Petaluma IBD Meetup
Wednesday, May 11, 2016
Model Portfolio since the market rally in February 2016
By Michael Nestler
Note: This very realistic model portfolio gained 46% by the first week in April 2016. Thank you Michael!
This shows what is possible if we believe in the CAN SLIM system and use margin. Without margin the gains would still have been very respectable, more than 20% in two months.
This presentation does not include audio narration but the slides are self-explanatory. We can also ask questions and make comments.
Please make comments or leave questions on the Google Documents.
Slides Presentation in Google Slides: https://docs.google.com/presentation/d/19yjGGseyaROHZtOHt8r4kFPRMXRhKNWUWcvaBcsULlg
Spreadsheet of all trades:
https://docs.google.com/spreadsheets/d/1ftLqXH_L83DDVKgwQCMRoIILOVVbOCaxYZl9o4y68DE
This spreadsheet is a good example of an efficient way to document our portfolio in a spreadsheet. Every time a traded is made (green background is for buys, red for sells) the portfolio is copied and pasted (or inserted) down. Rows for the new trades are added in, and the prices are updated for the current prices for all stock in the portfolio.
Note: This model shows what is possible if we begin filling a portfolio soon after the RALLY DAY in February 2016. We’d be buying early in anticipation of a FTD. The rally day was 2/11/16. The first two stocks were bought on 2/16/16, before the Follow-Through Day. The third position was started on 2/17/16 which was the follow-through day. The model was sized for eight positions so the percentage invested was only 30% by the end of the follow-through day.
We can study this model portfolio example and compare it with how we manage. Hopefully there will be lessons learned. We can run a model of our own.
Please note that if we were not willing to begin buying to fill a portfolio when the market staged a rally attempt in January, then we would not probably be willing to in February. These were in fact low risk times to begin filling a portfolio. Buying to start filling a portfolio at these two times is decidedly not high risk. After a market correction of 18% in January 2016 the most likely thing is a rally attempt that would last some weeks. We can know this by studying market charts going back decades. Buying then is prudent and proper.
As Bill O’Neil says in HTMMIS on the bottom of page 219 the safest way to begin is to wait for the follow-through day. A skilled CAN SLIM investor who can identify a strong rally day might begin early if top stocks with good bases break out. We scale in and pick stocks with the best fundamentals and decent bases to put the odds even more in our favor. The January rally attempt failed abruptly in the first week of February. This type of rally failure is described in the second to the last paragraph on page 220 of HTMMIS. If we followed good practices our losses would have been small. The important aspect of this is that we would have tried the rally because our methods and rule told us to do that. If so, then we’d be of a mind to try the February rally like this model shows. That rally worked and the January losses became chump change.
The same reasoning applies to the February rally. After a 20% correction it was highly likely the market would stage a rally of some weeks or longer. It was prudent and proper to buy stocks selectively to start filling a portfolio then. We don’t all need to begin buying early, after the rally day but before the follow-through day, but after the follow-through day it is manifestly overly cautious to sit on the sidelines waiting for a second or third signal that the rally is working. By then we will have missed some of the best stocks which will have already started their moves and will be extended. After we start filling a portfolio, if the market keeps rallying, and our portfolio gains value, we buy more stocks just as this model portfolio shows. The market rally is proving itself, but we have already started a portfolio so are already participating. Our portfolio is telling us the market rally is working. If we are still all in cash we don’t have the “portfolio” indicator to help guide us.