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19 hours ago, Jetmoney said:

Awesome!  Great Results! 

I was afraid of Trump policy and with trade war with China, thus did not fully invest in the market, while you fully invested with some leverage.  Good job with the strategy.  What do you see the market for year 2020 ahead?

Thanks. My strategy now is more about maximizing "time in market" than trying "timing the market" so I don't try to have a view of where the market is going. The portfolio strategy is to be setup to handle all scenarios in the best way to maximize long-term return without assumptions about future direction other than that the mean reversion force of the market will eventually kick in. My view now is that we are quite close to mean in a longer time perspective so there is no bias to either side (up or down) for a large mean reversion risk in my view.

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3 hours ago, explo said:

My strategy now is more about maximizing "time in market" than trying "timing the market"

Interesting.  A few years ago, I read an opinion that was exactly the opposite--that person said "every minute your money is in the market, it's at risk of loss due to an unexpected event."  They advocated finding a situation where an imminent upward move was likely for a given stock, riding that move for a small gain, then selling to take that small profit.  Then go look for another such situation--possibly a continuation with the same stock, but not necessarily.  The rationale is to be in any given stock only for a short period of time, to avoid a huge loss when unexpected news hits, unless you're unlucky enough to have such news hit while you're in your short trading window with that stock.

Having suffered several such "unexpected events" in my 10-year experiment with buy-and-hold, I found his logic compelling, and constructed my current frequent-trading-of-small-lots-for-small-gains approach from it.  And that approach worked very well last year (return well over 100%, even with the collapse in November).  Interesting to hear that a quite different (if not exact opposite) approach also produced excellent results.  Seems to indicate my success wasn't necessarily due to anything superior in my approach--perhaps more of a "rising tide lifting all boats?" 

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On 1/14/2020 at 10:28 PM, solarpete said:

Interesting.  A few years ago, I read an opinion that was exactly the opposite--that person said "every minute your money is in the market, it's at risk of loss due to an unexpected event."  They advocated finding a situation where an imminent upward move was likely for a given stock, riding that move for a small gain, then selling to take that small profit.  Then go look for another such situation--possibly a continuation with the same stock, but not necessarily.  The rationale is to be in any given stock only for a short period of time, to avoid a huge loss when unexpected news hits, unless you're unlucky enough to have such news hit while you're in your short trading window with that stock.

Having suffered several such "unexpected events" in my 10-year experiment with buy-and-hold, I found his logic compelling, and constructed my current frequent-trading-of-small-lots-for-small-gains approach from it.  And that approach worked very well last year (return well over 100%, even with the collapse in November).  Interesting to hear that a quite different (if not exact opposite) approach also produced excellent results.  Seems to indicate my success wasn't necessarily due to anything superior in my approach--perhaps more of a "rising tide lifting all boats?" 

The "rising tide lifting all boats" generally applies to all long biased strategies. What I have found important is to separate beta and alpha when analysing the return in order to see if the alpha is healthy. Your approach can certainly generate good alpha too. I would say that it requires more ongoing effort and is more difficult to keep long-term consistent than my approach as your alpha is generated from picking both asset and time and, I guess, less diversified than my asset picking. I have around 120 assets in my portfolio with fixed target allocation. My approach required massive upfront allocation optimization effort, but the continuous management effort (to rebalance to target when diverging beyond tolerated target deviation) is quite low.

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Now is a good example of when "time in market" pays. If those times when things go vertical to the upside are missed a lot of the long-term return will be missed out on (unless pairing by avoiding at least the same magnitude to vertical drops). It's really hard to know when the big moves come.

going_vertical.thumb.png.3aa437e2e7838e00f1ae0c31095c93b7.png

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On 1/11/2020 at 5:56 AM, explo said:

Thanks Jet. Here are some further details:

Income Statement

Asset Value Growth: 71.76%

Dividends: 2.93%

----------------------------------------

Fees: -1.80%

Interest: -3.75%

Tax: -1.27%

====================

Result: 67.87%

You were up nearly 50% after 4 months of the year. You had suggested that you target 2x leverage but had been levered 2.36 times in Q1. How was your leveraging and I presume the returns are based on the actual cash equivalent of the portfolio and no the 2x levered value. Is this a correct assumption?

