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Hi 1step,
1) The asset allocation module uses the Sharpe Ratio to allocate stocks. The Sharpe ratio does not take fundamental strength into account but only concentrates on reward and risk (i.e. price performance and standard deviation).
ABT apparently had the best reward/risk score over the period you used and that's why it was given the largest allocation.
This touches on a fundamental point when investing using VSS. You should FIRST select stocks with strong fundamentals and strong moats, SECOND buy them when they're undervalued and THIRD, allocate those stocks.
That way you're assured that risk-minimization is built-in at each step. First by selecting great companies (which are at less risk of going out of business), second by purchasing stocks with a built-in margin of safety, and third, by diversifying and optimizing your portfolio to further minimize risk and increase returns.
2) VSS v4.0 is the latest version.
I hope I've answered your questions, let me know if you have any others.
Thanks,
Mark.
Hi Neko,
Unfortunately the oft-delayed Pragmatic Investor software is still not ready. To date I have been content to just use it for my personal investing and haven't put in the work required to make it ready for release to the public.
At this point I'm not going to attempt to guess at a new release date but will post a message here as soon as it's available.
Thanks for your interest and my apologies for the continuing delays.
Mark.
Hi mark
1.
I ran recently the vss 4 screen . These stocks interested me
ko 81 mote 6
bdx 81 5
cl 88 5
mcd 78 5
plus single stock screen
abt 66 mote 3
When I asset allocated .it gave these percents
abt 24%
bdx 19
cl 20
mcd 18
ko 17
Why did it give the largest share to the weakest stock, abt? Wouldn't it favor the strongest stock?
2. is there a more recent version of vss. if so, What advantages does it have over version 4.?
Hi mark
When can we expect the realease of your new pragmatic investor?
I'm looking forward to test driving it
respectfully
Neko
Hi 1step
What kind of investing style are you going to use?
I-shares has a whole selection of industry funds. Pick a few industries you think will grow in the future. Tech is good but airlines might be a bad choice. Stay away from the dogs.
On the Exchange traded funds board for AIM (or something like that) I have a permanent post at the top that lists fund families and comparable funds. The S+P 500 is broken down in to 10 or 11 sectors and you can buy them all or just the 5 or so you think will be the strongest.
Toofuzzy
Hi Toofuzzy
I thought about your reply. Which Funds would be good to start looking at.
Hi 1step
Be aware that correlations change over time and with varying market conditions. I would think it would be best to use securities in the same industry or just use a fund.
Toofuzzy
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Hi 1step,
a) Any correlated group will do, the stocks don't necessarily have to be in the same industry. However you're apt to find stocks in the same industry being more highly correlated. Yes, VSS 4.0 allows you to see correlations.
b) I like to see 0.80 or above as the cutoff for high correlations. However anything above 0.70 can work (but I only use this value if I can't find enough 0.80 or better correlations).
Let me know if you have any other questions.
Thanks,
Mark.
Hi mark
In using your stratergy.
a. Does the stocks have to be in the same industry or can any highly corelatted group of stocks do. I believe vs 4. has a corelation program.
b. What value of the corelation coeficent in your experience is good cut off for being highly corelated. In other words what minimal value is good secure value to get reasonable results.
Hi 1step,
I don't know of any studies done on the future price predictions, although it would be an interesting study to do.
I think the best way to use VSS 4.0 is to have a long-term perspective. Find stocks that have high fundamental ratings (i.e. a minimum rating of 78), have strong economic moats (i.e. minimum moat strength of 5) and have their current price less than the indicated maximum buy price.
That will generally return a handful of stocks (for example, I just ran VSS 4.0 and it returned 8 stocks). Once you have this list, I would suggest going through each stock and reading the latest news to see if there are any unusual circumstances, that might negatively or positively affect the stock, that aren't captured in the VSS analyses.
You should also do other due diligence checks that you personally like and then select which stocks you want in your portfolio.
