Wednesday, March 15, 2017

Tech stocks in the last 20 years



I tried to use my historical database to test out NASDAQ 100. The return is great. To illustrate, from 1/4/1999 to 6/6/2001, the annualized return is 54% vs SPY’s 1.6% without considering dividends.

Do not ‘wow’ too early. The reason of the high performance is due to the survivor bias. Many internet companies were taken out from the index and/or the database, and hence the performance as a group is deceivingly high.

The following chart is for the popular high tech companies for the selected 10 years. For every one of the following successful high tech companies, there must be many that do not make it.


1990-2000
2000-2010

Annualized Return
Annualized Return
Microsoft
940%
-4%
EMC
7500%
-7%
Apple
20%
65%
Dell
8200%
-7%



Average
4000%
12%

The above figures are estimates for demonstration without considering dividends and compounding. Dell has been privatized today. Now, we can draw some conclusions.

·         Tech stocks usually beat the S&P500 index. Risk usually pays.
·         1990-2000 are the golden years for tech stocks.
·         2000-2010 are not so good for tech stocks due to the crash of 2000. If it is not for Apple, the return of this portfolio would be negative.
·         Except with Apple, it indicates the first ten years (or the early phase) of the tech stocks give the best returns. After they become mature companies, they seldom maintain the same growth rates. The worst of the group in the first 10 years become the best after 2000.

Buy when the market does not favor this sector

Interestingly, you should buy when the institution investors are dumping such as buying Apple in May, 2013 as recommended in my book Scoring Stocks. Ensure they have value first by scoring them fundamentally and allow at least one year for the market to recognize the values. 

I reviewed my old blog and found some bargains I described in 12/03/2012. Here is the performance summary. Again, all performance returns are annualized.

The stocks are AAPL, CSCO, INTC, MSFT, XRX, STX, WDC and ALU.


One year later
Two years later
Ann. Return
84%
59%



SPY  Ann. Return
28%
23%
Beat SPY by
200%
157%




Interestingly, AAPL is the weakest performer in both tests. It must start with a high price.

Tuesday, March 14, 2017

How to test a Sector Rotation strategy



This is the last chapter of the book Sector Rotation: 3rd Edition (from Amazon) summarizing the strategies. We have a total of 12 strategies not including Andrew’s: Buy strong sectors which have pulled back onto support and avoid overbought sectors at resistance and using Elliott Wave.

Some strategies use market timing: When the market is plunging, most sectors will be down and most contra ETFs will be up. Daily news would affect sector performance.  Which strategy works best today? The following is a suggestion using two tests.

Test without a historical database

Even with a historical database, this test is useful as most vendors do not include all metrics from finviz.com or other sources such as RSI(14), SMA20, SMA50, Rel. Volume and EPS Q/Q. Select the two best-performed sectors from many sources from last month and include the above metrics in a spreadsheet or on paper. Test how the metrics performed. Perform this test at least once a month. Only invest with real money when you’re satisfied with the result. The market may change so are the results.

Test with a historical database

Many vendors provide a historical database and usually at a fee. The following are guidelines for your own implementation.

·         Include a list of ETFs and you can find them in the chapter on sector ETFs and other ETFs such as bond ETFs, SPY and DOW. Include contra ETFs that should perform well in a down market. Include country ETFs if you use country strategy.
·         Define the test period. I use Jan., 2007 to Jan. 2017. I have two tests a year. If you have more time, start from 2000 and have 12 tests a year instead of 2.
·         Duration is one month; I add two months as my annuity allows switching for holding 61 days without a penalty.
·         Use annualized rate of return and compare it to SPY if they’re available.
·         I select two of the best-performed ETFs and get the annualized returns.
·         Average the totals and see how the strategy performs. The last three months may be more important than older results. When the market plunges, buy contra ETFs such as SH.

My vendor’s timing grade does not perform so I stick with mine described above.  Dividends are not considered.

Friday, March 10, 2017

Drug kills

"Imagine that mole who has the info needed to keep a lid on the endemic drug usage by NFL players, many of whom hit retirement age by 30, and supposedly a high percentage suffer permanent brain damage - courtesy of their team medical staff."

I can tell you it is true for most sports and singers too. Just check how many athletes (singers too) and their children have health problems. They are far more than the average. With the newly legalized drugs, I expect it spreads to the rest of the population. How many deformed babies are caused by drugs.

The Brits pushed opium to China about 300 years ago for trading. Now it is our turn and it is pushed by our greed, enjoyment and politicians.

I do not care about Obamcare, Trumpcare... Please fix this critical problem at home before we want to conquer the world and force them to follow our culture (including drugs?)

Prevention is better than curing in any aspect.


Will China devaluate its currency?

Most currencies are down against the strong USD and will continue so for the rest of the year. China is the majority of the bank in loaning money to the participants in her One Belt, One Road initiative, so it is better to loan them a weak Yuan and be paid back in a strong Yuan - logical?

China is playing the game not to agitate the US and the other game is avoiding product dumping. The huge deficit with the US will be addressed by China.

The technique is to deceive your enemy as in The Art of Wars: Your enemy thinks you're doing this but in reality you're doing the opposite.

Thursday, March 9, 2017

Mind Craft, iPad...

Here is old wine (jokes) into new bottom (post):

From my blog:
* My six-year old grandson called the library about the availability of the book Mine Craft. The lady told him that only Mine Craft for Dummies was available. He told her it was not for him as he was not a dummy.

* iGenerationAlmost everyone has an iPhone. Folks including myself in the lower class of the society carry imitators and/or those 'outdated' iPhones that are several months old. My grandchild of just over one year old had a good time in playing with the iPad and it usually kept her busy for hours. Before she could say Mom, she said “I” for iPad.

During my family gatherings, my cousins communicate with each other via their smart phones even when they sit next to each other. When they do not text messages, they play games with their smart phones. Even with one pair of eyes and one pair of ears, they can play iPad, listen to iPod and text using iPhone at the same time. Thanks Apple for demonstrating what multi tasking really is. I prefer to do one task correctly than several tasks incorrectly.

Chinese and Indian students are leaving us further behind by spending more time in study. Do you believe those children spending extra 2 hours every day in games would accomplish the same later in life?

Some parents have a hard time to explain to their children that their existence was due to the blackout of the iPad and iPhone caused by the hurricanes.

Huawei

Didi with its sister company may not be a threat right now but Hwawei is which is placed a distant third in global sales. It has conquered many EU markets by giving them discounts to the networks that use Hwawei network. Hwawei is one of the 3 companies that have the advanced network LTE and they're working on the next generation.

The reasons for their success: 1. Huge home market. 2. Cheap and qualified engineers. 3. Government and local government encourage business. 4. No need to report to their stock holders.

On infrastructure

Besides the obvious, it should include dams, flood control, water quality, network...

We have spent too much on the world policing instead of fixing our problems at home. One is consuming and the other is investing.