 

I mentioned I exited the market mostly in Early April due to travel. I stayed mostly out until  August right before the pullback from 26,250 back to 25,500. I pulled out and remained 80% cash the rest of the year.  My total returns were therefore mixed. depending on investment

 

My trading account was up 29.33% for the year  or roughly 50% for the year if you look at actual invested for the periods.

My retirement account was up  12.5% and not invested for 1/2 the year

My non trading investment account was up 19.6% for the year. while 90% out of the market for the 7 months.

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On 1/13/2020 at 5:08 PM, Jetmoney said:

Awesome!  Great Results! 

I was afraid of Trump policy and with trade war with China, thus did not fully invest in the market, while you fully invested with some leverage.  Good job with the strategy.  What do you see the market for year 2020 ahead?

Yep ditto here, I got out in April before a trip and  re-entered right before the market dropped about 750 points in August. I pulled  most out of the markets because the economics of manufacturing data and the trade war fostering. I stayed mostly out for the year except for some solar trading  when they hit bottoms in the 14-15 range.

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On 1/13/2020 at 5:08 PM, Jetmoney said:

Awesome!  Great Results! 

I was afraid of Trump policy and with trade war with China, thus did not fully invest in the market, while you fully invested with some leverage.  Good job with the strategy.  What do you see the market for year 2020 ahead?

Yep ditto here, I got out in April before a trip and  re-entered right before the market dropped about 750 points in August. I pulled  most out of the markets because the economics of manufacturing data and the trade war fostering. I stayed mostly out for the year except for some solar trading  when they hit bottoms in the 14-15 range.

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58 minutes ago, SCSolar said:

You were up nearly 50% after 4 months of the year. You had suggested that you target 2x leverage but had been levered 2.36 times in Q1. How was your leveraging and I presume the returns are based on the actual cash equivalent of the portfolio and no the 2x levered value. Is this a correct assumption?

The average leverage for the year was actually the same as Q1, i.e. 2.36x. The target is 2x (after a complete rebalance), but long-term expected average is 2.2x since the unbalance tolerance tend to slide to slightly higher leverage on average than the target. Here's a chart of the leverage over the year. Note that bigger jumps are due to cash withdrawals.

leverage.thumb.png.41f54d476019e8cfaf6627b406481564.png

Regarding your question on return, it's return on equity not return on assets, i.e. return after leverage, not before leverage. Return before leverage was 29.35% for the portfolio and 27.55% for the benchmark.

Note that the return needs to be put into volatility context. The higher return than the benchmark (67.87% vs 63.27% after leverage) was achieved at lower volatility than the benchmark (20.39% vs 26.95%). Thus on a risk-adjusted return basis it was a beat year.

1 hour ago, SCSolar said:

My trading account was up 29.33% for the year  or roughly 50% for the year if you look at actual invested for the periods.

My retirement account was up  12.5% and not invested for 1/2 the year

My non trading investment account was up 19.6% for the year. while 90% out of the market for the 7 months.

Good result considering the very low risk due long periods.

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17 hours ago, explo said:

The average leverage for the year was actually the same as Q1, i.e. 2.36x. The target is 2x (after a complete rebalance), but long-term expected average is 2.2x since the unbalance tolerance tend to slide to slightly higher leverage on average than the target. Here's a chart of the leverage over the year. Note that bigger jumps are due to cash withdrawals.

leverage.thumb.png.41f54d476019e8cfaf6627b406481564.png

Regarding your question on return, it's return on equity not return on assets, i.e. return after leverage, not before leverage. Return before leverage was 29.35% for the portfolio and 27.55% for the benchmark.

Note that the return needs to be put into volatility context. The higher return than the benchmark (67.87% vs 63.27% after leverage) was achieved at lower volatility than the benchmark (20.39% vs 26.95%). Thus on a risk-adjusted return basis it was a beat year.

Good result considering the very low risk due long periods.

That is what I figured. I have tried posting twice to this and it appears to not be taking the post. I wonder if this one does.

