Weekend Readings

Below are some investment related articles I am reading this weekend:

Reviewing the 10 Month Moving Average System – The Technical Take

An Options Strategy Beats the S&P 500 – Barrons

Less Risk, More Return? Index Universe

Why Home Prices Have Much Further to Fall – Lance Roberts via Advisor Perspectives

The Transparency Trap (pdf) – John Mauldin

Traders Like QQQ a Little Too Much – Tom McClellan

An Investor’s Worst Enemy? Their Brain – The Globe and Mail

 

New Ivy Portfolio Tool

 

This site has been greatly inspired by Mebane Faber’s The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. I have added a new tool to the site for those interested in tracking the 10 month moving average signals for some of the portfolios listed in Faber’s book.

Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term moving averages. I have added a new spreadsheet at the top of Scott’s Investments which tracks the 10 month moving average for the 5 and 10 security portfolios.  When a security is trading below its 10 month simple moving average, the position is listed as “Cash”. When the security is trading above its 10 month simple moving average the positions is listed as “Invested”.

The spreadsheet’s signals update daily using dividend/split adjusted closing price from Yahoo Finance data. The 10 month simple moving average is based on the most recent 10 months including the current month’s most recent daily closing price.

There is a link to the spreadsheet at the top of the site (“Ivy Portfolio”); however, if you want a wider view of the spreadsheet click on the link “Ivy Portfolios” on the right hand column of the site.

As of today’s close, the current signals are listed below:

Symbol Ivy 10 Portfolio Position (determined by current 10 month SMA)
BND Vanguard Total Bond Market ETF Invested
DBC PowerShares DB Commodity Index Tracking Cash
GSG S&P GSCI(R) Commodity-Indexed Trust Cash
RWX SPDR DJ International Real Estate ETF Cash
VNQ Vanguard REIT Index ETF Invested
TIP iShares Barclays TIPS Bond Invested
VWO Vanguard Emerging Markets Stock ETF Cash
VEU Vanguard FTSE All-World ex-US ETF Cash
VB Vanguard Small Cap ETF Invested
VTI Vanguard Total Stock Market ETF Invested



Symbol Ivy 5 Portfolio Position
BND Vanguard Total Bond Market ETF Invested
DBC PowerShares DB Commodity Index Tracking Cash
VNQ Vanguard REIT Index ETF Invested
VEU Vanguard FTSE All-World ex-US ETF Cash
VTI Vanguard Total Stock Market ETF Invested




Data Source: Yahoo Finance

No current positions.

MarketClub Timing Portfolio

The MarketClub ETF Portfolio I track on the site signaled a “cash” position on USO yesterday. I have updated the portfolio accordingly.  Thus, the only long position currently is SPY. For more details on this strategy click here.  Keep in mind this strategy and the spreadsheet is purely hypothetical and my posts on any portfolio updates are not real-time; signals are generated intra-day making it impossible for me to provide instant updates.

More on this topic (What's this?)
ETF Losers, May 4th 2012 (XIV, OIL, ERUS, USO, RSX)
Market Outlook
How To Profit From An Increase In Oil Prices When It Occurs
Read more on SPDR S&P 500 ETF, United States Oil Fund at Wikinvest

Investment Readings

Below are some investment related articles I am reading this week:

Is Silver the Great Trading Opportunity of 2012-2013? John Carlucci

Is Decoupling Possible in a Global Economy? MacroTides courtesy The Big Picture

Staring Into the Abyss (pdf) – John Mauldin

Working Out of Debt (pdf) – McKinsey Quarterly via Mauldin

The Hangover – The Economist

Fed: Benchmark Rate Will Stay Low Until ’14 – Bloomberg

 

Gold: Still in an Uptrend?

Periodically on Scott’s Investments I analyze the technical picture for Gold and its corresponding ETF, GLD (SPDR Gold Shares ETF). Gold and GLD struggled mightily in December  but have rebounded in January.  With the strong sell-off in December Gold’s strong uptrend looked to be in trouble, however the January rebound has staved off a complete breakdown.

Looking at the monthly chart for GLD, you will see a strong upward channel (in red) that began in 2008. Of note is the brief breakout of the channel in 2011, which resulted in a strong sell-off the subsequent month, bringing GLD back within the channel:

In the chart above, important support levels are drawn in green and a resistance level is drawn in red at August’s closing price of $177.69. In the midst of the sell-off in December, I noted $140 looked to be a strong level of support if GLD continued to decline.  $140 remains a support level, but now that GLD has found support within the channel, the channel itself again becomes an important support and resistance level.

