Trading systematically for abnormal returns

September 2017 Portfolio Performance Report for SG market

Moving forward, I shall be using the charts and metrics from Stocks.Cafe to track my portfolio performance for SG market. You can reach my p...

Friday, October 13, 2017

Rule of 72 for estimating Investment Returns


I was reminded of the Rule of 72 while checking out the annual returns of some index funds. It is quite a useful formula to quickly get an idea of how long an investment needs in order to double. Below is a more detailed definition I got from Investopedia:

The 'Rule of 72' is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself.

Take note that Rule of 72 becomes less accurate as the rate of return gets bigger. Here is a list of investment instruments, their (rough estimate)  annual rates and the number of years they take to double.

Singapore saving deposit (0.05%pa) - 1440yrs (seriously?)
Singapore Fixed deposit (1.0%pa) - 72yrs
Singapore Saving Bond (2.0%pa) - 36yrs
CPF OA (2.5%pa) - 28.8yrs
CPF SA (4.0%) -  18yrs
STI ETF / High yield bond (6.0%pa) - 12yrs
SPY ETF (12.0%pa) - 6yrs
Quantedge Hedge Fund (24.0%pa) -  3yrs

Take note that the above list is just a rough estimate but you should be able to see how high returns can help to double your investment quicker. Of course, high return entails high risk so please do your own due diligence before embarking in any investments.


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Thursday, October 12, 2017

[BUY] SGX:5UX (Oxley Holdings Limited) 12th Oct 2017 entered at 0.64

Bought today at 0.64. Actually I am not really a fan of high volume stocks and Oxley is quite a popular stock in the market. Oh well, need to strictly follow the signal. Anyway, Oxley has been trading range bound for several months already. Recently there was a huge volume surge past the resistance. Let's see if it will continue to trend.

Check out the performance of my SG portfolio.
Also check out the performance of my US portfolio.


Profile

Oxley Holdings Limited is an investment holding company engaged in the provision of management services. The Company is a property development company. The Company specializes in the development of residential, commercial, and industrial projects.




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Monday, October 09, 2017

[BUY] SGX:K75 (Koh Brothers Group Ltd) 9th Oct 2017 entered at 0.34

Hit my signal today. Tried the whole day to buy into this stock at 0.33 with no success. Just before market close, entered at 0.34. Not that bad, ~1% of slippage.


Profile

Koh Brothers Group Limited is a Singapore-based investment holding company. The Company is engaged in the provision of management services. The Company operates in three segments: Construction and Building Materials; Real Estate, and Leisure and Hospitality.



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Sunday, October 08, 2017

These 3 indicators show that the music is about to stop. When it does, make sure you’re not without a chair


There are several indicators that I would often (not that often but when I remember, I will) look at to get a feel of where we are in the market cycle and to prepare for what may happen next. Of course, I am not saying about timing the market. What I'm trying to say is that if I see that the sky is filled with dark clouds, I would make sure I bring an umbrella with me. It doesn’t matter whether it would rain in the end, but if it does, I know I would not get wet.

Today, I decided to look at those indicators and it looks like things are getting worse compared to the last time I looked at them (last month). These indicators are meant for US but as we know with our globalized and interconnected economies, all of us would be impacted if things go bad.

The Shiller PE (CAPE) Ratio for the S&P 500

Price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio), Shiller PE Ratio, or PE 10.

Chart from multpi

As of 6th Oct 2017, we are at 31.11, slightly above the peak which occurred just before Black Tuesday. We are already well above the value before the 2008 recession (Highest value recorded was 44.19 before the Dot Com bubble burst).

Buffett Indicator: Corporate Equities to GDP

Market Cap to GDP is a long-term valuation indicator that has become popular in recent years, thanks to Warren Buffett. Back in 2001 he remarked in a Fortune Magazine interview that "it is probably the best single measure of where valuations stand at any given moment."


Chart from Advisor Perspectives 
A value of over 100% is a sign that things are overvalued

VOLATILITY S&P 500

The VOLATILITY S&P 500 recently broke its all time low. Currently it is standing at 9.65. To me this is like the calm before the storm. From the chart, we can see that whenever it goes below 10, the next thing it would do is to go up which would mean a decline in the market.

 Chart from Yahoo Finance

S&P 500

Not something new. S&P 500 is currently trading at historical high above 2500. I wouldn't call this an indicator though but just a record of where we are right now.
Chart from Yahoo Finance

What should we do then?

All these indications should give us an idea where we currently stand in the economic cycle. I am not trying to say that we should start encashing all our positions and purchase gold and store in our coffer but to have a concrete plan of what we should do in the situation where the market starts to turn sour. Here are a few things I would do:

Have a plan for my exit strategy
As the saying goes "If you fail to plan, you plan to fail". Never leave deciding your exit strategy to the time you want to sell. The stress and emotion will cloud your judgement. In fact, it is good to already have an exit strategy right after you enter a position. And follow that plan when the time comes. Otherwise what is a plan for if you don't follow it, right?

