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Strategy and Blog Outline
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Hopefully if someone reads this they will find my strategies intuitive and practical in spite of how silly my related Marketocracy Funds are. Otherwise just trying to explain what I doing clarifies my thoughts and by utitlizing a number of strategies that require monthly and/or tri-monthly updates I'll have something to write about in the future. About 10 years ago I came I visited Barra.com and came up with what I call my rational exuberance investment strategy. About that time the stock market was starting to become over valued and Chairman Greenspan came up with the wonderful irrational exuberance phrase. People were writing about the method that the Federal Reserve uses to determine whether the stock market was under or over valued. People also were writing about the differences between SP500 rates of return when the stock market is more expensive than the Federal Reserve model and less expensive. The Federal Reserve evaluation equation goes something like this: Average SP500 PE value is equal to .94 times (1 plus the estimated earnings growth %) divided by the (10 year bond rate minus 0.48%). At the time I was able to download for free 20 years or so of SP500 monthly PE values, estimated earning growth, actual earning growth and monthly returns. Afterwards it to off to the Federal Reverse's web site to get 20 years or so of 10 year bond rates. The Federal Reserve evaluation equation checked out and so did the SP500 20% versus 2% rate of return difference. Unfortunately going into and out of SP500 and bonds did not yield significant gains over the overall market but along with the SP500 historical information I also downloaded SP500 Growth, SP500 Value, SP400 Growth, SP400 Value, SP600 Growth, SP600 Value information. I then came up with an average evaluation equation for each replacing estimated earning growth with average actual earning growth. Then by trial and error I started to look at standard deviations away from average PE values and rates of return and allocations. Back checking I would periodically be completely out of the stock market and completely into the bond market so I started to look at average1 year,2 year, 5 year, 7 year, etc. bond rates and standard deviations. Then I thought about developed foreign market and emerging markets and decided their average PE value are on average 90% and 70% of the SP500 average PE value. My rational exuberance strategy works like this I look at the above mentioned PE values and bond rates versus there averages and distance from average and try to allocation wisely and if I allocate relatively wisely I should and have beaten the overall stock market by 5 to 6% annually. Never the less, I'm always trying to allocate more wisely and looking for more buckets to add to by 8 stock buckets and 2 bond buckets. For example short SP ETFs but unfortunately they did not work for me. My rational exuberance strategy can be utilized with ETFs, index funds, open or closed actively managed funds or individual stocks and bonds. With my real monies I do it with ETFs and mutual funds. With individual stocks I do it for 5 years with my Marketocracy Cowboy Dickrdoo Rational Exuberance Fund (CDREX). 63% of my strategy lab open's CDETF fund is allocated to utilizing the rational exuberance strategy. At the present time (2/17/08) I think the right size and style allocation is 28%(17%) mid-cap growth, 22%(14%) small cap growth, 28%(17%) large cap growth, 18%(11%) developed foreign, and 6%(4%) large cap value. I try to update the model and check allocations at least once a month. The following is a "Rational Exuberance Size and Style" table I will update once a month about 10 days in. Buys: SP500 Growth (IVW) SP400 Growth (IJK) SP600 Growth (IJT) Foreign (EFA) SP500 Value ( IVE) Sells: SP400 Value (IJJ) SP600 Value(IJS) Emerging (EEM) Morningstar X-Ray Comparison to Market 1.87% doesn't sound like much but I buying 16-17% of the market. Usually that is a lower number and/or the strategy's estimate average annual return is higher. Best of all 35% of time I'm in bonds and it's fun to be in boring bonds when the market is crashing. Better than anything else my rational exuberance strategy keeps me out of big trouble and helps me stay the course. Things usually work out well over 6 months to 3 years. Now it's on the next 16%. Here in the states boomers are starting to retire. People who are between the ages of 28 to 55 are more productive than people below the ages of 28 and people above the ages of 55. When a country starts have more productive people in comparison to relative unproductive people can be predicted many years in advance. About 8 years ago Harry S. Dent wrote a book called The Roaring 2000s Investor. Within his book there were demographic charts for all sort of countries. It seems to me until the year 2010 Brazil, China, Germany, Austria, Singapore, Hong Kong, South Korea, and Thailand have the best more and more productive people relative to less and less unproductive people curves. From 2010 to 2020 Ireland, Turkey, South Korea, China, Brazil, and Israel are the prize winners. From 2020 to 2025: Ireland Turkey Brazil and Israel are the places to be From 2025 to 2030:Turkey, Brazil, and Israel still will be winners. 