Saturday, November 28, 2009

Become Your Own Portfolio Manager

There may be a good reason for people who want to be their own portfolio managers. Here is an article that may guide you to the right step.

"Ron DeLegge, Editor (Nov 25, 2009)

SAN DIEGO ( - Everyday more and more people are making a choice they never thought they would make: To become the manager of their own investments.

Among the top reasons for self-directing one's investments are greater control and flexibility. But there's one other very good reason for becoming your own portfolio manager: The potential for better performance.

Many academic studies show that during both good and bad times the vast majority of Wall Street's portfolio managers consistently underperform versus corresponding benchmark indexes. However, making the decision to supervise your own investments won't necessarily guarantee better results. To avoid the same type of market underperformance that characterizes most of Wall Street, you'll need to build your investments on the right foundation. Click here for more details."

Friday, November 27, 2009

Using moving average to set stop

You may already have some decent paper profits on your portfolio and are wondering when you should take some profits before the recent mini bull turns around. This is where we can use the "Stop".

Most traders and market timers use percentage of the stock price anywhere from 5% to 15% to set their mental or hard stops. Here is another way of setting stops using moving averages.

With existing long position (short uses reverse method)

1. Sell half (1/2) when weekly MA-4 crosses below MA-18 (MA = Moving average)
2. Sell remaining 1/2 when MA-4 crosses below MA-39

If the price bounced back above the MA-18 line, I would buy back 1/2 of the long position when:

1. Weekly MA-4 is greater than 20% of MA-18 after MA-4 crossed above MA-18.

By buying back 1/2 of the position, one can continue to maximize the profits of the trending market despite a temporarily setback.

                                (click the chart to enlarge)

Wednesday, November 25, 2009

EWZ back testing using TradeStation

Here is another back testing using TradeStation
Symbol: EWZ
Weekly chart from: Jan 1, 2003 to Nov 25, 2009
Buy (all in): MA-4 crosses above MA-39 (white line crosses above cyan line)
Sell (all out): MA-4 crosses below MA-39 (white line crosses below cyan line)

Total of 5 buys, 4 sells with 3 wins, 1 loss and 1 unrealized profit
(Note: Simulation result is not a guarantee of future results)

                                  (click the chart to enlarge)

EFA back testing using TradeStation

Here is the simple computer simulation back testing using TradeStation platform.
Symbol: EFA
Weekly chart period  from: Jan1, 2003 to Nov 25, 2009
Buy (all in): MA-4 crosses above MA-39 (white line crosses above cyan line)
Sell (all out): MA-4 crosses below MA-39 (white line crosses below cyan line)

Total of 4 buys, and 3 Sells
2 wins, 1 loss and 1 unrealized profit
(Note: Simulation result is not a guarantee of future results)

(click the chart to enlarge) 

Sunday, November 22, 2009

EFA - International Index Fund

EFA is one of the most popular ETF funds that provides global diversification among the index funds. It includes stocks from Europe, Australasia and the Far East. Based on Yahoo Finance next year's estimated EPS, the top 15 holdings' average forward P/E is 12.8 with biggest sector in Financial. In my opinion it is attractive at this level.

With market cap of $35,000M, average daily volume of 18M shares and dividend of 3.42%, the fund is well liquidated and ideal for short term trading and long term holding as growth and dividend play.

As for technical analysis using the moving average cross-over on the weekly chart, the MA-4 is over the MA-39 and there were many occurrences with weekly closing high since 5/22 when the cross-over began.

It seems that the fund still has more room on the up side. The next resistant level may be around $65 from last Friday close of $55.34. EFA may be the fund that can be categorized as a "must own" in my opinion for immediate-term and long-term play if you like to own some international index fund in your investment portfolio.

Harvard Endowment favors mix of International ETFs

International and Emerging Market ETFs are my favors ETFs in my investment portfolio. In my opinion, these markets will outperform the U.S. domestic markets in the years to come. These markets are already attracted by active institutions, investors and traders as it can be verified by its average daily trading volume.

