are looking for correlations necessarily, but there is a significant difference between midstream/pipeline companies and general utilities.
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“Teddard”…
Alex Trebek called … and they’ve got a spot for you on Jeopardy !
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Jesus Fuckin’ Christ … ENOUGH ALREADY !!!
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The PPT has an 83% predictive track record in timing upside reversals since 2008. It is a mean reversion tool that is better than anything you’ve ever used.
Reversion tools always have a high hit rate. But their win to loss ratios suck.
I’ve been down the lonely path of building mechanical trading systems for years – not worth it, learn to be discretionary albeit within a decision making process.
Speak for yourself
Come on, picking up pennies in front of bulldozers works well in bull markets, but if you lose big on the losers you may bust out of the game.
How’d it work in ’08-’09? Serious question.
Dyer
The 83% includes 2008-2009
Whats the average win and the average loss? I’m guessing the average loss is somewhere 1.5-3 times larger than the avg win?
Just trying to make the point that percent profitable by itself does not justify tradeable system/tool.
Hard question to answer. Avg return on an systemwide os signal is about 3% on the spy over a 5 day hold. Each stock has its own signals, so it varies a great deal
83% no fooling gee whiz, so does an RSI 6 on a SPY weekly chart with reading under 35-40. Look for yourself
Last question: do you ever recommend shorting using the PPT? If so, what’s the hit rate?
The overbought indicator is not as accurate as oversold, but still nets a negative return over a 10 day hold, which is profitable for shorts
The fly, did you code the PPT?
No. I came up with the formulas. The coding was done by our programmer.
They came to you in a dream, I’m sure, like all great inventions
you leapt out of bed, and by mere candlelight, penned the greatest mean reversion indicator the world has known!
Now you’re just being a dick.
Well, birds of a feather and all that
By the way, did I tell you how impressive your cute little portfolio was?
What makes the PPT > then XYZ ?
It’s not the holy grail. It’s a helpful tool that gives you an edge. For gods sake, this isn’t a bbg subscription. Talk about making a mountain from a mole hill.
I love it when you glorified mechanics think you know anything about investing. Complete and utter rubbish.
Slowly the Rains of Castamere melody has begun to crescendo amidst the cacophony of the comments section and the fate of many tribesman in the halls quickly approaches the blade.
I’ve made plenty of money with the PPT and other iBC services (OA, in particular). If it doesn’t work for you, fuck off and go comment elsewhere.
the fly, a supreme cokehead
I truly hate all of you.
I believe the mono names, if bought today and held through May, will be profitable. The best time to follow a stock picker is after he has had a three month period of under performance. Just ask Cliff Asness. Fly, you are due.
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GOOD MORNING VIETNAM !!!
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I’ve made plenty of money from within the PPT as well. The User Notes section is indispensable. If you prefer to use freestockcharts.com, then go there. Assholes
damn fly does ur poop chute hurt this morning? Teddard took u to the shed last night brah
Bear
Teddard is an oversized child and so are you. Prepare to lose money for the 4th consecutive day, fuck face
I never truly understand what trolls are until what I saw here. Full blown, hands down. I can see where these people came from: out of jealousy for Fly’s priori success, out of anger for following Fly’s current loss, out of the agony of not knowing the secret ingredients of PPT, or out of resentment against Fly’s arrogance. Whichever, mostly making fools of themselves out in the open.
I For one appreciate the posting of diversification..trading accts,and investment acct. there is a difference