For example, I like to group stocks with high correlations together and then select one stock from that group. The way I select it is by checking its price performance relative to the other stocks in the group over a 6 month period. I choose the stock that has underperformed over the past 6 months.
In the short-term, you can use VSS to confirm a buy decision when the current price is below the maximum buy price. Similiarly you can use VSS to confirm a sell decision when the current price goes above the maximum buy price or the fundamentals rating falls below 78 or moat strength falls below 5.
For a longer-term strategy, you should only consider selling if the estimated target price is reached or the fundamentals deteriorate.
I hope that helps.
Regards,
Mark.
Hi Mark
I rely a lot on your Value Stock 4.0 program. I was wondering if you or anyone had done a study of the acuracy of the future price predictions of your algorithm. Also do you have suggestions as to the best use of the information from the program. Do you have any tips or suggestions how others use it.
A fellow named ocroft who post on the aim site , has a technique for
using S&p A+ stocks as his investment universe . When aimed and the pc stops increasing and 13 day average crosses the 26 day average. It is a potential buy. How can I use VSS to affirm a buy decision if possible. Is there any way to use it to confirm a sell .
I know I'm asking for a lot of information.
Thank you
1step
Hi Larry,
I don't think you're doing anything wrong. Don's study used an index. Some ETFs (and stocks) do better with different AI options than others. It really depends on volatility and price movement over the period tested.
My suggestion is to use 5 year time periods going back 20 years and test with the various options over each 5 year period.
For example, start with, say, 1990 and test from Jan. 2, 1990 to Dec. 31, 1994. Repeat from Jan. 2, 1995 to Dec. 31, 1999. Continue until you reach the current date.
Then see which options resulted in the best returns. Sometimes you might not see any definitive patterns, in which case you won't learn anything. In other cases you'll see one option gives much better results. Of course past history doesn't guarantee future success, but if one option has consistently outperformed another in the past, chances are it will also do so in the future.
I hope that helps. Let me know if you have any other questions.
Thanks,
Mark.
DON & MARK
I have been seaching old posts trying to get a better understanding of MattMod and came across this post. First of all understand that this is my first time using this version of AI which means I probably don't know what I am doing. What I am checking is ETF's and just take VBR as an example and it didn't matter which one because I got the same result for all. The same result I am refering to is that I get much better results with MattMod engaged than with MACRO engaged. This leads me to believe I am doing something wrong based on the information in this post. I guess I should mention I am using the historical analyzer. I also find when using MattMod I get better results starting with 33% cash in lieu of 50% cash.
What I checked was VBR from 1/1/2004 to 11/23/2010 and with MattMod enabled and 33% starting cash (weekly) I got a total return of 57% or 7% annual. I got 27% and 4% with Macro enabled. Using 10% safe B & S and 5% min. B & S.
I need to understand what I am doing wrong if that is the case.
Thanks
Larry G
Hi Byculla,
"You mentioned that you were going to upgrade AI with VSS algorithms. I would have waited for that but the track history is not too good."
I take it you mean the delay in getting PI 3.0 done? If so, then you are correct. I have no scheduled release date for a new AI (other than I plan to do it) and I would think it will be done later rather than sooner (however when the upgrade is done, it will be far better than AI 3.0 -- which I believe is already the best AIM software available).
"At the same time I am reluctant to invest in partially overlapping tools"
I understand your point. If it will help, I'd be willing to give you $147 off VSS 4.0 if you purchase AI 3.0 before November 11, 2010. So you'd pay $50 for VSS 4.0 instead of the $197 price.
To take advantage of this, just purchase AI 3.0 and VSS 4.0 before November 11, 2010 and then email me. I'll immediately credit $147 back to your credit card for VSS.
And to be fair, I'll leave this offer open to anyone who wants to take advantage of it until Nov. 11, 2010.
