As noted a few days ago, the market has turned extremely challenging in that computer algorithms of the big guys — or perhaps from central banks — are forcing traders into changing their trading styles. We must now switch from what had been a good market for swing traders into one where only day trading works. I yearn for the pre-2007-2008 market crash days where more conventional investing was best. But as traders we must adapt.
In that vein, this morning I switched one account from the All Cap Growth to the what I’m calling the Adaptive Portfolio Strategy. In this strategy I will be trading one or two stocks only. These stocks will be selected for specific investment reasons, but the fact is that I will day trade them. No more traps.
2016-08-30 Performance
The 2016-08-30 trashing of the Goldminers is also going to cause a major change in strategy for me. As much as I don’t want to trade Exchange Traded Funds, I will soon be doing that for the Goldminers. I no longer will accept the damage foisted on illiquid stocks through traps that are deliberately set up by algos. At the completion of the current short-term cycle in the Goldminers, which is presently in an over-sold condition, I will be switching to trading only the benchmark GDX and GDXJ and perhaps the Silverminer ETF (SIL) if there are sufficient volumes to enable me to trade extreme volatility. Moreover, unless I see enhanced stability in the prices, I will be exiting the benchmark instruments by the end of every session. I may also resort to the use of put and call options for these trades.
The bigger point is that every portfolio manager must adopt a code of fiduciary manager’s ethics not dissimilar to the doctors’ Hippocratic Oath. I cannot stand by and watch interventionists destroy client capital that I believe would be better protected by a change of strategy. That’s what I mean by adaptive trading.
In any case, the All Cap Growth accounts beat the benchmark once again. While the S&P 500 dropped -0.20%, my major account averaged a loss of just -0.11%. The superior result is because this account strategy is now up to over 77% cash and part positions in just two major holdings, which had gains, plus a minimal position in a small take-over candidate Goldminer. Using my new adaptive trading approach, I will be watching the tradeable holdings (92% of the allocated value including cash) in this All Cap Growth account strategy very closely and may even decide to exit the market before the end of some sessions.
My mission of keeping my average losses smaller than my average gains and also maintaining more winning days than losing days has been working. For the past month, my All Cap Growth account has beaten the benchmark almost every day. The end result is that the main account strategy has grown by an average of +2.11% so far this month versus the very marginal gain of +0.011% in the benchmark, and that big market beat was earned after being dragged down by the monster loss in the small long-term holding of a Goldminer. So, overall I am pleased with my trading, but for the time being also too nervous to make a full commitment to a Big Four group in this group of accounts.
Now for the bad news. On 2016-08-30, the Goldminers dropped -5.06% versus the benchmarks GDX (-4.92%) and GDXJ (-5.50%). Since my holdings are almost all in the GDXJ category, call it a hugely disappointing market beat, but one that has caused me to change tactics for this Goldminer portfolio strategy as well. As noted, after the cycle is complete (i.e., where I can sell on whatever strength the market gives me in individual instruments), I will be switching to ETFs, and as required will be day trading them.
Hopefully the last day of August (today) may bring forth some strength in the precious metals, which may give me the opportunity to start the re-positioning process from stocks to ETFs in the Goldminers.
The question might be asked why Goldminers? The honest answer is because some clients want them. They believe, like me, that at any time (and likely soon) there will be a global currency war among fiat money printed by the major economies that will force the prices of hard assets like precious metals higher, much higher. After the current strengthening of the US Dollar reaches a peak, the Dollar will start to fall, from present levels just north of 96 down perhaps to 80-85 where it had traded from 2H2010 until 2H2014.
As you know, I developed an extensive database management system. Every day I calculate ratings for Quality, Growth, Value and Income for 1066 stocks. As you might surmise, I try to avoid studying Bad Companies (i.e., low Quality) unless they happen to be components of the Dow 30 or major weightings in the S&P 500. It follows that my present Q,G,V,I scores are 67.5,50.0,50.7,42.6 for the entire database and just 58.1,41.8,47.3,55.4 for the Dow 30. The higher I (Income) rating for the Dow 30 is to be expected because these are large and very mature (slower growing) companies that tend to pay a higher Dividend Yield than the average company I study, which are mostly high Quality Growth. For example the Q,G,V,I scores for the Cara 100 group are 80.9,60.4,54.9,36.3. But the Miners (mostly Gold and Silver Miners) have extremely low ratings averaging 47.8,50.0,24.1,30.6.
If I just traded my database results, I would not be interested in the Goldminers. But, like I say, there are reasons.
In summary, conventional investing is out the window. This is a trader’s market. I can adapt. No problem. In fact, while portfolio managers worldwide are getting burned and many funds and advisory services are closing shop because they cannot or will not adapt to the power of computer algorithms in our capital markets, I look at these fast changing markets as a challenge.
I am in a global competition in what is a vicious marketplace. I intend to win.
With Daily Lessons, today will be #61 of 120. Halfway there. I hope you enjoy them. When they are completed, they will be crafted into a series of ten interactive eBooks, beneficial, I hope, to students of the market.