Allocate more cash in my portfolio
Perhaps sell off a portion of the portfolio and keep the cash. Or inject lesser fresh capital moving forward. Keep the ammunition so that when the dust settles, you will have the firepower to ride the next uptrend.

Hedge my portfolio
Increase positions in instruments that are deemed as safe haven during a crash. Gold prices skyrocketed since the 2008 recession. Perhaps that could be my consideration for hedging. If you can't afford to buy gold, I think a gold ETF or gold mine ETF would be good enough. 


No one can predict exactly when the next crisis would come. It could be next month or a few years down the road. However, it is crucial that we prepare for it. If you look at those charts above, you can see from the history that when things turn bad, it can happen very quickly. You wouldn't want to be the one without a chair when the music stops.




Disclaimer: The information contained herein is not intended to be a source of advice or credit analysis with respect to the material presented, and the information and/or documents contained in this article do not constitute investment advice. Please perform your own due diligence or seek professional advice from your own investment agents.
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Friday, October 06, 2017

Differences between Discretionary and Systematic Traders



Below are some of the differences between discretionary traders and systematic traders.

Discretionary Traders
  • Trade base on intuition formed from their experiences in the market
  • No specific set of rules to dictate their trades. Their approaches are normally difficult to quantify
  • More flexible and adaptive to market changes (new normals)
  • More susceptible to emotional biases but can be better managed with more experience in the market
  • Attempt to anticipate the market’s next movement
  • Usually trade on a small pool of stocks or a specific sector or market that they are familiar with
  • Spend more time in analyzing current fundamental new
  • Confidence comes from their experience in the market

Systematic Traders
  • Specific set of rules that they follow for entry and exit (and risk management)
  • Rules are usually based on price and volume or even fundamental metrics
  • Reactor to market movements instead of actor
  • Easier to quantify and automate
  • Unemotional. Losing trades are expected. They believe the system will be able to profit in the long run if their testing has already shown positive results
  • Can have many stocks in their watchlist/filter across different markets
  • Most time spent on ‘perfecting’ their rules or system at the initial stage. After that, time is usually spent on fine-tuning or researching other new systems. Usually lesser time spent on trade analysis on a daily basis
  • Confidence comes from successful testing of their system

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Thursday, October 05, 2017

Risk Management: The unfortunate case of Tantech Holdings Ltd (NASDAQ:TANH)


So far Tantech Holdings Ltd (NASDAQ:TANH) has given me the biggest loss by absolute value (-25.88%). There are other trades that has given me a bigger loss by percentage but TANH sudden 30% gap down on market open on 27th Sept 2017 led me to take this opportunity to highlight the importance of risk management.

My system gave me a buy signal for TANH a few weeks ago in mid September. I entered a position at 3.71. Judging from the price chart, it appeared to have a nice upward trend. Unfortunately I was caught off guard on 27th Sept 2017 when it suddenly gapped down 30%+ . There was a news that 
it has entered into agreement for registered direct placement of $6.5 million common shares and warrants with some institutional investors. I tried to do some research over the internet, looking for news, analysis, even StockTwits but I could not find any logical enough explanation to warrant such kind of sudden drop. There were not much analysis on this stock and many were scratching their heads not knowing the reason for the sharp drop. The stock just gapped down out of the blue!

This is a good example of a stock that went in the wrong direction. It seems irregardless of the amount of fundamental or technical analysis done, there will bound to be such cases in your trading journey especially when the overall market is already going south That is where risk management can save you from the risk of ruin. Lets say in the worst case scenarios, you have invested 100% of your portfolio into this stock, you would have loss 30% of your capital in 1 week! To get back to your 100% capital, you need to gain 1- (100/70) X 100% = 42.86% of profit in your future trade. Similarly, if you loss 50%, you will need to gain 100%. The more your loss, the more you need to gain to break even. That is why maximum drawdown is highly emphasized in determining the risk of a fund.

Definition of maximum drawdown: 
A maximum drawdown (MDD) is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown (MDD) is an indicator of downside risk over a specified time period.
Courtesy of Investopedia

Fortunately, I only invested about 8% of my total portfolio amount. I sold the stock at a 25% loss but that only amounts to 2% loss to my entire portfolio so my portfolio survived and have a better chance to recover my losses in other future trades. 

The bottom-line is you need to have sound risk management practices in play to prevent the risk of ruin. Honestly speaking, the risk management of my current system is rather basic but it is good enough for small timer like me.


