May

6

Upgrade: Universal Stops and Swing Lines

Teresa Lo @ 10:11 AM | | Leave a Comment

As discussed in yesterday’s podcast, the InVivo.RMI.Stops indicator for eSignal has been updated to include a “Universal StopFactor” default setting. Knowing where to place a trailing stop has never been this easy. Just point and shoot!

The Swing Lines indicator has been brought back as a training tool.

Portfolio Strategy subscribers using InVivo decision support tools can download new EFS files immediately.

We expect to upgrade the InVivo.Stops for TradeStation 8.x indicator with the Universal StopFactor option over the coming days.

May

2

On Deck This Weekend

Teresa Lo @ 10:54 AM | | 3 Comments

Looks like the weekend will involve…work. I will:

  1. answer the last 25 emails in the inbox;
  2. publish comments posted to the blog still in the que;
  3. publish feedback from a CTA currently using InVivo.Stops for TradeStation 8.x; and,
  4. publish Portfolio Strategy for next week and update our numbers for April.

Next week will feature the:

  1. upgrade and release of InVivo.RMI.Stops and PT-TradingSystem 10.5 with a “Universal StopFactor” option;
  2. upgrade and release of InVivo.Stops for TradeStation 8.x with a “Universal StopFactor” option; and,
  3. release InVivo.Scanner for TradeStatoin 8.x to All Access Pass clients that took up the offer under the “no client left behind” promise.

Phew! For those waiting on me to do this or that, thank you in advance for your patience and understanding.

Apr

28

A Conversation with Charles Kirk

Teresa Lo @ 2:08 PM | | 2 Comments

Charles Kirk kindly invited me to be his guest for this month’s Q&A. This lengthy interview took us three days of solid work to complete. The complete transcript is at KirkReport.com.

In case you’re been listening to our podcasts, I provided the answer to the Warren Buffett riddle:

Kirk:   Clearly, one of the most important skills an investor can have is knowing what information, research, analysis, and indicators to overlook. Do you have any suggestions or words of wisdom in this regard?

Teresa Lo:   Yes, nothing I have ever come across was satisfactory for what I wanted to do. Some stuff is too general, some too specific. Most of the indicators have no basis in fact, so we can’t expect them to work, or they are an invalid application of analytical tools borrowed from another discipline. Quite often, we don’t even know what they purport to measure. Opinions are not helpful. Forecasting is tricky. The market is a complex system and not easily navigated when viewed in the context of a deterministic, cause and effect mindset.

I want to talk more about the probabilistic mindset, because as you know, many traders swear by Mark Douglas’ book, Trading in the Zone. It is accepted that one must think in probabilities rather than certainties, but my observation is that humans find it exceedingly hard to defy our genetic heritage as hunters. As Spencer Wells put it so eloquently in Journey of Man: A Genetic Odyssey (watch Part 2 and Part 3 on Youtube.com), the quantum leap made by humans 50,000 years ago — the single cognitive advance that allowed our proliferation — was figuring out that a beast out of sight and smell’s range could be found by tracking its footprints. Follow A to B. And that is where the majority of humans are presently situated in their thinking.

The market demands that we make another quantum leap in that there are no certainties in the financial world, only probabilities. Let me give you an example. Most people admire Warren Buffett. He has made money for decades. He seems like a nice old fellow, but underneath it all, he is not a big game hunter. Over time, he has learned how to harness the corporate animal and become a farmer of profits. He thinks outside the box. While the public lambasted Bill Gates during the 1990s, Buffett befriended him and became his bridge partner. In June 2006, Buffett began giving away 85% of his wealth, mostly to the Bill & Melinda Gates Foundation.

Buffett is mentioned twice in Alan Greenspan’s memoirs, once as “my good friend” and the other as “my friend.” Greenie is probably the most maligned central banker in financial history, yet when you read his memoirs, it shows a deep understanding of behavioral economics and reveals his thinking in probabilistic terms. None of this sits well in a world of people who demand to know with certainly how A leads to B, or worse, with the benefit of 20/20 hindsight, they all think they can do better.

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Buffett is quoted on the front cover of Robert Rubin’s memoirs: “It’s a hell of a book. As Secretary of the Treasury, Bob Rubin ranked with the best. This drama-packed account should be read by all who are interested in what happens when politics and economics intersect.” Rubin and Buffett have been friends since the 1960s. They had regular breakfast meetings and after leaving the Clinton administration, Rubin sought out Buffett’s advice.

