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I have 23 consecutive profitable trades of 15% or better. How is this possible? Every day there are hundreds of stocks setting new highs, no matter what happens in the overall market. Many of these stocks are still at very reasonable valuations. Afraid of buying stocks at their highs? Think of it this way: a new high is really a future floor for companies with solid financial underpinnings. Quantitative momentum modeling makes it easy to identify stocks that can continue this upward momentum trend. Why does this happen? It's really very simple..ask me about what investors and cows have in common. I am $$$ MR. MARKET $$$. I AM HUGE!!! Bring me your finest meats and cheeses. You can join in on the fun. Register for free and you'll be able to post messages on this forum and also receive emails when $$$ MR. MARKET $$$ makes his own trades. ($$$MR. MARKET$$$ is a proprietary investor and does not provide individual financial advice. The stocks mentioned on this forum do not represent individual buy or sell recommendations and should not be viewed as such. Individual investors should consider speaking with a professional investment adviser before making any investment decisions.)
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  1. #1
    Join Date
    Nov 2003
    Location
    ohio
    Posts
    8,904

    Default Mr.Market Simulation

    I ran a rough simulation of a Mr.Market like portfolio with a few tweaks. Over the years Mr.Market has consistently maintained a winning percentage of over 90%. I tried to err on the conservative side.

    1. Maintain positions in 12 stocks at all times.
    2. Assume a success rate of 83% (10 of 12 stocks gain 15% before being sold, loss of 20% also triggers sale)
    3. Start with equal $$ amounts in each position. In this case, $5000 per stock.
    4. Try to keep equal dollar amounts in each position
    5. Work with a simple turnover rate of once per year

    End of first year, 10 positions $5750 each, 2 positions $4000 each Total $65500
    End year 6, 12 positions roughly $8044 each. Total $96532
    End year 10, roughly 8 positions $9788, 4 positions $14072 Total $134588
    End year 15, 6 positions $13694, 6 positions $19687 Total $200294, a gain of 334%

    I think this is a reasonable possibility. What do you think?

    --------------billy

  2. #2
    Join Date
    Jun 2009
    Location
    Earth (Mostly)
    Posts
    361

    Default

    Funny, Billy, but I recently did something similar for &%$ís and giggles. In your model, the Compounded Annual Growth Rate (CAGR) ends up at about 8.37. In mine, which were based on a single pass with no double checking, I got slightly better results, with a CAGR of around 10.79, which would make the end number closer to $240,000. In any event, yes, I think your numbers are very believable. There are fund managers that would kill for a CAGR of 10. Of course, in fairness to them, they are managing huge positions, which are much more difficult to trade. Kudos to Mr. Market and thanks for what you do, which is spectacularly generous.

    BTW, if you want the details of my methodology and how I got to my number, let me know, and I will post them.

  3. #3

    Default

    Thanks for sharing. Over the last 25 years, I have beaten the S&P 500 in 21 of those 25 years.
    =============================

    I am HUGE! Bring me your finest meats and cheeses.

    - $$$MR. MARKET$$$

  4. #4
    Join Date
    Oct 2003
    Location
    Hamilton MA
    Posts
    1,966

    Default

    Quote Originally Posted by mrmarket View Post
    Thanks for sharing. Over the last 25 years, I have beaten the S&P 500 in 21 of those 25 years.
    It's interesting that Billy's model includes selling after a 20% loss. Isn't it, Ernie.

  5. #5

    Default

    Quote Originally Posted by Louetta View Post
    It's interesting that Billy's model includes selling after a 20% loss. Isn't it, Ernie.
    Well...as I have testified all along, and Karel can back me up, if you stay diversified in your portfolio you can stomach a few unlucky plays so you might as well hang on to them if their fundys are good. Having said that, I think for the more risk adverse folks stop losses are a good idea.
    =============================

    I am HUGE! Bring me your finest meats and cheeses.