Since 2009 the 10 month simple moving average (in blue) has closely aligned itself with the bottom of the channel.  GLD currently resides above the 10 month moving average, although the break below the 10 month SMA in December was the first significant break below the average since 2008.  Also, we see the 10 month average migrating to the middle of the channel, a reflection of the slowing momentum in recent months.

Gold has lost some of its “mojo” in recent months but it is clinging to its upward trend.  In order to still consider GLD in an uptrend it will need to close January above its 10 month moving average and above the bottom of the long-term channel.

For daily analysis of gold, check out Chris Vermeulen’s  Gold, Oil & Index ETF Trading Analysis

More on this topic (What's this?)
Has Gold & Silver Finally Bottomed?
Gold Price Gravitating Lower Towards $1000
Read more on Gold, SPDR Gold Trust at Wikinvest

Weekend Investment Readings

The End of Europe? (pdf) and Hoisington Quarterly Review and Outlook (pdf) John  Mauldin

 Dwelling in Uncertainty – John Hussman

Why It’s Time to Break Up the ‘Too Big to Fail’ Banks – Sheila Bair

A Long-Term Look at Inflation – Doug Short

Europe’s Road to Nowhere, Part 2 – Satyajit Das

Revolt of the Insiders – Barry Ritholtz

Bonds Turning Down from Top of Channel – Tom McClellan

New Benjamin Graham Inspired Value Portfolio

I am expanding the number of portfolios tracked on the site and portfolio tracking/testing will be one of my top priorities on the new site. My goal is to have a portfolio updated on the site every 5 days, which means about 8 portfolios per month (3 are upated on the first of the month). The portfolios all have a simple, big picture focus in which a relatively few number of factors are combined to create a simple strategy. A majority of the portfolios were  tracked throughout 2011 on Scott’s Investments; I am looking forward to monitoring both old and new portfolios’ performance real-time!

I previously tracked a Small Cap Value Earnings Surprise and Low PEG High Momentum screen. Both screens were created using Stockscreen123 and performed relatively well during the period they were tracked. However, I felt like the screen inputs were influenced by my discretion with the factors randomly chosen. They will be replaced by a Stockscreen123 “Graham” screen. I will track the screen as a hypothetical portfolio rebalanced once per month around the 15th of the month.

The screen was created by the creators of Stockscreen123 (“SS123”). The full description from Portfolio123 is below:

This model is one of our all-star series. It draws inspiration from the work of a well-known investor: in this case, Ben Graham. These screens cannot precisely mimic what the all-star would actually do. Many depend heavily on qualitative considerations that do not lend themselves to screening or ranking, and even where models are quantitative, most offer only limited public disclosure of details. Our model is designed to stand on its own, to have validity even if it were inspired by John Doe. The connection with the all-star is philosophical. The core of our model is consistent with one or more vital aspects of the all-star’s philosophy. The hallmarks of our Graham all-star model are: value and company fundamental strength with an emphasis on survivability and stability.

The actual screen factors are below:

  •  Liquidity filter: No OTC Stocks
  • Eliminate companies classified in the Miscellaneous Financial Services Industry, most of which are investment companies and funds and not the kind of stocks this all-star tended to seek
  • Current ratio must be at least 1.5
  • Long-term debt must be no higher than 10% above working capital
  • EPS must be above breakeven in each of the last four quarters and in each of the last five annual periods
  • Trailing 12 month EPS most be above EPS in the latest annual period
  • EPS in the latest annual period must be above EPS in the prior year and five years ago
  • The company must have paid common dividends in the last 12 months

The ranking system used as a basis for selecting the top 15 based among those stocks that pass the Graham screen are below:

  • Valuation – 60% of total
  • Trailing 12 month P/E (15% of this category)
  • Price-to-Book (15% of this category)
  • Price-to-Tangible Book Value (35% of this category)
  • Operating P/E, defined as Market Capitalization divided by Business Income, which is Sales minus Cost of Goods sold minus Selling, General & Administrative Expense and omits unusual items (35% of this category)
  • Earnings – 40% of total
  • 5-year EPS Growth Rate (50% of this category)
  • EPS Stability, defined as the standard deviation of EPS over the past 16 quarters, lower being better (50% of this category)