It seems to me that Buffett would not be friends with, let alone give his billions to, people of doubtful character. He would not play a game that was rigged. What does he see in these people and the capital markets that the vast majority of the public cannot? I think the title of Rubin’s book gives us a hint. He agreed to write the book due to overwhelming feedback to Keeping the Boom From Busting. People wanted to know more about the probabilistic way he had approached the decisions in his career. This book is a real eyeopener to many of the critics, because it turns out that, at the end of the day, Buffett, Gates, Greenspan, Rubin and their proteges are intellectuals and very well-informed professionals doing the best they can… In an Uncertain World. Traders are never given an embarrassment of riches; we only get to make the “least worst” choice in a fluid situation.

Kirk:   Everyone makes mistakes (and some more than their fair share). Looking back over the past few years, can you recall a mistake you’ve made and what you’ve learned from it?

Teresa Lo:   For a long time, I too, thought that trading was the only way to avoid market dislocations. Also, when I got into the business, I fell to Spinoza’s conjecture and started to parrot all the Fed bashing, “Plunge Protection Team” and conspiracy theories that is so prevalent today. What I know now is that people who fail to make money in the market need an excuse for their failure rather than admit they have no method. But as you know, active management is a $100 billion a year industry and people will do anything to deflect the fact that they depend on luck over skill to keep collecting the fees. What I learned is that almost everything I heard about trading and portfolio management in the mainstream was a myth.

Kirk:  Ah, this is why I like reading your blog Teresa. You say what needs to be said! It is so important for all of us to understand this very important point within the context of all of the opinions about the market we must sort through on a daily (if not hourly) basis. Thank you for having the guts to say it.

Further Reading

  • Rubin on Credit Market Crisis: Political Capital With Al Hunt
    March 22 — Former Treasury Secretary Robert Rubin talks with Bloomberg’s Al Hunt about the turmoil in the financial markets and the need for more government steps to help homeowners facing the loss of their houses. Bloomberg’s Heidi Przybyla and Romaine Bostick discuss Democratic presidential candidate Barack Obama’s March 18 speech on race. Margaret Carlson and Robert Novak speak about the Federal Reserve-backed rescue agreement for Bear Stearns Cos., New York Senator Hillary Clinton’s campaign to become the first female U.S. president and the U.S.-led war in Iraq.
  • Rubin: ‘Complexity, Uncertainty’ Shade Economic Issues
  • Rubin calls for urgent government action to stem U.S. foreclosures
  • Rubin to Fed: Examine Roots of Credit Crisis
  • Paulson’s Surrogate Steel Sees Early Market Progress
  • ‘Complexity, Uncertainty’ Shade Issues Impacting Economy, Rubin Says
  • A Bear Stearns Market
  • The Great Liberator
    As an undergraduate in the early 1970s, I was taught that everyone other than Milton Friedman and a few other dissidents knew that fiscal policy was of primary importance for stabilizing economies, that the Phillips curve could be exploited to increase employment if only society would tolerate some increase in inflation and that economists would soon be able to tame economic fluctuations through finely calibrated policies. When I started teaching undergraduates a decade later, Mr. Friedman’s heresies had become the orthodoxy. While much of his academic work was directed at monetary policy, Mr. Friedman’s great popular contribution lay elsewhere: in convincing people of the importance of allowing free markets to operate.
  • Gambling Against the Dollar
    [Editor: Article dated November 1, 2006] But when he talks about the dollar, you can see how hard it is, even for somebody with his self-assurance, to remain confident in the face of a failed prediction. “I think I was right, probabilistically,” he said recently, sitting in his Citigroup office overlooking Park Avenue. “But I don’t know. I really don’t. I don’t think anyone does. It’s also possible that none of this could happen. It’s possible that for reasons none of us can see that this will work itself out in a very copacetic way.” Mr. Rubin and the other dollar bears look a little like the skeptics of the real estate boom back in 2005. For years, those skeptics warned that things had gotten out of hand and that reality would soon reassert itself. And for years, they were wrong. The longer they were wrong, the more out of touch they sound.