"Buying put and call leaps could be a profitable strategy dependant upon % of correct stock forcasts"
I'm actually looking at a strategy that mainly involves selling puts for use with AI (but buying calls is also a possibility). BTW, there are LEAPS longer than 2 years (e.g. 30 months) for some stocks.
"When I finish my present stack of books (4) I intend to purchase your PI book to see what your PI software is all about."
After you read the book, you'll have enough information to implement the PI strategy on your own (without the software). So if you're inclined that way, you actually don't have to wait for the PI software.
Hi Mark, Thank you for your reply. As I mentioned on the AIM board, I have nothing against a good tool that would help and simplify my investing, especially one where the developer has incrementally improved it over the years. Though free may be a very good thing it may not be very convinient.
At the same time I am reluctant to invest in partially overlapping
tools so was hoping that AI did just as good a value search similar to VSS. You are correct though on how I was envisioning using AI. Buying put and call leaps could be a profitable strategy dependant upon % of correct stock forcasts. Wish there were longer than 2 year leaps.
When I finish my present stack of books (4) I intend to purchase your PI book to see what your PI software is all about.
You mentioned that you were going to upgrade AI with VSS algrothems. I would have waited for that but the track history is not too good.
Hello Byculla,
I used fundamentals to pick AIM stocks and used AI to manage them many years ago. However when I wrote the Pragmatic Investor, I switched all my AI portfolios over to PI.
Then in 2008, I started using the new PI algorithm and have not looked at another system since.
I still think AIM is an excellent investment strategy and it performed relatively well (compared to the S&P500) when I was using it. However the new PI has outperformed AIM by a wide margin and I plan to continue using it for the majority of my portfolios for the forseeable future.
However I don't rule out using AI again for a smaller percentage of my portfolio (probably 10%). One of the things I mention in the PI book is to diversify your investment strategies as well as your holdings. So I will most likely follow that advice, however right now I'm strictly PI 3.0.
I'm also looking to backtest some options strategies with PI and AI, but that is in the very early stages, so I don't expect I'll be using that with real money anytime soon.
If you are thinking along the lines of using VSS to find good stocks to AIM with AI, then I think that is an excellent way to go.
I would find the top rated VSS stocks, use VSS's asset allocation function to find a group of these stocks with low correlations between them, then enter each one in a separate AI portfolio.
Then run an optimization on each one and select a reasonable set of parameters for each portfolio. Finally I would use AI to manage them with those parameters and using the MACRO filter.
That's what I would do, but you have to decide what makes you most comfortable.
Of course if you don't want to optimize the parameters and you're only interested in using AIM BTB, then you actually don't even need AI.
Tom Veale's website has a free AIM spreadsheet and Don Carlson has posted his MACRO algorithm which you can incorporate into the spreadsheet (or someone on the AIM board might have already done it -- so just ask over there).
Without AI you'll lose alot of really good functionality and research potential, but at the end of the day you still get the AIM benefits for free.
That is a pity. I was thinking of using fundamentals to find stocks and the AIMing them. AI then would fit the bill. Does VSS?I am sure you have done so, how has it worked out for you and what have you used.
Hello Byculla,
AI does do a value stock search but it uses a different, older, algorithm than VSS does. VSS's algorithm is far better and I plan to update the AI fundamentals algorithm to the VSS one in the next major upgrade.
If you have a choice between the two, VSS is the way to go for analyzing fundamentals.
I hope that helps. Let me know if you have any other questions.
Hi Mark, Could you confirm my understanding that AI does a value stock search of the fundermental data base. If so does it use the same methodology and display of results as VSS.
Thanks.
I haven't looked at TA indicators for years now, so I'm not the person to ask about them.
I do have a good book called, "Trading Systems and Methods," by Perry Kaufmann which I read years ago and found some interesting concepts in there. I even tested a few of his algorithms, but those tests results have been lost in a disk crash.
As I mentioned previously, I had looked at TA and didn't find much I liked. However I believe some AIMers have melded TA concepts with AI in the past (post a message on the main AIM board and someone will probably answer).