Here is an interesting finding:

According to Yahoo's source (click here) from on Nov 19, 2009:

Though the market downturn was devastating for the Harvard endowment, 2009's extend rally has kept the more dire forecasts from being realized.

According to Bloomberg, the value of Harvard's investments fell by -27.3% in the year ended June 30, not as bad as the -30% decline that had been predicted and not as bad as the hits that other institutional investors took.
Though the endowment has substantial investments in alternative assets like real estate and private equity, investors can get a sense of Harvard's strategy by looking at its U.S.-listed, equity holdings. They turn out to be quite diversified, with an international bias that makes ample use of a variety of ETFs.
Looking at Harvard's top U.S.-listed holdings at the end of Q3, which were recently disclosed to the SEC, the largest U.S.-listed, equity holding by a wide margin was ETF iShares MSCI Emerging Markets Index (NYSE: EEM - News), where Harvard was adding its stake during the quarter.
Meanwhile, Harvard was upping its exposure to individual emerging and overseas markets via increased stakes in a variety of ETFs, including iShares FTSE/Xinhua China 25 Index (NYSE: FXI - News), iShares MSCI Brazil Index (NYSE: EWZ - News), iPath MSCI India Index ETN (NYSE: INP - News), iShares MSCI Taiwan Index (NYSE: EWT - News), iShares MSCI Malaysia Index (NYSE: EWM - News), and iShares MSCI South Africa Index (NYSE: EZA - News).

SPY weekly chart of Nov 20, 2009

The S&P 500 ETF SPY weekly closing price continues to hover above the MA-18 and well above the MA-39 line. As the "V" shape is formed starting from near the end of 2007 to bottoming in mid March of 2008 and now steadily coming back to the current level. For trend following using the indicator, the general market seems to have momentum to move up to around $120 in about a month or two from Friday close of $109.43.

Is recovery stalling?

From Rex Nutting of MarketWatch:

Last week, a "reality check" rippled through the markets following weak data on housing starts and industrial production, said Nigel Gault and Brian Bethune, U.S. economists for IHS Global Insight. They expect further "mixed and somewhat ambiguous" reports in the coming week, but, on whole, they say "the evidence is still positive and continues to point to a nascent recovery" that will need "strong policy support" for some time.

Federal policies are clearly supporting the market, but there is uncertainty about how strong it would be without the support. Economists for Barclays Capital say that sales of existing homes would have risen 10% without the tax credit, instead of the 24% that has been recorded with it.

Economists see the economy growing at a pace just above its long-term trend. They expect GDP to grow 2.5% in the fourth quarter, 3% in the first quarter of 2010 and 3.5% in the second quarter. That's a far cry from the 6% growth seen in typical V-shaped recoveries, but it's better than a poke in the eye with a sharp stick. Of course, those are just forecasts. No one really knows for sure how the economy will do over the next 12 to 18 months. For more details, click here.

Thursday, November 19, 2009

Sign of Moderate Recovery ?

There may be sign of moderate recovery. According to William Watts of MarketWatch.

"The world's developed nations are in line for a "moderate recovery" after the nastiest global downturn in decades, but the rebound won't be enough to stem rising unemployment until late next year or early 2011, the Organization for Economic Cooperation and Development said Thursday in its semi-annual economic outlook."
Click here for details

Tuesday, November 17, 2009

Trader Portfolio created

The Trader Portfolio philosophy is speculative and focused on short-term trading. However, this is not a day trade strategy where transaction happens within the same day. The trend and momentum methodology is applied and it may use scale-in, scale-out to lock in profits or reduce losses.

It trades long and short positions and no more than 5 stocks or ETFs will be traded at any one time in order to maintain the focus. This strategy may not be suitable for most value investors but it can be a supplement strategy to their regular portfolio. It may be ideal for active traders who's time horizon is only from few weeks to few months.

