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Premium Model

Value, Sentiment and Momentum (Canada)

These 3 components are the secret engine for this growth model: Value to seek for fair price; sentiment for market consensus on the direction upward; and momentum to ride on the recovery to fair value and growth.

Growth stocks are the first to be penalized when they don’t meet expectations or when the market starts getting nervous, so market timing rules are enabled to mitigate market risks associated with a market crash due to recession.

 

 

 

 

 

 

 

 

 

 

This is a moderate-turnover model, and rebalance is done weekly. It holds up to 7 stocks. It only contain stocks from TSX (so no Venture Exchange stocks).

The idea is to combine value stocks that are estimated to go higher and that has started momentum already.  From a fundamentals perspective, the model relies on value and sentiment, based on recent results and revised market consensus, while from a technical analysis perspective, the model relies on short-term price trend to capture momentum. Although there’s an attempt to calculate relative value in the model, at times it might inevitably buy stocks that are fully valued (or even overvalued) considering the earnings forecast, but total return might still be decent depending on how market consensus have been revised.

This is combined with a momentum strategy that attempts to confirm that the upward bias has begun.

This is a mechanical model that chooses what to buy and sell based on a set of rules. Therefore, there will be losing trades from time to time. By no means it reflects a broken strategy. No model can outperform at all times, so it’s paramount to have the proper temperament to stick what a strategy that is aligned to your goals and risk tolerance.

See backtest information below to evaluate how these rules would have worked since 1999:

Model summary, including variable slippage (starting capital was $50,000) and fixed commission of $4.95:

Performance summary:

 

Detailed performance summary which provides max drawdown and % stock invested periods (log scale):

 

Stats information below, with winners, losers and how long typically these stocks are held for:

 

Below are various risk indicators as well:

 

Since the model typically holds positions for 1 month on average, the following histogram was run, to evaluate how consistently the model would perform if it started at different periods (roling offset was set to 1 week, while the performance period was set to 1 month); below is the histogram excess performance when compared to the benchmark (TSX):

 

And below is the same histogram, but showing the actual model portfolio performance, instead of the excess when compared to the benchmark (TSX);

 

 

 

 

 

 

 

 

 

 

 

 

The first screening criteria is related to the market timing, to either be in equities or cash.  This market timing rules use data from micro-elements (earnings and price movement trends for the whole market) as well as macro-elements, such as economic indicators (which might drive prices lower, regardless of solid fundamentals) to issue a sell all signal (move to cash) or buy according to the rules of this model.

The next screening criteria (buying as per the rules of this model) rules ensure that:

  • Companies demonstrate good value, by having attractive fundamental metrics that indicates that price is disconnected from operating results and positive forecast, besides having better (cheaper) metrics than peers in the same industry while positioned to grow;
  • Companies demonstrate strong market consensus for estimated total return to support sentiment, which includes positive earnings surprise and improved earnings guidance.
  • Illiquid / penny stocks are eliminated;
  • Price has been moving higher compared to the benchmark index;
  • Technical indicators confirm the positive trend and established momentum.

 

Once a list of stocks are found, then they are ranked from best to worse, where only the top ranked are chosen. The ranking is based on weighted metrics for quality, value and momentum.

A stock will be sold if these metrics deteriorate for that stock – one of the big drivers in defining stock price trend. The model also locks profits from time to time while searching for companies that are ranked higher to continue producing gains in the portfolio.

 

 

 

 

 

 

 

 

 

 

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Performance Info:

(last updated on January 14, 2018)

Stats Info:

(last updated on January 14, 2018)

 

Risk Info:

(last updated on January 14, 2018)

Current Holdings Allocation:

(last updated on January 14, 2018)

 

 

 

 

 

 

Cost of this model:  $28 / month. Cancel anytime.

Interested in subscribing to multiple models? Discounts are available when subscribing to 2 or more models. Simply subscribe to your first model and then let us know which model you want to subscribe next, and we’ll send you a discount coupon.

Discount rates:

1st model full price
2nd model 10% discount (applied to the 2nd model)
3rd model 20% discount (applied to the 2nd model)
4th model 30% discount (applied to the 2nd model)

Got questions?  Check our Frequently Asked Questions for Premium models or contact us.

