The Billion Dollar Club

[OnTrial]

Objective

I have developed what I believe is a valid and profitable model for trading US equities. This journal will be a repository of real-time (as opposed to hind-sight) output from my model.

The last five years have been particularly good for the US stock market. It is very tempting to mistake a bull market for brains in such favourable conditions. I hope to demonstrate that my model consistently out-performs the SP500, and also generates annual returns in excess of 20% in all market conditions – good, bad and everything in between.

 

[OnTrial]

Motive

I live in London, and have been a keen student of the Stock Market for several years. I have two degrees in Engineering. I have also stretched my self-taught Investment savvy with the post-graduate Certificate in Quantitative Finance (Wilmott CQF).

I have been involved in the technology side of the Investment industry for almost ten years. I believe the time is ripe for me to get involved in the billion-dollar business of professional Fund/Portfolio Management.

I hope that the stellar returns I demonstrate in this journal will attract the attention of potential employers or partners who would like to leverage my skills for the benefit of their business.

In other words, I am putting myself on trial before the Court of T2W .

 

[OnTrial]

Philosophy

Let me start by saying that I classify every person who invests money in the Capital Markets as a Fund/Portfolio Manager. Henceforth, I will use the term ‘Portfolio Manager’ generically.

I believe that the job of a Portfolio Manager is akin to that of a Football (Soccer) Team Manager. Only the very naïve manager thinks that he can build a winning team by simply assembling the best players available. Real Madrid tried that with the galacticos, and we all know what happened to them. Conversely, it is foolhardy to believe that even the best playing system in the world can turn a group of mediocre players into an outstanding team. The very best football managers appreciate that sustainable success depends on selecting the best players available for their team, and then devising a playing strategy that exploits their players’ strengths to best effect. In fact, I would expect that the same principle applies to all team sports e.g. basketball, American football, hockey etc.

It is my opinion that this principle also applies to Portfolio Management. Individual stocks are the players, and collectively they form a portfolio (team). Excellent returns are achieved when Fundamental Analysis (player selection) is combined with Technical/Quantitative Analysis (playing strategy). Using just one approach to the exclusion of the other does not cut it, for me.

This is my philosophy. I certainly do not expect everybody to agree with me. Neither am I elevating my philosophy above anybody else’s. I just wanted to give a brief preview of my approach, and may revisit it in more detail later.

 

[OnTrial]

Model

I have called my model the FAB TEAM.

F – Fundamental Screening
A – Additional Screening
B – Bias (Long/Short; Trend/Countertrend etc)

T – Timing Entry
E – Establishing Entry Price
A – Allocating Assets (Position Sizing)
M – Managing Position/Portfolio/Self

 

[OnTrial]

Evidence

I will be simulating a $100,000 margin (50% margin) account, simply because it's much easier to calculate percentages (e.g 2% risk, 23.7% drawdown, 17.6% return on investment etc) on 100,000 than say 25,000 or 1 million. So my buying power will be $200,000, which I may or may not use depending on what the Asset Allocation module dictates for each position.

There will be times when FAB TEAM will not allow new positions to be taken in all the stock that qualify. To reflect this fact, I will have a squad (stocks that qualify) from which I will select a team (stocks that I will take positions in).

I belive FAB TEAM is scalable to at least $1m, and will higlight stocks in the Squad that have good liquidity (average of over 900,000 shares daily). However, other criteria (not liquidity) will dictate which stock get into the team, so I might not positions in less liquid stock.

What follows will be real-time exhibits from FAB TEAM. I believe they will convince even the most sceptical juror that my case is an authentic one .

 

[Jack o'Clubs]

Sounds interesting - good luck.

Are you confident that your strategy is replicable in scale, ie at the sort of size a fund manager would actually be working at?

 

[OnTrial]

Hi Jack,

You beat me to it. I was just going to add that info to my last post. I will be simulating a $100,000 account. However, I believe that FAB TEAM is scalable to at least $1m, possibly much higher, but I don't want to be too bullish.

 

[timm]

In other words, I am putting myself on trial before the Court of ET .

ET?

 

[neil]

ET?

Out of this world eh ? :cheesy:

 

[OnTrial]

Monday 05/11/07

Squad List
Stock Bias Entry Price (Stop-Limit)
IBKR Long 29.13-29.15
TX Long 36.37-36.39
KLBAY Long 40.86-40.88
ZRAN Long 25.53-25.55
PKG Long 31.14-31.16
CIEN Long 47.05-47.07
MON Long 95.03-95.05

 

[Profitaker]

I live in London, and have been a keen student of the Stock Market for several years. I have two degrees in Engineering. I have also stretched my self-taught Investment savvy with the post-graduate Certificate in Quantitative Finance (Wilmott CQF).

Impressive credentials !

I'll be watching with avid interest, and wish you good luck.

 

[OnTrial]

Thank you, kind sir.

Personally, I don't think they are impressive enough There are lots of Oxbridge & Ivy League Phds out there. Those are the guys I'm competing against.

Impressive credentials !

I'll be watching with avid interest, and wish you good luck.