I'd rate Buffettology as one of the best investment books available (right up there with Benjamin Graham's Intelligent Investor).
Though I have that book on hold, reviewing the user reviews on amazon they are not entirely positive. Anyway, now knowing how Buffett evaluates ( or do we really )and their results, any accountant should be able to indicate the relevant entries on a balance sheet. I gather that the dummy series have a couple of good books on this topic. I agree that using modern tools ( computers, software, internet for data ) makes the process easy. Program in all the important factors, give them the appropriate weighings (add a lot of patience ) and viola you get a slimmed down list to invest in with a very high degree of success.
MOS gives an max. entry value. Maybe good TA might help with a good entry point. Trouble with most TA indicators is that they take only price into account or only volume. Do you know any that give a value that is the resultant of both ?
AAI = AI
Do you suscribe to AAII
Hi Byculla,
Lots of people say they use Warren Buffett's Value Investing strategies, but not many do. VSS uses Buffett's formula taken directly from, "Buffettology," by Mary Buffett and David Clark.
They poured over Buffett's writings and explained what he does. I'd definitely put that book on your reading list if you're interesting in Value Investing.
VSS adds the accrual ratio from Richard Sloan's research and it uses Pat Dorsey's (Morningstar's Director of Stock Analysis) formula for economic moat strength (along with one Buffett's criterion).
I have not seen another software package come as close to pure Buffett as VSS does.
I'm not a big fan of TA, but there are certainly a few indicators that make sense. However I feel most of it is just multi-layered curve fitting.
I'm not sure what you mean by, "AAI." Do you mean Automatic Investor or AAII.com?
As always, feel free to post your questions here.
I just finished reading rule 1 and your report. More than a few minor differences wouldn't you say. You both start/quote Buffett and his way to evaluate companies but use different inputs. Since i am not an accountant nor a financial analyst I would not know which, if both are correct. I have seen the inputs and reasons Phil chooses them. How and why did you get around to making your choices. Guess I should read how the Oracle does it. Got a few books at the library on request.
I presume that your software ( VSS ) does a scan of all stocks in Yahoo/MSN?value Line ?? data base and provides a list of stocks that meet the criteria.
Even with a MOS Phil uses TA to validate entry/exit moments. I can see the logic of that. A Value/fundermental/TA approach. Can one use AAI for such a management purpose ?
Will post more questions as they present themselves. Thank you for all your replies much appreciated.
Her name is Debra Ball and if you've ever seen a George Foreman grill infomercial, she was the host who "interviewed" George.
I sent her the scripts for the PI pieces and a few days later she did them. Never even met her. Gotta love the Internet.
There is a new version of PI coming out in January 2011.
Um, you still didn't answer the other question, "who's the babe?" Mrs. Aptus? :)
There is a new version of PI coming out in January 2011. The previous version is no longer for sale because it uses an older set of algorithms that I've greatly improved upon.
I went to your PI site. There it states that PI is not for sale till 2011. Confused. Nice babe though.
The first version of PI was released in 2004.
Mark, When did you start selling PI software.
Hi Neko,
PI 3.0 should run fine on XP Pro and XP Home. It won't run on XP Media center or below since it uses the .NET Framework 4.0.
Your hardware should be okay, as long as it has the minimum recommended specs: 1GHz CPU, 512MB RAM, 600MB free disk space (if you don't have .NET 4.0). If you already have .NET Framework 4.0 on your machine then you'll need less than 10MB of free space.
Yes, many systems rely on reversion to the mean, but the implementations differ.
PI's Value Trading Algorithm actually uses a modified version of that concept by looking at groups of highly-correlated equities and trading based on their relative values -- rather than simply relying on a strict reversion to the mean. Therefore stocks may never actually revert to their individual means but you would end up trading around the group's (or a sub-group of that group's) mean.