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On 1/18/2020 at 9:45 AM, explo said:

Now is a good example of when "time in market" pays. If those times when things go vertical to the upside are missed a lot of the long-term return will be missed out on (unless pairing by avoiding at least the same magnitude to vertical drops). It's really hard to know when the big moves come.

going_vertical.thumb.png.3aa437e2e7838e00f1ae0c31095c93b7.png

Yes, most gains come from just a few trading days--but as you note, so do most losses.  So that "pairing to avoid losses" you mention is also a critical aspect.  And as you say, it's almost impossible to know when those big moves come.  So I am willing to accept missing out on the big gains, if I can also avoid the big losses (since in the past those losses have always more than wiped out my gains), and just be happy taking small gains consistently (even in times when other strategies yield larger gains), and letting time work in my favor.

So far, that's worked for me--I did take some losses in that November collapse, but not nearly as much as I would have under my earlier strategy, and I've already recovered them again almost completely, thus preserving my gains for the year overall (instead of losing them all, which I most likely would have done under my earlier strategy).

But while the long-term trend still should be solidly upward, this year looks like it could be quite choppy in solarland, so I have to stay nimble and not get sucked into positions that are too large when prices are high (which is always a temptation when prices are going up quickly).

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Pete, taking profits makes sense and is straight forward, but for me the difficulty in strategy design is to know how to redeploy that cash. I think that is what determines the success of the strategy.  Basically you want to redeploy it at less risk (or rather higher risk adjusted expected return) than you exited at, right? 

Edited by explo

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Yes, that is correct--or at least no worse than the same risk.  Here's how I implement that:

I try to have only a SMALL position in a stock near its high.  If it pulls back a little, but there is no negative news for the stock, I'll buy another small position.  Ditto one more time--then if it goes down for a fourth day, I stop buying until I see the price stabilize and start to come back a little.  Our solars are volatile enough that they'll usually bounce back and forth between small losses and small gains in any series of 3 consecutive trading days.  Say the third position I bought (the one at the lowest price) goes back up a bit.  I'll sell it and take that profit.  If the stock now continues to rise, I still have the first and second positions in play.  If it drops again, I'll rebuy that third position, but again stop there.  If now the stock drops dramatically, of course I have losses in those 3 small positions--but I DON'T have the loss I would have if I had taken a full position.  Which means I have buying power if and when I determine it's (reasonably) safe to re-enter the stock.  And when I do, it's with more small positions, trading them to gradually take small profits until the stock reaches its prior level--when I still have those 3 original positions, which now come into play again.

It does require a fair amount of initial investment capital to be able to establish that number of small positions in a number of stocks (I use about 5 or 6)--but then again, when I read you have some 120 assets in your approach, I'm quite sure my account is much smaller than yours.  And I use margin--I find my gains usually more than outpace the margin interest I pay (which is tax-deductible from my gains).  Of course, when using margin it's hugely important to avoid catastrophic losses leading to margin calls, which is another reason I developed this strategy.

So by not owning much of a stock near its highs, but owning more and more of it at lower levels at a time when there is no negative news out about the stock, I've convinced myself that the more of a stock I own, the smaller the short-term risk.

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Thanks for describing your approach. Solar stock behaviours are quite suitable for trading strategies (they have not worked well as investments the last decade as we all know). Your strategy is a bit similar to the one I used when I was focused on solar. I called it FARS = Frequent Aggressive Rebalancing Strategy. Just to translate your tactics to rules you can view it as a rebalancing strategic between the asset class cash and the asset class equities, but it is very flexible, i.e. you try to increase equity allocation when price of equities go down and vice versa. This is more risky than normal rebalancing strategy but you compensate that by having a large target neutral cash allocation. This strategy can during most periods (e.g. 2013, 2017 2019) be very lucrative for trading solar stocks. During other periods (2015, 2016, 2018) it can be a bit distressing I think, i.e. the choppy net moves up are very lucrative and the choppy moves down are distressful. One thing that can save you is the part where you exit on the way down to look for stabilization. I was never good at that part.

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13 hours ago, explo said:

One thing that can save you is the part where you exit on the way down to look for stabilization. I was never good at that part.

Exactly!  When you're fully invested in a stock, and it starts to decline (but no negative news has come out--yet), how do  you know it's the beginning of a collapse vs. a head fake?  Especially in stocks as volatile as our solars?

I find this strategy actually lets me sleep much better at night, knowing the damage from even a major market collapse would be smaller than the buying opportunity that would present--and that I would have the buying power to take advantage of that opportunity.

When my stocks are at their highs, I actually find myself wishing for them to pull back a little, so I can justify increasing my exposure to them (chuckle)….