I will test drive this strategy and see if it can produce a decent result with this virtual portfolio

Saturday, November 14, 2009

Investing philosophy of Ocean Portfolio

The investing philosophy of my fund is based on the trend following technique using technical indicators with discipline. The portfolio is to focus only on ETFs trading to seek its potential growth and profits as long as the selected fund remains in its trending direction.

When the trend reverses and reaches its predetermined criteria, the full or scale-out of the holding would be liquidated for either taking profits or reducing losses. Using this strategy may not achieve the maximum potential profits, but it protects the extended loss of the capital should the trending patterns reverse.

The major technical indicator for trend following is the Moving Average indicator and it is widely used by many successful investors. My ETF selection is divided in the following areas: Domestic, International, Emerging markets, Country specific and Sectors. Position can be either Long or Short (inverse) depends on the trend of the market. ETF that has at least over 1 million shares of average daily trading volume is considered for trading because liquidity is the key for market investment. The holding period of each fund can be days, weeks or months as long as the trending pattern holds.

The choice of investing in the ETFs using the trend following technique is to maintain the steady growth of the investment capital while keeping the loss to minimum and reducing the management expenses comparing to mutual funds. 

One of the successful investment publication "The Mutual Fund Strategist" by Holly Hooper is using the similar moving average technique to advice its clients as it mentioned in her sample newsletter. 

The Ivy Portfolio by Mebane Faber and his research paper also identified the moving average indicator can be a strategy of choice for discipline investors. 

The ETF Trend Following Playbook by Tom Lydon also emphasized the similar technique and achieved great result.

The Simple Hedge Strategy created by Ulli Niemann who used his proprietary Trend Tracking Index (TTI) along with simple moving average and trend line resulted in great success.

Dick Fabian's 39-week moving average technique described from his book "The Mutual Fund Wealth Builder" which had a high percentage of making profits in a trending market. My Simple Moving Average Strategy of 39-week MA is based on his finding and I added the MA-4 cross-over for additional confirmation signal. 

For some aggressive and swing position plays, daily and minute charts using these simply moving averages may be considered.

Two important rules, DISCIPLINE and TIME are the keys. Given a strategy that seems to be working, we need to adhere to it and provided ample of time to let it run and profits may come at the end.

Wednesday, November 11, 2009

Initial position in TSP Portfolio

I purchased 50% the the given virtual portfolio in 3 funds at

1. EFA = I fund (about 25%)
2. SPY = C fund (about 12.5%)
3. IWM (about 12.5%). IWM is Russell 2000 that replaced the VXF (S fund) for my purchase because the trading volume for VXF is small and did not meet my criteria that the daily volume needs to exceed 5 million shares for liquidity reason.

For future trading of  S fund, the IWM will be used.


ETFs equivalent of the TSP Funds

1. Cash => G fund is the the short term non-marketable US Treasury securities issued to TSP G fund, the one TSP fund that guaranteed not to decrease in value. There are money market funds in mutual funds such as VMMXX and FDRXX. But my main focus is ETF equivalent and not in mutual funds. So "Cash" is chosen here.

2. AGG => F fund tracks investment-grade bonds traded in US

3. SPY => C fund tracks S&P 500

4. VXF => S fund tracks Wilshire 4500 Composite Index. There is no ETF equivalent to S. VXF is chosen because it tracks the S&P Completion Index and with similar tracking concept.

5. EFA => I fund tracks Morgan Stanley Capital International EAFE

In summary:

ETF funds will be:

Cash = G

Tracking Thrift Saving Plan (TSP)

I will include the Government retirement investments - Thrift Savings Plan (TSP) in this blog. Only government employees including military and civilian personnel can participate this plan as their retirement investment. TSP is equivalent to the 401K in the private sector. The growth of TSP balance under management is rapidly and cannot be ignored.

TSP is the main source of retirement income for retired government employees who are under the Federal Employees Retirement System (FERS). TSP can be considered as a supplement for retirees under the Civil Service Retirement System (CSRS) since their other retirement pension is higher.