Value investing and AIM loosely follow the reversion to the mean concept too, but, again, the implementations are different.
I hope that helps. Let me know if you have any other questions.
Hi Neko, Re: Reversion to mean............
AIM does expect the pendulum to swing in both directions. It also has built into it a "positive feedback loop" that tends to move the bracket's swing slightly upward with each cycle. This can help to compensate for a slight upward slope to the overall market price.
Automatic Investor, I believe, allows you to adjust that feedback loop, making the machine either less or more aggressive relative to one's interpretation of the future. For instance, if you felt the market was going to be range bound for many years, you would want to reduce the feedback to near zero. That would keep the buying and selling parameters nearly identical cycle after cycle during the range bound period. On the other hand, if you felt the market was going to grow at maybe 8% per year on average, then leaving the feedback in place or modifying it slightly might make the program more effective in that environment.
Of course all this depends upon one's ability to see far into the future.
Best regards, Tom
Hi Mark
I have a question on system requirements for the new pragmatic investor. I have xp ,will it be enough to run the new software? Do I need to upgrade.
I have followed discussions on the aim board about various ways of investing. A lot of the systems seem to rely on reversion to the mean. If the equity moves away from its mean significantly it will eventually return to its mean barring large scale issues of value or problems unique to it. Aim relies on that and I guess the pragmatic investor and value investor also or any other form of rebalancing.
respectfully
Neko
Hi Byculla,
Yes, the two are based on the same principles that Warren Buffett has written about endlessly. There are a few minor implementation differences however.
You can find the Value Stock Selector algorithm here --> http://valuestockselector.com/howtoinvest/
Hello Mark, Does your Value Stock Selector encompass the ideas from Rule #1 . Thanks
Hi byculla
>>>>Hello Toofuzzy, AIM is weighed towards a systemic bull market, higher higs and higher lows-pullbacks. I beleive we are at present in a systemic bear market. The cycle will change but what about in the meantime. Could be some years ro recovery. <<<
Well I guess you are one of those people that can pick the bottom ....... but if you become unsure .....
Then buy half of what you want to invest and then let AIM tell you when to get in or out.
If you use Exchange Traded Funds I guarantee that you will NEVER realize a loss. (Aim only has you buy on drops and sells on rises) Aim will take profits on intermediate rises.
Toofuzzy
Hello Toofuzzy, AIM is weighed towards a systemic bull market, higher higs and higher lows-pullbacks. I beleive we are at present in a systemic bear market. The cycle will change but what about in the meantime. Could be some years ro recovery.
Whichever good authority you listened to is using the word authority frivilously.
Hello Byculla,
Of course I have my views on where the markets will go (see http://pragmaticinvestor.com/economy/predicting-the-future/ ), however I don't use predictions when actually investing my money.
Although I'm confident the markets will go up in the long run, I don't know when. So I use strategies that react to what the market does rather than strategies that try to predict the markets.
Both AIM and the Pragmatic Investor's Value Trading Algorithm (http://pragmaticinvestor.com/book/ ) strategy react to markets, and that's why I believe they consistently do so well.
In AIM's case, in the short term, a bear market provides better and better entry conditions for purchasing stocks. The danger is that you can run out of cash before the market hits a bottom.
In that case, you should still do well (assuming you've invested in fundamentally strong stocks) but your purchasing won't be as efficient as it could have been. The best way to use AIM is to invest over time (e.g. if every month you add money to your cash reserve and wait until AIM directs you to use it, then even if you use up all of your cash reserves in any given month, the next month you will have additional funds available to AIM).
This fits nicely with the idea of investing the first 10% (or whatever amount you choose) of your paycheque each month.
In a flat market AIM will simply sit there -- just like buy and hold. If your stocks pay dividends, then the dividends will fatten your cash reserves until the markets start moving again.
Hi byculla
With AIM you REACT to the market, you don't need to predict it. It doesn't matter what the market is GOING to do. It only matters what it has done.