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On 1/24/2020 at 9:28 PM, solarpete said:

Exactly!  When you're fully invested in a stock, and it starts to decline (but no negative news has come out--yet), how do  you know it's the beginning of a collapse vs. a head fake?  Especially in stocks as volatile as our solars?

I find this strategy actually lets me sleep much better at night, knowing the damage from even a major market collapse would be smaller than the buying opportunity that would present--and that I would have the buying power to take advantage of that opportunity.

When my stocks are at their highs, I actually find myself wishing for them to pull back a little, so I can justify increasing my exposure to them (chuckle)….

It's very much how I traded solars (but I guess with more exposure). It works well for solars. You could say that odds on the volatility bet is better than the odds on the trend for those stocks. That's why unorthodox tactics that normally isn't as profitable can be very profitable for solars.

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Is this possibly the trigger that finally stops the euphoric and unwarranted rise on stock priced? The PE ration is in the top 15% of all time, the markets hit of 29,000 last week. The market hype was near peak. Is this Coronavirous the pandemic that causes panic in the markets and that 10% or more correction that some say are coming? I would think protective puts for a percentage of the market might be advisable. I took  positions in  DXD mid last week to cover 1/2 my holdings.

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On 1/23/2020 at 9:24 AM, solarpete said:

And I use margin--I find my gains usually more than outpace the margin interest I pay (which is tax-deductible from my gains).  Of course, when using margin it's hugely important to avoid catastrophic losses leading to margin calls, which is another reason I developed this strategy.

Hey Pete, or anyone else for that matter... re: taxes.  I've been trading for about 5 years now and have owned an S-Corp for about 20.  My wife and I are winding down the S-Corp this year for various reasons, but I considered keeping it around to convert for use as a trading business, just for our own personal cash, not for any other people.  Been doing a lot of reading and also talked to a tax consultant.  Do you trade as an individual or are you, or anyone else, setup as a business?  Just curious.  I'm inclined to close the SCorp and do this as an individual/day trader (over 1200 trades per year).  

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22 hours ago, explo said:

You could say that odds on the volatility bet is better than the odds on the trend for those stocks.

Very good summary!

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1 hour ago, Mark said:

Do you trade as an individual or are you, or anyone else, setup as a business? 

Strictly as an individual.  Don't know enough to try as a business.  Had some shares in a natural gas trust a few years ago, and they were partially treated as a return of capital and some as capital gains.  It was only a few hundred bucks, but it was a NIGHTMARE to try to figure out how to treat them for tax purposes.  One IRS publication just references another, and none of them made any sense.  I don't think I ever did declare them correctly (never could figure it out), but I declared them at the highest tax rate possible just to be safe.  And the IRS never questioned the return, but as I said, that item was only a few hundred bucks, and that's not worth their time to investigate.  So nowadays I stick to simple stocks and just suck it up and pay my short-term cap gains (same as ordinary income).  No fancy tax strategies for me.  If I have a high tax bill, I console myself with the fact that means I made a nice chunk of change basically pulling money out of thin air (which is what trading really is).  And I can account for my tax return down to the last penny, without an accountant.

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Right, even having a business for the past 20 years, I still stand by my theory that in the end, Uncle Sam gets his cut no matter how much you try and use fancy tax strategy.  Well, at least for a business and personal income of our size.  The business equipment deductions are sweet though.  I do look forward to deducting margin interest this year to go along with the solar tax credit on our personal return and will likely just roll ahead like you do, as an individual trader.

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Yes, unless you can afford to employ an army of accountants and lawyers, I find it's just not worth trying to get too fancy with the taxes.  No doubt it's worth it for Amazon and Microsoft, but not for me.  (Plus, from a purely sociopolitical point of view, I completely agree with treating ALL income equally for tax purposes, whether from manual wage labor, interest, or investment/trading.  Not doing so leads to the current economic division in our society, which in turn leads to social division and unrest.  Eventually, that social unrest can become outright upheaval, which ruins the business climate for everyone, so even the ones at the top suffer under that scenario.  But I digress....)

The margin interest deduction is nice, though, acting in effect as a business expense deduction even though I don't own a business.  I was afraid that would get killed by the recent tax overhaul, but fortunately, it didn't.

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