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13 Comments

  1. Fouracle

    Great model Rod. Is it possible to add in the purchase and sell price for each transaction so I can compare to mine? Also is the market timing indicator the same as the one used in the Public Model?

    Thx.

    Reply
    • Rod [Boost Your Income]

      Thanks – All models now include the average purchase price and current price, listed under current holdings. The model uses the average of high and low of the day to buy and sell. I need to figure out how to display the closed transactions, I’ll find a way to post that.

      Regarding the timing element, the Public model only uses 1 formula, which is based on earnings across all companies. The Premium models uses 5 independent formulas, the earnings oscillator is just one of them. Other formulas include technical analysis across all companies listed in the benchmark, different economic indicators and volatility ratio to confirm the trend from both micro and macro perspective.

      Reply
      • mikerfd

        Thanks for adding the purchase/current prices Rod, that’s a helpful addition for comparison. Just to give you more work… 🙂 is it possible to include the dividend yield as a column as well? This would be especially handy for any dividend/income models and just for general interest. Not sure how hard that is though depending on how/where you’re pulling your data. Thank you.

        Reply
        • Rod [Boost Your Income]

          Hi Mike,

          Happy to improve the display data for model 🙂 I will investigate how to add the dividend yield for the next rebalance. Agreed that it helps for the income model, although it’s already posted the portfolio yield (updated weekly) for the income models. The information is available on portfolio123, I just need to change the automation and the format.

          Reply
          • mikerfd

            Thanks for adding this!

  2. kimnle

    Hey Rod – does this model have the same rules with regards to volume just like the one in the public model? GBT volume appears to be a lot lower compared to the rest of the pack.

    Reply
    • Rod [Boost Your Income]

      Yes, one of the rules of the model is that the average daily total amount traded (price * volume) for the past 60 days must exceed 100,000, and as of today (Dec 19), it sits at 255,012.

      Rod

      Reply
      • mikerfd

        I had wondered the same, but was also curious if there were any rules related too multiple buy/sells within a certain period or if it all comes down to the fundamentals of the model? For example GBT was sold two weeks ago I believe, bought again and now sell signal again this week?

        Also, are there any requirements for minimum share price, for example ARG could go either way very quickly! Thanks Rod .

        Reply
        • Rod [Boost Your Income]

          Hi Mike,

          Apologies for the delay in replying to you. There are no specific rules regarding buying a stock that was a sell on the previous week, as the criteria is based on meeting all screening factors and be ranked within the top 7. A stock that was ranked lower but then ranked higher again could cause this situation to be repurchased a week later. The stocks in this model are ranked based on Quality, Value and Momentum, which uses 25 different formulas to build the rank, so it’s not difficult for a stock that fell under the top 3% of the rank to be placed back – usually driven by quality and value, which changes quicker than quality. That stock would have to meet all buy rules again. I will run a few tests to wait a period before re-purchasing a stock to see if performs better (like I implemented on the Graham model) and I’ll post an update.

          Reply
          • mikerfd

            Thanks for your insight on this.

  3. kimnle

    A bad day for copper 🙁

    Reply
  4. kyang

    I am wondering why the portfolio contains 7 stocks max? If you have tested the model with different quantities and found 7 to be optimal based on back tests would that not be considered “cherry picking”?

    Reply
    • Rod [Boost Your Income]

      7 stocks gave the best Sharpe ratio during backtests, as it provides a good combination for adjusted risk return. The best returns were with 5 stocks, but given the higher concentration, the portfolio had higher drawdown and volatility. Holding 10 or 15 stocks gave better downside protection, but at the cost of lower return, given the over-diversification. 7 stocks provided a better balance. Note that the 7 stocks varied along the simulation (and period that the portfolio has gone live), as you can see through the different rolling backtests result. Given that this portfolio is focused on growth, I believe that a trading portfolio where each holding represents 15% of weight (roughly 7 stocks) achieves that. Also, it’s not as capital intensive as a portfolio that needs 10 or 15 stocks. Also note that only the companies that meet all the criteria would be added. The portfolio can hold a portion in stocks and a portion in cash if there are not enough companies meeting the buy criteria.

      Reply

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