There are 5 index funds and 5 Life Cycle funds which can be invested. I only focus on the 5 funds and not the 5 Life Cycle funds. The5 Life Cycle funds are the mixed of the 5 index funds depending on the investor's expected retirement year.

The 5 index funds I will focus are:

1. G: Government Securities Investment fund
2. F: Fixed Income Index Investment fund
3. C: Common Stock Index Investment fund
4. S: Small Capitalization Index Investment fund
5. I: International Stock Index Investment fund

The 5 funds listed here are not publicly traded in the open markets. I will list the ETF equivalent (or close to equivalent) in the next message for tracking purpose.

Tuesday, November 10, 2009

Second buy order at market open today

I placed the buy order at the market open today for the same 8 ETFs that I bought yesterday with the same amount of shares as yesterday. It should give me about 50% of the equity in the market.


Monday, November 9, 2009

DOW went up 204 points today with a buy order

All 8 selected ETFs were executed at market open today. I miscalculated the numbers, the total amount of purchase was about $2.5M instead of $5M that I previous mentioned. I will look at the next entry point to purchase another 25%. I believe the markets still have room to go up.

1. EFA bought 6800 at $56.02
2. EPP bought 6000 at $42.10
3. EWY bought 5600 at $45.30
4. EWZ bought 5000 at $75.72
5. FXI bought 5600 at $45.09
6. ILF bought 8100 at $46.85
7. RSX bought 8500 at $30.15
8. SPY bought 3500 at $107.97


Sunday, November 8, 2009

Initiated buy order at open on Nov 9, 2009

As new member of with $10M virtual money, here is my buy "Long" order at the market open on Nov 9, 2009. The purchase will cost about 50% of the $10M portfolio.  The buy "Long" decision is based on the Simple Moving Average of MA-4 moving above the MA-39 on the SPY weekly chart and it indicated that the general market is trending up.

1. SPY 3500 shares
2. EFA 6800 shares
3. EPP 6000 shares
4. RSX 8500 shares
5. EWY 5600 shares
6. EWZ 5000 shares
7. FXI 5600 shares
8. ILF 8100 shares


SPY weekly chart as of Nov 6, 2009

Moving average strategy

I use Simple Moving Average (SMA) as the trend indicator for all ETFs. On a weekly chart, I use 3 SMA lines such as MA-4, MA-18 and MA-39 for SPY (S&P 500 ETF) in my trend analysis. The concept is not new with weekly price crosses 39-week moving average. It was widely published by Dick and Doug Fabian in their newsletter years ago. I found this technique is still accurate with merit. Also I found that some ETFs tend to trend in either direction more steady than others, the daily charts can be applied with some ETFs as an aggressive approach. 

I modified slightly by using the 4-week MA instead of the price to smooth out the cross-over curve. Here are the basic rules that I would use in my analysis:

Buy signal:

1. MA-4 crosses above MA-39 (up trend confirmed, initiate a buy)

Sell signal:
1. MA-4 crosses below MA-18 (evident of down trend movement). I may reduce the size of the Long position to lock in some profits or minimize the loss.
2. MA-4 crosses below MA-39 (down trend confirmed, sell all existing position)

Of course, the rules mentioned above was just one of many technical analysis techniques and there are so many other techniques out there. Other additional indicators may be useful to confirm these signals such as MACD, RSI  etc which I also use.

Daily charts can be applied with some ETFs which these ETFs tend to trend more steady that others. direction 


Day one on this blog

This blog is about the stock markets and it will focus on the Exchange Traded Fund (ETF). My strategy is to track the S&P 500 index trends as the main indicator and position each ETF that I am following  depends on its trend, relative strength, and momentum. The holding period of a particular ETF can be days, weeks or months as long as the trading pattern holds.    
I created the virtual portfolio yesterday called "Ocean Portfolio" in and initiated a buy "Long" order on 8 ETFs at the market open on Nov 9 using about 50% of the available "virtual" balance given by KaChing.
The S&P 500 has been trending up since late March this year and I believe it will continue to move up in the near term. So I hope these long positions can be hold for a little while.