This Practice Can Have Real Benefits

How often do you take stock?

It could be with your career, share portfolio or life in general.

New Year’s Day is a popular choice for reflection. Many people use this as a time to look back at the year that was. It’s a chance to consider what went well, or not so well.

Others use a traumatic event as the catalyst. Bad news is often a spark to reassess our course.

I try to regularly take stock. It reminds me to be grateful when times are good. On the flipside, this mental weigh in keeps me on track when I have a setback.

I’m going to show you an email from a Quant Trader member in a moment. The anniversary of his subscription is nearing, and he’s using this as a chance to take stock.

But first, let me tell you a personal story of reflection…

A golden opportunity

The late 1990s weren’t all that different to today. Market volatility was rising after a long steady advance, and many people thought a big collapse was imminent.

Two panics hit stocks during this period: In 1997, the Dow Jones Industrial Average lost almost 7% in a single day. And then in 1998, the Index plunged 20% in just seven weeks.

On both occasions, stocks were back at all-time highs within a few months. While this period is a footnote in history for most people, its impact on me was far reaching.

You see, my employer — Bankers Trust (BT) — got into trouble during the 1998 panic. A series of bad bets at the New York office led to big trading losses.

Rather than risk going under, management negotiated a takeover with Deutsche Bank. The deal saw BT’s top brass leave with multi-million-dollar payouts.

But for many of the bank’s staff, it wasn’t a time for celebration.

To me, it was like the end of the world. I began 1999 as a senior trader at a leading bank. By mid-year, it was all over. I was out of work for the first time in my career.

And the timing couldn’t have been worse…

You see, there was a glut of traders worldwide. Banks were scaling back their trading operations and jobs were scarce. Many traders left the industry during this period.

Taking stock of my situation was essential. Sure, I didn’t have a job. But I knew I had valuable skills. It was just a matter of finding a way to use them. 

It’s funny how clear things are in hindsight. While I didn’t realise it at the time, BT’s demise was a golden opportunity. It was the start of a highly successful period in my career.

I received an interesting email this week. It’s from a Quant Trader member with a decision to make.

Have a read of this:

I have been a member of Quant Trader for almost a year, and I have found your service to be very beneficial, interesting and straightforward.

As I have very little trading experience, I have not done any live trading of your recommendations. My main objective was to first educate myself before starting to trade.

I am now at a crossroads with two choices — renew my subscription and start trading live or don’t renew the subscription.

In order to decide, I want to find out the performance of the portfolio from commencement (2014) to the present date based on $1,000 invested in each signal. Could you please provide me with some graphs to demonstrate this?

Member, Kieran

Kieran’s subscription renewal is his trigger to take stock. Just like my redundancy, it’s forcing him to consider his situation and decide a way forward.

So how does Quant Trader’s performance stack up?

Let’s have a look…

Time to take stock

The following results are for Quant Trader’s live signals. They cover the period from 17 November 2014 to 7 March 2018. The figures include all open and closed long trades.

Here’s the first table:

Quant Trader - Money Morning 13-04-2018

[Click to enlarge]

These are a good set of numbers — profits are more than twice that of losses. And this isn’t by chance. It’s due to the type of strategy that Quant Trader uses for every trade.

People often make trading sound complex. But truth is, the core principles are simple to grasp.

Quant Trader’s approach is to let profits run and cut losses. This is the key to boosting average profits while at the same time, minimising losses.

Many people do the opposite: They take lots of small profits and let their losses blow out. This is a formula that can quickly reduce your trading account to zero.

The other thing to note is the average holding period. You’ll see that profitable trades are almost double duration of losing ones. That’s largely due to letting winners run.

Next up is the number of trades:

Quant Trader - Money Morning 13-04-2018

[Click to enlarge]

As you’ll already know, Quant Trader produces a lot of signals. The aim is to identify stocks that meet the entry criteria. You then choosse which ones to follow.

Some people complain that the system produces too many signals. They say it would be better if they only got three or four entries per month.

But this overlooks one of Quant Trader’s core strengths…

You see, Quant Trader’s results don’t hinge on one super stock. They are the sum of many individual trades. A good strategy should work consistently across a wide range of stocks.

Then there’s the strike rate…

The system’s win rate currently sits at 48.9%. Some people look at this and think it’s bad — they believe a good system should win well over 50% of the time.

But this often isn’t true. As I’ve said before, strike rates can be misleading. They are not the key determent of success. The figure that really matters is overall profitability.

Check this out:

Quant Trader Gains - Money Morning 13-04-2018

[Click to enlarge]

This shows the hypothetical performance of Quant Trader’s long trades. It assumes $1,000 on every signal. And as always, there’s no allowance for costs or dividends.

Now here’s the All Ordinaries over the same period:Quant

Quant Trader vs All Ordinaries Index - Money Morning 13-04-2018


Source: BigCharts
[Click to enlarge]

The two graphs have some similarities — the All Ordinaries naturally has an influence on performance.

But a good strategy could help you outperform…

You see, Quant Trader only buys when prices rise. This eliminates the ASX’s weakest stocks — the ones that drag the Index down. A robust exit strategy also helps lift performance.

I’ve got one more chart to help put it all in perspective.

Have a look at this:

Quant Trader vs All Ordinaries Index - Money Morning 13-04-2018

[Click to enlarge]

This graph compares Quant Trader’s hypothetical portfolio (blue line) to the All Ordinaries. I’ve converted the changes to percentages, so you cans see the relative movements.

I know many members have done well since live signals began. It’s rewarding to hear their stories. Quant Trader has made a real difference to these people.

But I’m also aware that other members haven’t done as well. I’m always disappointed when I read about someone who hasn’t been making money.

Trading is an uncertain pursuit. A good system could swing the odds in your favour. But there’ll be times when profits are few and far between.

I often talk about spreading capital across at least 20 stocks. This improves the odds of buying some of the best trades. It also lowers the risk of one bad trade potentially ruining your year.

Finally, you can always take stock of the portfolio yourself. A record of every open and closed signal is on the website. At Quant Trader, there’s no substitute for transparency.

Until next week,

Jason McIntosh,
Editor, Quant Trader

***

Editor’s Note: Taking stock is a positive experience. It’s an opportunity to pause and see things for what they are — both good and bad. This helps you make the best choices for your future.

Take a moment to think about your stock portfolio. Is it everything it could be?

If not, then it may be time to try a new approach. To learn how Quant Trader could help improve your trading decisions, click here.

This could change the way you trade forever.

All graphics produced by Quant Trader unless otherwise noted.


Jason McIntosh is a professional quantitative analyst. Before he graduated in 1991 he joined Bankers Trust — a Wall Street investment bank — to be a trader. After Bankers Trust was taken over in 1999, Jason, already financially independent, co-founded a stock market advisory and funds management business called Fat Prophets. At 37 he sold his part of that business and retired. These days, he’s a private trader and system developer. In 2014 he launched the wildly successful trading service: Quant Trader.


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