Apr

14

Portfolio Strategy for Individual Investors

Teresa Lo @ 5:12 PM | | Comments Off

We offer three proven portfolio strategies for individual investors managing $20,000 to $100,000. The weekly report containing current allocations for all three model portfolios is delivered by email to subscribers each Sunday.

Long-term investment success requires diversification, disclipine and cost control. Consistent with our mission to help men and women in their peak-earning years to secure their financial future and achieve their goals, our fee is $195 PER YEAR, or less than 1% of $20,000. Subscribers are advised to seek out a reputable discount broker (such as Interactive Brokers) to reduce commission costs.

Individuals managing more than $100,000 may wish to diversify further. We construct investment models on a fee basis for high net worth clients and investment advisors. Be sure to read our FREE eight-part series: Build Your Own Investment Portfolio.

InVivo Strategic Performance Portfolio

This model portfolio is rebalanced weekly, at the open on the first trading day of each week. Performance characteristics since portfolio formation indicate that this model is suitable for both trading accounts and aggressive retirement accounts.

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Total Return Since Portfolio Formation on October 23, 2006

Returns posted are for trading accounts using 50% margin or 1:1 leverage. Unleveraged retirement accounts experience half the gains and losses. For details, please refer to Chapter 8 of Build Your Own Portfolio: The Satellite Portfolio.

To implement this portfolio strategy, your account must be able to buy and sell the equivalent of the following five exchange traded funds:

  1. VXF: Vanguard Extended Market ETF
  2. EEM: MSCI Emerging Markets Index Fund
  3. TLT: Lehman 20+ Year Treasury Bond Fund
  4. GSG: S&P GSCI(TM) Commodity Indexed Trust
  5. FXF: CurrencyShares Swiss Franc Trust

InVivo Conservative Retirement Portfolio

This model portfolio is rebalanced monthly, at the open on the first trading day of each month. Performance characteristics since portfolio formation indicate that this model is suitable for retirement accounts where rebalancing frequency and investment choices are limited by the administrator.

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Total Return Since Portfolio Formation on April 1, 2004

Returns posted are for cash accounts. For details, please refer to Chapter 8 of Build Your Own Portfolio: The Core Portfolio.

To implement this portfolio strategy, your account must be able to buy and sell the equivalent of the following four exchange traded funds:

  1. SPY: SPDR S&P 500 ETF
  2. EFA: MSCI EAFE Index Fund
  3. IEF: Lehman 7-10 Year Treasury Bond Fund
  4. TIP: Lehman TIPS Bond Fund

InVivo Ex-U.S. Portfolio

This model portfolio is rebalanced weekly, at the open on the first trading day of each week. This portfolio is provided for those wish to avoid U.S. stocks and Treasury bills/notes/bonds; as such, higher volatility of returns than either the Strategic Performance or Conservative Retirement portfolios can be expected. Performance characteristics since portfolio formation indicate that this model is only suitable for cash accounts; do not use leverage.

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Total Return Since Portfolio Formation on December 31, 2007

Returns posted are for cash accounts.

To implement this portfolio strategy, your account must be able to buy and sell the equivalent of the following six exchange traded funds:

  1. IEV: S&P Europe 350 Index Fund
  2. EEB: Claymore/BNY BRIC ETF
  3. EWC: MSCI Canada Index Fund
  4. EWW: MSCI Mexico Index Fund
  5. GSG: S&P GSCI(TM) Commodity Indexed Trust
  6. FXF: CurrencyShares Swiss Franc Trust

Subscribe Today

Long-term investment success requires diversification, disclipine and cost control. Consistent with our mission to help men and women in their peak-earning years to secure their financial future and achieve their goals, our fee is $195 PER YEAR, or less than 1% of $20,000. Subscribers are advised to seek out a reputable discount broker (such as Interactive Brokers) to reduce commission costs.

Individuals managing more than $100,000 may wish to diversify further. We construct investment models on a fee basis for high net worth clients and investment advisors. Be sure to read our FREE eight-part series: Build Your Own Investment Portfolio.

Apr

2

Notice to All Access Pass Subscribers

Teresa Lo @ 10:09 AM | | Leave a Comment

In case you missed it or it went into the spam box, I updated our Portfolio Strategy via email today. It also included the following:

PLEASE NOTE: RECURRING BILLING CANCELLED
As reported, my mother was hospitalized following a heart attack, three months after triple bypass. Tests have shown two of the three bypasses to be blocked. The heart is severely damaged and prognosis is very poor.

