5 Random Thoughts

    In times like these, where markets are not behaving as most investors might expect, it is more important than ever to follow a rule-based trading system. To be a successful investor or trader, you are going to have to start trading with rules that you are comfortable with, and you can follow all the time. If you start doubting or second-guessing your rules, you put your portfolio at risk. Your rules should answer three questions: What to Buy, When to Buy, and When to Sell.
    I agree with most financial advisors that diversification can minimize risk, but too much diversification can water down your results. When investors hold only the best stocks and fewer of them, they actually do better. A 10-stock portfolio will generally outperform 20 stocks, and so on. I also believe when you have a service like VectorVest that helps you identify Industry Groups that are vastly outperforming other groups, being overweight in top stocks from these groups can boost your portfolio returns. Proper risk management with Stop-Prices is critical, of course.
    Consider the rally we are having in gold and wood stocks. At the close Monday, August 17th, 6 of the top 10 VST stocks are in the Mining (Gold/Silver) Industry Group, and two others are Mining (Other). Need more convincing? Model Portfolio #5 Prudent has rallied from being negative YTD in March after the COVID collapse, to a place where it is now up 27% YTD as of Monday’s close. The gains came largely from being overweight in mining stocks, permissible in the rules we established for the portfolio years ago after extensive testing. Five gold/silver miners were added in April, and a sixth in June. Here are the numbers: TGZ up 55.0%, ABX 41.4%, EQX 34.2%, ELD 32.4%, FNV 31.7%, and NGT 29.1%. Finally, Look at Building (Wood Products). It has been one of the top 5 or so Industry Groups by RT Ranking since June 2nd. The average gain of all 11 stocks in the group is 55.4%, led by CFF 198%, WFT 71.9%, IFP 68.5%, and OSB 62.9%. A little overweighting in Industry-leading stocks like this would do wonders for anyone’s portfolio.
    There are two Analysis Modes in VectorVest’s RealTime Derby Plug-in that are tremendously valuable, but not widely used. This week, I looked at Vary the Start Date from the May 20th Confirmed Up Call to August 17th, a period of 62 days. In this mode, the Derby runs all 156 Derby searches daily and basically does a QuickTest of the top 10 stocks each day to the current date. The top-performing search? Surprise, it was Teeny Boppers, which finds stocks priced between $1 and $5 that are hitting a new 26-week price high, sorted by VST. The average gain from all 62 QuickTests was 24.84% or 185.5% ARR. Most impressive, the searches made money 95% of the time with 74% winning stocks.
    Using the Derby Sliding Window analysis mode over the same period as above, Teeny Boppers again led the way averaging 4.6% for each 5-day holding period starting May 20th. That’s a mind-blowing 242.7% annualized. Essentially, this trading system means you would buy the top 10 Teeny Bopper stocks every Monday during a Confirmed Up Call and sell them all at Friday’s close. Then rinse and repeat. The strategy made money 74% of the time. I want to do more testing on this strategy and use DEW Timing in addition to the Confirmed Calls. I will keep you posted.
    It is always interesting to see what Improvement Requests subscribers have made and how many votes they have received. To have a look and cast your vote or create a new request, go to the Training tab and click on Improvement Requests at the bottom of the page. You can vote for as many ideas as you like. The Top Idea right now with 738 votes is to display insider trading information. Another idea that has just 191 votes but is noted by VectorVest Development as “Planned” is to show the selected Graph Layout on or above the Graph. This idea has my vote!

On a hot and humid Monday afternoon in Lethbridge, Alberta, those are my 5 RANDOM THOUGHTS.