 

[OnTrial]

Et

Sorry guys. ET = Elite Trader. I was also going to post the journal there. I might still do so, actually. I have changed 'ET' to 'T2W'.

 

[the blades]

Sorry guys. ET = Elite Trader. I was also going to post the journal there. I might still do so, actually. I have changed 'ET' to 'T2W'.

Good luck fella.

I'll watch with interest. I hold a portfolio of stocks (currently about 100 US and 20 UK) and hedge against the market. A similar approach to yours, but with no intention of attracting anyones interest as I want to make my own profits and not work for anybody.

I think you say this will be a simulated account, so how much will you be putting into each stock?

I ask because I only hold "small" ammounts of stock yet even then sometimes struggle to get filled. How will you know that you would have been filled?

Best of luck again.
UTB

 

[OnTrial]

Good luck fella.

I'll watch with interest. I hold a portfolio of stocks (currently about 100 US and 20 UK) and hedge against the market. A similar approach to yours, but with no intention of attracting anyones interest as I want to make my own profits and not work for anybody.

I think you say this will be a simulated account, so how much will you be putting into each stock?

I ask because I only hold "small" ammounts of stock yet even then sometimes struggle to get filled. How will you know that you would have been filled?

Best of luck again.
UTB

Hi UTB,

I'll be putting in between $5K to $20K (assuming a $100K account) in each position. At what size were you experiencing difficulty with fills? Also do you know what the average daily volume of these stocks was?

Thanks for your input.

 

[the blades]

Hi UTB,

I'll be putting in between $5K to $20K (assuming a $100K account) in each position. At what size were you experiencing difficulty with fills? Also do you know what the average daily volume of these stocks was?

Thanks for your input.

Typically only around 50 stocks. Don't get me wrong, it's a "1 in 50" ocurrence, but it's there for consideration.

I don't monitor volume - only the price chart. I get a feel for the liquidity from the price movement and bid / ask spread, that's all. Not much help I suppose It's not an issue to me, but if I were looking to assess someone from a virtual portfolio, I'd be interested in the losses due to spread and slippage, however that was estimated.

I'd guess there'd be slippage issues with $20K buys, but then again what's your timeframe / profit targets?

Cheers,
UTB

 

[OnTrial]

Typically only around 50 stocks. Don't get me wrong, it's a "1 in 50" ocurrence, but it's there for consideration.

I don't monitor volume - only the price chart. I get a feel for the liquidity from the price movement and bid / ask spread, that's all. Not much help I suppose It's not an issue to me, but if I were looking to assess someone from a virtual portfolio, I'd be interested in the losses due to spread and slippage, however that was estimated.

I'd guess there'd be slippage issues with $20K buys, but then again what's your timeframe / profit targets?

Cheers,
UTB

UTB,

50 stocks?? Are you saying you have fill problems when you place an order to buy 50 shares of a stock?? That's the info I was asking for.

These will be swing trades, with average profits circa 3%.

Thanks.

 

[the blades]

UTB,

50 stocks?? Are you saying you have fill problems when you place an order to buy 50 shares of a stock?? That's the info I was asking for.

These will be swing trades, with average profits circa 3%.

Thanks.

OK I've had to dig back a bit for a clear one.

7th June - order for 700 in IFNY @$3.6 each. Only 136 filled. So an order for only $2,000 wasn't filled.

Most other examples of partial fills have actually been filled, after 2 or 3 attempts over several hours. But I doubt that would have happened every time for larger orders. I think I've only had a couple of other experiences where the order wasn't completely filled and then by an ammount that I haven' bothered recording. Make of it what you will

UTB

 

[OnTrial]

OK I've had to dig back a bit for a clear one.

7th June - order for 700 in IFNY @$3.6 each. Only 136 filled. So an order for only $2,000 wasn't filled.

Most other examples of partial fills have actually been filled, after 2 or 3 attempts over several hours. But I doubt that would have happened every time for larger orders. I think I've only had a couple of other experiences where the order wasn't completely filled and then by an ammount that I haven' bothered recording. Make of it what you will

UTB

Thanks a lot UTB.

The volume for IFNY was only 54,000 on 7th June, so I can understand the liquidity problems. Did you mean 3.26 (or 3.36) NOT 3.6 because the range for IFNY on that day was 3.27-3.39.

I've taken on board what you are saying. As a result, stocks that have an average daily volume of less than 900,000 will not be included in the team (although they can be part of the squad). Also, I will use the limit price of the stop-limit order (i.e the more unfavourable price) for my calculations. Unfortunately, I won't be able to simulate partial fills.

My main concern is not to show an infallible P&L, but rather to demonstrate that FAB TEAM satisfies the two objectives I stated at the beginning of the journal. I think the adjustments I mentioned in the previous paragraph, will produce a more realistic (but still not perfect) P&L.

Once again, thanks for your very useful input.

 

[Jack o'Clubs]

OnTrial,

Could you clarify what part of your journal is simulation, and what is 'real' trading with orders placed in the market.

I run a similar style of strategy to you (and The Blades), hence my interest in your performance.