As the only child residing in the same country, the responsibility of dealing with this matter is now mine. At this point, no one is willing to provide estimates as to how long her condition will remain stable. The doctors have said that it could be “two days, two weeks or two months, but probably not two years”.

The net result is that I am unlikely to finish my work on time each day; therefore, the best course of action is to cancel all recurring billing associated with the All Access Pass immediately. As I had originally planned to shift focus to providing performance portfolios to individual investors, it is highly unlikely for the daily service to resume in the foreseeable future. For the remainder of this month, I will do my best to crank out the worksheets and sentiment analysis each day around the usual time.

Pete and I would like to provide maximum assistance to each and every subscriber during the transition period. Please contact us and let us know what we can do to help you set up decision support tools for your trading. For example, if you wish to continue ranking and sorting stocks, indexes, and ETFs using our method, you will need to have TradeStation 8.x with RadarScreen. Under the circumstances, all of our tools and templates will be made available to All Access Pass holders for a token fee. Just ask and ye shall receive. No subscriber will be left behind.

Going forward, the website will feature an “opinions are free” policy. Pete and I will do short podcasts and post the sentiment and VXO studies to the blog for all readers. Last, but not least, I have had a lot of time to think while hanging around the hospital. Most of my thoughts have been on how to be more efficient at making money in the markets so that we have more time to do the things in life that are free. This will be the subject of the next few articles at the blog, as an epilogue to the Build Your Own Portfolio series.

Thank you for your understand and support,

Teresa

You will receive notice directly from PayPal or 2CheckOut.com to confirm that recurring billing has been cancelled.

Mar

27

Teresa is out of the office

Teresa Lo @ 4:31 PM | | Comments Off

I will be in and out of the office for the next few days. Blogging will resume when I come back.

Mar

14

How did your portfolio fare this week?

Teresa Lo @ 10:40 AM | | 1 Comment

As quarter-end approaches, investors are bracing for account statements to hit the mailbox in a few weeks. Not us.

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This chart compares our model U.S. Core Portfolio against the S&P 500 on a total return (dividends reinvested) basis. Our portfolio is up again this month.

Performance was generated by two factors:

  1. Appropriate portfolio construction ensures that the investor receives the full benefits of diversification. Read more in Build Your Own Investment Portfolio.
  2. Dynamic asset allocation ensures the portfolio is rebalanced weekly in response to current market conditions.

14-portfolio2.gif

Our portfolio experiences low volatility of returns compared to an undiversified portfolio, making it easy for an investor to stay the course.

14-portfolio3.gif

Of late, the S&P 500 Index has frequently experienced weekly performance of -4% to -6% while our model portfolio rarely experiences -2% weeks.

Has there ever been a better time to get the InVivo advantage? Get your All Access Pass to our model portfolio and much more; it’s only $50 a month…

Feb

24

InVivo.RMI Indicators for DJ EURO STOXX 50®

Teresa Lo @ 6:19 PM | | Leave a Comment

InVivo.RMI indicators for clients swing trading components of the blue chip DJ EURO STOXX 50® index using eSignal daily charts are now available for download.

Screenshots:

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Using The RMI Indicators

When playing momentum stocks, we are extremely selective because we know momo doesn’t last forever, or as John Maynard Keynes said, the goal is “to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.” For long positions, we insist that price must be up AND the stock must have positive relative momentum. When a trade has been qualified to this degree, we can tighten the StopFactor to 1.1.

The position of the histogram bars and the blue threshold lines are very important. When both the histogram and the threshold lines are above zero, a stock is deemed to be experiencing serious relative outperformance. When both the histogram and the threshold lines are below zero, a stock is deemed to be experiencing serious relative underperformance.

A number of other combinations and permuations can present. The price bars colored by the InVivo.RMI.Stops is done according to these rules:

  1. Green = Histogram > 0 and Histogram > Threshold = Relative Outperformance
  2. Red = Histogram < 0 and Histogram < Threshold = Relative Underperformance
  3. Yellow = all other combinations

Regardless of color, the trader must use the trailing stops as indicated by the blue and magenta dots. See Using InVivo.Stops.

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