Van Meerten's picks

I had to read Mr. Dlugosch's article several times because I thought he was being very harsh on the Index Fund industry. It seemed like he was saying that the index funds had no place in any sane person's portfolio and that the only way to beat the market was with individual stocks. I was almost fooled into thinking it was "efficient market article".

Statements like: "Stop investing in index funds, please. Talk about an absolute fraud" and " Heck, using darts to select stocks may very well perform better than index investing" made me think he was saying index funds were a rip-off.

I have been using mutual funds, index funds and Exchange Traded Funds for years and made a considerable amount of money. About the 5th time I read it, I'm a little slow and thick headed, I realized he was really saying "buying and holding" index funds were a failed strategy.

He failed to mention that selectively trading index funds and ETF's could be as effective as trading individual stocks.

For years I have read Value Line and of course every year Forbes annual mutual fund review. I learned to know that there were always long major market cycles and if you could recognize those cycles and take advantage of their momentum you could make some change. I came to know that with knowledge and disciple an individual investor could add value and beat the Market.

Each year Forbes shows in the Annual Mutual Fund review that there are UP and DOWN cycles and rate how each fund did in each of those cycles. If you recognize the UP cycle and invest in funds that do well in that type of cycle and then recognize the DOWN cycle and switch to funds doing well in that cycle you would always invest on the right side of the market.

Mutual funds had such heavy sales loads, management and marketing fees that you had to be right all the time or the fees would erase any gains you'd make. Then low fee Exchange Traded Funds came along and saved the day. Now there is not only every imaginable sector ETF but there are long and short and leveraged ETF's of all kinds, almost 1000 different angles to investing.

I decided to see if I could use the same selection and management techniques I use in stock portfolio management with an ETF portfolio. I use BarChart.com to select stocks so I thought I'd use BarChart to also select and manage ETF's


I wanted to find ETF's that were trading above their 20, 50 & 100 day moving averages and moving faster than the market. I tried to cull them when they began trading below their 50 day moving average and replace them with new ETFs that met my criteria. On June 26, 2006 I opened a fund on Marketocracy.com to test my theory and I've attached the results below:

RETURNS
Last Week 17.89%
Last Month 21.43%
Last 3 Months 15.73%
Last 6 Months 17.64%
Last 12 Months 32.17%
Last 2 Years 48.71%
Last 3 Years N/A
Last 5 Years N/A
Since Inception 43.01%
(Annualized) 16.17%

S&P500 RETURNS
Last Week -10.44%
Last Month -14.83%
Last 3 Months -33.66%
Last 6 Months -39.51%
Last 12 Months -41.15%
Last 2 Years -35.85%
Last 3 Years N/A
Last 5 Years N/A
Since Inception -28.47%
(Annualized) -13.10%

RETURNS VS S&P500
Last Week 28.33%
Last Month 36.26%
Last 3 Months 49.38%
Last 6 Months 57.15%
Last 12 Months 73.32%
Last 2 Years 84.57%
Last 3 Years N/A
Last 5 Years N/A
Since Inception 71.48%
(Annualized) 29.27%

You can see that with proper selection of ETF's on the right side of the market and proper management of them superior results can be obtained. Not only did I have positive returns for each period measured but I also beat the S&P 500 by an extremely wide margin.

So now I'll concede to Mr. Dlugosch's premise that you shouldn't buy and hold index funds if he'll agree that they can be bought and traded effectively.

I would enjoy hearing your comments at VanmeertenFund@aol.com

DISCLAIMER: The stocks selected should not be taken as buy/sell recommendations. They are the stocks that were selected by my stock screening process and then each was analyzed before adding or subtracting from the portfolio. Do not concentrate on the stocks but learn the selection process.

Jim Van Meerten
Strategy Lab Open Winner July 2008
VanMeerten The Amateur Strategy Lab 2008

Comments: View Comments |  Saturday November 15, 2008