    - $$$MR. MARKET$$$

  6. #6
    Join Date
    Jun 2009
    Location
    Earth (Mostly)
    Posts
    361

    Default

    Quote Originally Posted by Louetta View Post
    It's interesting that Billy's model includes selling after a 20% loss. Isn't it, Ernie.
    At one point, I went through the trades and looked at both 15% and 20% stops and found that the use of such stops would have taken you out of a number of winning trades. There might be a stop amount that protects all/most the winning trades, but I donít know what it is. Youíd have to plot the draw down for every trade to compute it. For the losing trades I found, and there werenít many, the losses were as follows: 64%, 37%, 36%, 92%, and 22%. These percentages were based on estimated closing prices as I could not find the exact closing prices for losing trades. This also doesnít take into account any gains from dividends. The average loss on losing trades was 50.37%. In any event, youíd have to use a stop of at least 22%, and this could still take you out of winning trades. For example, a 22% stop would have taken you out of the SEDG Trade, which went on to recover and then hit 15%. With a 95% win rate, you can afford to use a very liberal stop, if any at all.

  7. #7

    Default

    Quote Originally Posted by BlueWolf View Post
    At one point, I went through the trades and looked at both 15% and 20% stops and found that the use of such stops would have taken you out of a number of winning trades. There might be a stop amount that protects all/most the winning trades, but I donít know what it is. Youíd have to plot the draw down for every trade to compute it. For the losing trades I found, and there werenít many, the losses were as follows: 64%, 37%, 36%, 92%, and 22%. These percentages were based on estimated closing prices as I could not find the exact closing prices for losing trades. This also doesnít take into account any gains from dividends. The average loss on losing trades was 50.37%. In any event, youíd have to use a stop of at least 22%, and this could still take you out of winning trades. For example, a 22% stop would have taken you out of the SEDG Trade, which went on to recover and then hit 15%. With a 95% win rate, you can afford to use a very liberal stop, if any at all.
    People have told me to create an ETF but they said that this forum, even though its been around since 2003 would not be an auditable platform for past performance.
    =============================

    I am HUGE! Bring me your finest meats and cheeses.

    - $$$MR. MARKET$$$

  8. #8
    Join Date
    Jun 2009
    Location
    Earth (Mostly)
    Posts
    361

    Default Computing CAGR for Mr. Market picks

    OK, nobody asked, but for what itís worth, hereís the methodology I used. I did not double check my numbers, so there could be a few errors in my raw input. There is also some conservative rounding that would tend to lower the Compounded Annual Growth Rate (CAGR), so keep that in mind. The steps/data I used/computed are as follows:

    1) The average hold time, including open trades, was 287 (calendar) days. This number was skewed by losing trades, which were held for much longer periods.

    2) The win/loss percentage was about 19/1 or 95%.

    3) From July, 2011 to Aug, 2019, a period of 98 months, there were 97 closed trades. For the sake of simplicity, I called that 12 round trip (closed) trades per year. At a 95% win rate, thatís approximately 11 winning trades per year and 1 losing trade. Itís actually 11.4 winning trades, so the rounding here unfairly dilutes the gains of the model.

    4) The average gain from winners was 16.35%.

    5) The average loss from losers was 50.37%.

    6) Additional assumptions and constraints: The maximum number of open positions was 14. However, for the purposes of modeling, since there were an average of 12 trades per year, I used a starting portfolio capable of handling 12 positions of $10,000, i.e., $120,000. Hence there were 12 trades made each year, with the per position allocation equal to 1/12th of the overall portfolio value. This is a simplistic and naive model, but it works for al least getting some idea about CAGR. In the end the CAGR computed out at around 10.79%, which translates to:

    Results:
    Starting value of portfolio = $120,000.
    Year 1, with a per position allocation of $10,000.
    End of year value of portfolio = $132,948.

    Year 2, with a per position allocation of $11,079.
    End of year value of portfolio = $147,292.

    Year 3, with a per position allocation of $12,274.
    End of year value of portfolio = $163,181.

    Year 4, with a per position allocation of $13,598.
    End of year value of portfolio = $180,783.

    Year 5, with a per position allocation of $15,065.
    End of year value of portfolio = $200,286.
    etc...
    After year 15, the value of the portfolio = approx $558,071.
    Last edited by BlueWolf; 08-22-2019 at 05:44 PM. Reason: Added title

  9. #9

    Default

    Quote Originally Posted by BlueWolf View Post
    OK, nobody asked, but for what itís worth, hereís the methodology I used. I did not double check my numbers, so there could be a few errors in my raw input. There is also some conservative rounding that would tend to lower the Compounded Annual Growth Rate (CAGR), so keep that in mind. The steps/data I used/computed are as follows:

    1) The average hold time, including open trades, was 287 (calendar) days. This number was skewed by losing trades, which were held for much longer periods.