How has this portfolio/screen performed historically? Below are the 3, 5, and 10 year returns. Data excludes commission, taxes, and slippage:

 

 

 

The current holdings, which were hypothetically purchased on January 13th using the closing day’s prices, are listed below:

Ticker Name Rank
AVX AVX Corporation 95.15
SVT Servotronics, Inc. 92.75
TESS TESSCO Technologies, Inc. 91.79
JCS Communications Systems, Inc. 91.61
GLW Corning Incorporated 91.57
NHC National HealthCare Corporation 91.54
EEI Ecology and Environment 91.12
GES Guess?, Inc. 90.25
CVX Chevron Corporation 89.8
KYO Kyocera Corporation (ADR) 89.7
BG Bunge Limited 89.6
WSTG Wayside Technology Group, Inc. 86.94
RSH RadioShack Corporation 86.46
SEB Seaboard Corporation 86.08
LXK Lexmark International, Inc. 85.61

At the same time I update this portfolio I will also update Equity vs Fixed Income model signal. This is less of a portfolio and more of a long-term signal by SS123 on whether equities or bonds are in favor. According to SS123:

This model is based on market timing and chooses one core equity ETF, the S&P 500 SPDR (SPY) for when conditions are deemed bullish, and a core fixed-income ETF, the iShares Barclay 20-year Treasury ETF (TLT), for when conditions are deemed bearish.

It assumes conditions are favorable for equity investing if EPS estimates are rising and if valuations are reasonable.

  1. The estimates test is whether the 5-week moving average of the aggregate of the consensus current-year estimates for S&P 500 companies is above the 21-week moving average.

  2. The valuation test is based upon risk premium, specifically, whether the S&P 500 risk premium (earnings yield minus 10-year treasury yield) is above 1%

In other words, at the same time the Graham portfolio is updated I will provide an update on this model. The model will either choose SPY or TLT based on current market conditions. I will not track this is as a portfolio but it could serve as a potential hedging signal – when bonds are in favor the Graham portfolio could be hedged by a position in long-term bonds which tend to be negatively correlated with equities.

As of January 13th the Equities vs Fixed Income model signaled a position in TLT.

More on this topic (What's this?)
Two High-Quality Companies
Read more on Benjamin Graham at Wikinvest

Market Readings

Below are some articles I am reading this week:

Gold Trend Forecast for Quarter 1 2012 – Chris Vermeulen

The Dollar, Weak Earnings Indicate a Top is Near for the S&P 500 – JW Jones

2012 Investments Themses (pdf) – Gary Shilling via John Mauldin; I found this article particular insightful for those looking for long-term themes

Kass: 10 Reasons for U.S. Stocks to Rally – Doug Kass via Investment Postcards from Cape Town

“Please move into Gold” Urges Richard Russell – Investment Postcards from Cape Town

Can You Create a 7% Yield Portfolio Focsuing on Munis and Dividend Stocks? – Geoff Considine

Europe’s Road to Nowhere, Part 1 – Satyajit Das

Fed’s Image Tarnished by Newly Released Documents – Washington Post

More on this topic (What's this?)
Has Gold & Silver Finally Bottomed?
ChartsEdge 8/31/15 week forecast for stocks
Read more on Chun YU Works, Gold, Cheung Kong (HLDGS) at Wikinvest

New Site!

Hello! You may have noticed a lack of article the past week. After several years on the Blogger platform I have migrated to WordPress which should allow for greater flexibility and more features. The site url is scottsinvestments.com The new site  looks very similar to the blogger site, but I will continue to edit and add features in the coming weeks. You should not have to update your email subscription or update any old bookmarks as they have been redirected to the new site. If you have suggestions or comments regarding the new site, please let me know!

MarketClub ETF Portfolio Updates

MarketClub gave a “buy” signal today on SPY (SPDR S&P 500) at $129.42. For background on the portfolio please see my initial article on the portfolio here.

FXE (CurrencyShares Euro Trust) remains in a strong downtrend/sell signal but this portfolio is not shorting stocks so it remains in cash on the FXE position. USO (United States Oil Fund) remains a “buy” and GLD remains in cash (SPDR Gold Shares)



Now you can follow me on Stocktwits and Twitter!

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.