Wednesday, 3 September 2014

Answers to the questions on my stock portfolio

There has been various comments posted on my blog regarding my stock portfolio and instead of replying to each, here is my general articulation on my portfolio.

I am still experimenting with the algorithm for stock selection and therefore, it is a work in progress. The stocks I selected based on the present algorithm have a very high probability of subsequent stock price movements (averaging 93% on back testing for 2 years), either up or down. Unfortunately, it also means the stocks are often selected too late.

I am now testing with a new variation of the algorithm that will select the stocks earlier but equally, the cost will be a decline in accuracy.

Somewhere in between will be what I consider the optimal trade-offs, never ideal.

Clearly, what I have illustrated is the ability to use mathematical algorithm to detect stocks that have garnered momentum, to sufficiently high accuracy. And trading on these “break-outs” can possibly be profitable.

I am also working on an algorithm to signal the end of a short-term momentum. I have been less successful to-date but am confident of a breakthrough in the next two weeks. Indeed, my stock portfolio would have performed far better had I been able to sell earlier.

For greater clarity to some of the questions raised.

This portfolio is a real portfolio, where the objectives are short-term buying and selling on the basis of the mathematical algorithm created. I do review the fundamentals and valuations subsequently, but only after the companies have been first selected by the algorithm. In other words, it is a trading portfolio using volume and price breakouts as the basic criteria.

It is my intention to introduce a different portfolio for long-term fundamental investing. This will be based on a 1 to 3 years perspective, or longer.

Please look out for the new Edge financial portal which will be launched soon. You will be enriched by the news and analytics that will help you make better decisions, whether you are a long term fundamental investor or you trade on the basis of very short term trading momentum.

Thank you for your various comments and insights.

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