    2) The win/loss percentage was about 19/1 or 95%.

    3) From July, 2011 to Aug, 2019, a period of 98 months, there were 97 closed trades. For the sake of simplicity, I called that 12 round trip (closed) trades per year. At a 95% win rate, thatís approximately 11 winning trades per year and 1 losing trade. Itís actually 11.4 winning trades, so the rounding here unfairly dilutes the gains of the model.

    4) The average gain from winners was 16.35%.

    5) The average loss from losers was 50.37%.

    6) Additional assumptions and constraints: The maximum number of open positions was 14. However, for the purposes of modeling, since there were an average of 12 trades per year, I used a starting portfolio capable of handling 12 positions of $10,000, i.e., $120,000. Hence there were 12 trades made each year, with the per position allocation equal to 1/12th of the overall portfolio value. This is a simplistic and naive model, but it works for al least getting some idea about CAGR. In the end the CAGR computed out at around 10.79%, which translates to:

    Results:
    Starting value of portfolio = $120,000.
    Year 1, with a per position allocation of $10,000.
    End of year value of portfolio = $132,948.

    Year 2, with a per position allocation of $11,079.
    End of year value of portfolio = $147,292.

    Year 3, with a per position allocation of $12,274.
    End of year value of portfolio = $163,181.

    Year 4, with a per position allocation of $13,598.
    End of year value of portfolio = $180,783.

    Year 5, with a per position allocation of $15,065.
    End of year value of portfolio = $200,286.
    etc...
    After year 15, the value of the portfolio = approx $558,071.
    Smart people on this forum...for sure.
    =============================

    I am HUGE! Bring me your finest meats and cheeses.

    - $$$MR. MARKET$$$

  10. #10
    Join Date
    Sep 2003
    Posts
    4,748

    Default

    Quote Originally Posted by BlueWolf View Post
    OK, nobody asked, but for what itís worth, hereís the methodology I used. I did not double check my numbers, so there could be a few errors in my raw input. There is also some conservative rounding that would tend to lower the Compounded Annual Growth Rate (CAGR), so keep that in mind. The steps/data I used/computed are as follows:

    1) The average hold time, including open trades, was 287 (calendar) days. This number was skewed by losing trades, which were held for much longer periods.

    2) The win/loss percentage was about 19/1 or 95%.

    3) From July, 2011 to Aug, 2019, a period of 98 months, there were 97 closed trades. For the sake of simplicity, I called that 12 round trip (closed) trades per year. At a 95% win rate, thatís approximately 11 winning trades per year and 1 losing trade. Itís actually 11.4 winning trades, so the rounding here unfairly dilutes the gains of the model.

    4) The average gain from winners was 16.35%.

    5) The average loss from losers was 50.37%.

    6) Additional assumptions and constraints: The maximum number of open positions was 14. However, for the purposes of modeling, since there were an average of 12 trades per year, I used a starting portfolio capable of handling 12 positions of $10,000, i.e., $120,000. Hence there were 12 trades made each year, with the per position allocation equal to 1/12th of the overall portfolio value. This is a simplistic and naive model, but it works for al least getting some idea about CAGR. In the end the CAGR computed out at around 10.79%, which translates to:

    Results:
    Starting value of portfolio = $120,000.
    Year 1, with a per position allocation of $10,000.
    End of year value of portfolio = $132,948.

    Year 2, with a per position allocation of $11,079.
    End of year value of portfolio = $147,292.

    Year 3, with a per position allocation of $12,274.
    End of year value of portfolio = $163,181.

    Year 4, with a per position allocation of $13,598.
    End of year value of portfolio = $180,783.

    Year 5, with a per position allocation of $15,065.
    End of year value of portfolio = $200,286.
    etc...
    After year 15, the value of the portfolio = approx $558,071.
    This was approximately what I calculated some 15 years ago when I first started following $$MM... decided it would be very wise to purchase these picks, and have done so ever since!
    (I believe my CAGR on these picks overall has been between 12-14%, which is probably more than most here because I haven't (willingly) sold any of my losers for >50% losses, and many have come back to the + side, even after $$MM has sold these. I have also gone in and out of several picks for a 14% win, rinse, repeat, while $$MM holds out for the 16%+ stretch target on occasion.)
    Never been happier with any investment decision I've made more than I am with the one I made when I started buying the $$MM picks!

    I simply cannot believe there aren't 1,000,000+ people following this site.

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