Besides, I have it on good authority that, anyone who says they know which way the market is going to go is either a fool or a lier.
But with 100% accuracy I can tell you " It will be volatile "
Toofuzzy
Hello Mark,
Do you listen to Consuelo Mack. If not check out her latest interview with David Rosenberg - a canadian - at wealthtrac.com. A very interresting video. How does his views jibe with your reading of the markets ( US ) and with what your software is telling you.
Personally I think that he spot on in his comments. But within AIM does it matter. How does a secular bear market or a flat market affect Aiming.
Thanks.
Hi Byculla,
Thanks for the link. I'll check it out.
PI is progressing, but slowly. For the past two years I've made most of my money investing, but I'm also a GIS consultant and, of course, I run Aptus with its various software packages.
I don't have an exact return for the past decade off the top of my head, but I've outperformed the markets (S&P 500, Nasdaq and Dow) starting after the internet bubble burst. When the bubble burst, my portfolio value fell dramatically (and unfortunately I was invested in 3 not-so-stellar stocks, which I still own today at about a tenth of their book value. I keep them around as a reminder of what can happen when emotions get in the way).
However, I kept purchasing stocks and eventually moved to buying only fundamentally strong stocks starting in 2004.
When the sub-prime bubble burst in 2008, I was able to use the experience from the internet bubble to do very well. So now I'm waiting for the next bubble so I can, "swing for the fences."
What investment methods do you use and how did you make out these past few years?
Hello Mark,
I would like to direct you to a site where you will see how he makes use of video to explain concepts. Very low tech. but very effective. It is www.khanacademy.org a pretty rmarkable site and effort on his part. Maybe it could provide some useful ideas.
How is the programming of PI progressing. Now I am being nosey, are you a full time investor/trader or is programming your day job. How did you fare this past decade. Keep up the good work.
Thanks.
Hi Byculla,
Yes, I'm familiar with X_Dev and Myst. You are correct in that the problem with X_Dev is one of Yahoo! changing its data format. The fix is actually quite easy, but, of course, you need the source code.
However this isn't an issue of licensing. If any software vendor decides not to support his product, then whether the software is tied to a license server or not, you will have problems.
Technology changes so quickly that any useful software needs to be supported in a timely manner or it will eventually break (moreso for investment software since this category relies heavily on data feeds).
Automatic Investor has been selling since 1999 and I've had my fair share of issues (including Yahoo! changing their data format a number of times), but I've always been able to fix these things quickly. If there's a problem with the license server, I will also fix that right away.
At the end of the day, however, if a vendor stops supporting the software, users will be out of luck. It doesn't have anything specifically to do with implementing a license server or not.
I've looked at various licensing schemes and the one I currently use is what I find to be best. As I've mentioned before, I'm always open to suggestions. If someone suggests what I think is a better way of licensing, then I'd be happy to implement it.
In the meantime, the current method appears to work well for me and current AI users.
Hello Mark,
Refering to our discussion about a software not being tied to a server, in this case a license server. Let me point out an example I just came accross. There is a AIM derivative software called X_Dev. The seller no longer seems interested in maintainind it. So now there are any number of user with nonfunctioning software. In this case it seems to be a problem associated with yahoo data download. Seems that yahoo download is a problem that pop's up ever so often. I would imagine that there are other more stable sources of free data available.
I should imagine that there are better ways to skin this cat. Nothin like a being a helpless user of a useful software that could stop functioning leaving one holding one's ----.
Hello Byculla,
"Both AIM and VSS seem to be predisposed towards rising markets and operate accordingly."
I don't think that AIM and VSS are predisposed to rising markets. AIM does better in a volatile market (i.e. big swings both up and down) and VSS does better in a falling market (i.e. cheaper, undervalued stocks that will eventually recover over time). The Buy and Hold strategy is predisposed towards a rising market.