Profile
Tantech Holdings Ltd. develops and manufactures bamboo-based charcoal products in the People’s Republic of China and internationally. The company operates through three segments: Consumer Products, Trading, and Energy. It produces pressed and formed charcoal briquettes for use in grills, incense burners, and other applications under the Algold brand. The company also offers Charcoal Doctor branded products, such as air purifiers and humidifiers, automotive accessories for air purification, underfloor humidity control, pillows and mattresses, wardrobe deodorizers, mouse pads and wrist mats, refrigerator deodorants, charcoal toilet cleaner disks, liquid charcoal cleaners, shoe insoles, and decorative charcoal gifts. In addition, it provides bamboo vinegar, a liquid byproduct that is used in disinfectants, detergents, lotions, specialized soaps, toilet cleaners, and fertilizers, as well as in various agricultural applications; and bamboo carbon for use in EDLCs. The company sells its products directly or indirectly through distributors for industrial energy applications; and household cooking, heating, purification, agricultural, and cleaning uses. It also exports its bamboo vinegar, bamboo charcoal purification, and EDLC carbon products. Tantech Holdings Ltd. was founded in 2001 and is headquartered in Lishui, the People’s Republic of China.
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Sunday, October 01, 2017

September 2017 Portfolio Performance Report for SG market

Moving forward, I shall be using the charts and metrics from Stocks.Cafe to track my portfolio performance for SG market. You can reach my portfolio here. It has a lot more useful tools and functions than what I can come out with using Excel (no time to explore).

For September 2017, the return was merely a 1% while STI recorded a slight drop of about 1%. No major movement for all the stocks in the portfolio.

Time Weighted Returns by year










Current portfolio %PnL+Div

This month's transactions
BUY T24 0.365
BUY MR7 0.51
BUY BIX 0.8
BUY C33 0.33
BUY AWI 0.545

SELL BLT 0.8 (2.56%)
SELL 40D 0.43 (2.38%)

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September 2017 Portfolio Performance Report for US market


For this month, portfolio performance in the US saw a moderate decline. August 2017 was a great month for the portfolio with a return of about 30%. For September 2017, it was a decline of about 14%. The drop is mostly attributed to the decline of the overweight NYSE:KEM stock and the sudden 30% gap down of TANH on 27th September 2017. The good news was that NYSE:KEM went below the stop loss and was offloaded with a realized gain of 370%.

Moving forward, I foresee more volatility in the market after the Federal Reserve began to unwind its bond buying program and with the possibility of another rate hikes end of this year.

Total Return by year
2016 19.36%
2017 62.11%

Current portfolio %PnL+Div
RADA 107.61%
DSWL 23.94%
CLUB 48.39%
CFBK -3.14%
SDLP -1.82%
GRAM 0.84%

This months' transactions
Buy CFBK 2.59
Buy TANH 3.71
Buy SDLP 3.84
Buy GRAM 4.71

Sell KEM 19.53 (370.60%)
Sell LLNW 3.79 (3.27%)
Sell TLRA 4.35 (38.10%)
Sell YUME 4.54 (-20.63%)
Sell TANH 2.77 (-25.34%)
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Saturday, September 30, 2017

Let profit run: The fabulous case of multibagger KEMET Corporation (NYSE:KEM) 370% return

This post is meant to review one of the stock that has gained me a 370% profit with my automatic trading system.

KEMET Corporation is my largest multibagger so far. I entered a position into KEM in mid Nov 2016 at a price of 4.15 when there was a buy signal from my system. Since then it has been trending upwards with a few occasions of accumulation. After reaching the highest price of 24.64, it started a downtrend until it hit my stop a few days ago. It was sold at 19.53 bringing in a profit of 370.60%.

This is a classic case of letting profit run in trend following. Despite the downward pressures due to US presidential election, North Korea nuclear threat and the fear that rising interest rates would jitters the market, this stock continued its march upward. 

Most important lesson I learn here is to follow the rule of the system and not to make my own judgement. There were many occasions when I was tempted to sell all or average down, wanting to realize the huge profit when it hit 100%, 200%. It is hard to resist especially with all the bad news going around and the apparent consensus that the market is overbought and about to reverse. I am glad I stick to my system.


Profile
KEMET Corporation, together with its subsidiaries, manufactures and sells passive electronic components under the KEMET brand worldwide. The company operates through two segments, Solid Capacitors, and Film and Electrolytic. Its products include tantalum, multilayer ceramic, film, electrolytic, paper, and solid aluminum capacitors, as well as EMI filters. The company offers its capacitors for use in the automotive, communications, computer-related, industrial, consumer, military/aerospace, and alternative energy industries. KEMET Corporation sells its products to original equipment manufacturers, electronics manufacturing services providers, and electronics distributors. The company was founded in 1919 and is headquartered in Simpsonville, South Carolina.
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