2030 and beyond I won't have to care. 16% of my strategy lab open's CDETF will be devote to Brazil, China, Germany, Austria, Singapore, Hong Kong, South Korea, and Thailand matching my Marketocracy International Demographic Kid Fund (Clt45). The following is a table for international demographically allocating: Buys: South Korea (EWY) Germany (EWG) China (FXI) Singapore (EWS) For Comparison: Foreign (EFA) Emerging (EEM) Morningstar X-Ray Comparison to Market With 79% out of the way it on to the last 21%. When I first discovered Marketocracy, Mr. Kam and company where advocating people create funds that focus on sectors and some sectors have done extremely well during the last 5 years but that doesn't mean their going to do well the next five years. Instead of creating sole sector fund I created a sector trifecta fund that I update and clean up every 3 months or so. I Morningstar x-ray all the Powershares ETFs that focus on sectors dividing the 5 year estimate earning growth by the forward PE value (My upside down way of pegging). The top sector with the highest PEG number gets 10 stock picks. The next 3 to 5 top sectors get proportionally few picks until the number picks exceeds 30. 6% of my CDETF fund is focused upon Pharmaceuticals. Another 5% is focused upon Oil Services, 4% Insurance, 3% Semiconductors, and 3% Building & Constructing. The following is summary table: Sector and Morningstar X-Ray It think over the next 6 months my CDETF will be up 4.75% and beat 75% of the other Strategy Open Funds assume the market is up 2.97% or so. Part of the reason I choose to ETF with my strategy open fund is because for 5 years I have been selling most every Marketocracy stock pick when if it goes down 10% or up 30%. As a consequence I know only 20% of my stock picks are any good. 25% are bad and the other 55% really don't do much of anything yet I think the 10% down and out is every good investment rule. If you lose 10% you only need a 11% gain to make it back to even. If you lose 50% you need a 100% gain to make it back to even. I briefly touched upon my definition of PEG and I think it PEGging works but primary reason I do it when managing my Marketocracy funds is because it gives me a way to systemically go through a list of stocks. Never the less I think the 10% rule and pegging helps me about 2% annually. Lastly, I have owned MOFQX for close to 4 years now because almost from the get go I thought Marketocracy was intuitive great idea and over the last 3 years MOFQX has done very well and it will continue to do very well. The 2004-2005 hiccup was a result of not having long enough track records. Now many more of the funds are 5 years or older and Mr, Kam and company have got a lot better at finding the cream of the crop. Never the less I sincerely think Mr. Kam and company should change the way they hand out stars and start getting rid of funds that are not be actively managed. At present the only stars that might mean anything are the M100 stars. Generally speaking the green top 25% star and top 100 blue stars are meaningless. If someone has created a bunch of funds their going to have a lot green stars and blue stars yet many of the funds suck or haven't been looked at in years. Mr. Kam and company should first have managers choose the rank their funds in terms of Flagship#1, Flagship#2, Flagship#3 and give one to five stars for each selection and longevity ranking. If a fund has between 6-12 rankings it a freshman fund. If a fund has 12-24 rankings it is a sophomore fund and the last 12 rankings compete against all the freshman funds in terms of average ranking. If a fund has 24-36 rankings it is a junior fund and the last 12 rankings compete against all the freshman funds, the last 24 rankings compete against all the sophomore funds in terms of average ranking and so on. 36-48 rankings senior. 48-72 rankings and an average ranking in the 3 stars range graduate. If fund fails to be in the 3 star range have after 48 or more rankings then if the fund manages to get it's previous more than 48 most previous average in the 3 star range then the fund graduates. 72 to 96 rankings and average ranking in the 4 star range is a top investor with the same graduate to top investor arrangement as the senior to graduate arrangement. 96 or more rankings and average ranking in the 5 star range is a Marketocracy master. Only a select few exceptional investor can succeed at keeping 83% or better average over a 5 and a half year period. Instead of listing out the top funds over 1 month,3 months, etc.. The top freshman, sophomore, etc. funds would be listed out and comeback kids should be highlighted as well. It seems to me Marketocracy is not giving people who comes up with a strategy that don't work well at first but wisely sticks to it because it is a good strategy the credit they deserve. An average ranking of 83% or more is in the 5 star range. 66-83% is the 4 star range. 49-66% is the 3 star range. 32-49% is the 2 star range. 15-32% is the 1 star range. For example my Flagship #1 fund would be CDREX, #2 would be BGSTX, and #3 would be a toss up between ICCSC, UNOME, CLT45. My money managing credentials would look like this: TOP 4 STARS (91 rankings, 71% average ranking CDREX) Top 100 freshman, sophomore, etc. averages for CDREX would be as follows: Freshman: 55.63% 3 Stars For comparison Top 100 freshman, sophomore etc. averages for the masterful athompson's TPSNX would be as follows: Freshman: 59.92% 3 Stars Along with athompson, jerrypettit and rmcduff are exceptional investors Now you know most everything I think I know about investing wisely. My other blog posts will be table updates and/or stock picks that will replace part of the ETF monies and/or stock lists and/or stock pickers from other Marketocracy members with proven records even though stealing stock picks haven't really worked for me. If you got this far down thank you for reading my dribble. Yours truly Cowboy Dickrdoo | ||