From VSS's perspective, at some point, strong, fundamentally solid stocks that have been undervalued by the markets will come back to their intrinsic values once people catch on. Of course this could take some time and nobody can predict when that will occur -- hence the fact Buffett underperformed during the tech bubble of the late 90s but laughed all the way to the bank during the tech crash and the subsequent sub-prime fiasco.
However Buffett has repeatedly stated that he doesn't care if it is a bear, bull or sideways market because he doesn't look at short-term stock prices. He purchases undervalued businesses and then holds them for long periods of time.
My investment philosophy is similar. I like to purchase strong undervalued businesses and hold them for a long time. The difference between my method and Buffett's is that I will hold any one of a group of stocks for long periods (not just one stock).
With the Canadian banks, for example, rather than simply purchasing, say, BMO and holding it for a long period, I am content to hold any one of the major 5 banks.
At any point in time I am always invested in a bank (thus satisfying Buffett's long-term requirement), but the bank might be any one of the 5 -- not necessarily always BMO.
There have been some VSS users who scan for highly rated companies and then base their investing decisions on the number of stocks returned. So, for example, if only 2 or 3 stocks were returned, they would consider the market overvalued. If 14 or 15 were returned, they might consider the market undervalued.
However I haven't run any tests on this strategy.
"Does VSS identify overvalued stocks using the same methodology?"
Yes, VSS does identify overvalued stocks using the same methodology.
"What percentage of stocks identified by VSS as undervalued then proceed to gain and in what time frame?"
There is no clear answer for this question. Purchasing strong, undervalued stocks is what value investing is about. When the rest of the market actually catches on and bids up the price to its intrinsic value, or beyond, is not predictable because it's based on what people think -- which itself is not consistently predictable.
At the end of the day, I think almost 100% of strong, fundamentally solid stocks will go up. The variable is when. The longer the time frame, the higher the probability for a price increase. And since the stocks are fundamentally solid, the chance they will go out of business within an investor's holding period is low (although not zero -- hence the recommended use of diversification).
I've had some stocks go up almost immediately after purchasing them and others not do anything for 2 years.
I think many people don't use value investing for this very reason. It is possible that they can be doing nothing, sitting on their hands, for long periods of time. Most people like action or like to feel as if they're doing something.
On the other hand, my backtests and many studies have shown that value investing is the best way to make money in the stock market. Once you've purchased great stocks, you should do nothing and sit on your hands. It's difficult to do, but it appears to work the best.
Hello Mark,
Both AIM and VSS seem to be predisposed towards rising markets and operate accodingly. I would suggest that we are now in a systemic long term bear market. If that be the case then in the present climate the logic of both should be reversed to short and cover. There are periods when Buffet did not do as well for considrable periods of time. What does your back testing show ?
Does VSS identify overvalued stocks using the same methodology? What percentage of stocks identified by VSS as undervalued then proceed to gain and in what time frame.
Thanks
Hello Byculla,
For the past 2 years I have been using the methods described in the Pragmatic Investor book. It starts with highly rated (both fundamental rating and moat strength) stocks as calculated by the Value Stock Selector algorithm and then groups highly correlated stocks together.
It then manages these groups (buying and selling) as per the Value Trading Algorithm.
Since 2008 I have set up portfolios using Canadian banks (CM, TD, RY, BMO, BNS) and technology stocks. Returns from October 2008 to December 2009 in my personal accounts have been over 76% compared to a B&H return of 17.7% (note this high return was due to the extreme volatility in the markets even for fundamentally strong stocks such as the Canadian banks. I don't expect anything near these returns going forward and my backtesting simulations show returns of between 20 and 30% annualized over 15 year intervals -- which I'm convinced is the best anyone can do over a relatively long period).
This year returns have been about 8% (compared to B&H results of 11.71%), so I'm waiting to see what happens the rest of the year.
Hello Mark,
What results have you been able to achive with Valus Stock Investor and is there a board dedicated to it ?
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