Last modified January 10, 2010
First, my name is Joel Williams, and the dog's name is Shelly. Since the picture was taken, we have acquired 2 more dogs, Byron and Casey. When I started this site, we had just gotten Shelly, and I kept finding paw prints on the keyboard. She liked to stand up there and watch for the mailman, her main nemesis.
We have had personal computers for so long that even an old guy like me (born 3/15/1936) takes them for granted, as if they had always been around. But there was a time when charts had to be drawn by hand, or were very expensive to produce. Now anybody can subscribe to a data service like Fasttrack and get nightly downloads of stock and mutual fund prices. They can run technical analysis programs very simply, and do extensive backtesting of various strategies for trading. Earlier, even calculating a moving average was difficult and time consuming. At this point there are a multitude of tools; we just need to learn how to use them. It can be argued that the personal computer has changed the way the market operates, but I will leave that to others.
I started this site some time in September of 1999, and have maintained it since then with various observations on trading mutual funds and stocks. There is a particular relative strength model that works very well, providing the market is trending. Of course, there are a lot of other things that work well also. When I started the site, we were in the middle of a bull market, and in particular the tech stock bubble was going up big time. Since then, we have had:
(1) The tech stock crash, together with the demise of many once promising Internet companies.
(2) Terrorism, with the attack on this country on 9/11.
(3) A bear market, together with a recession, which cost many people a huge amount of money. Unfortunately, many people simply have not learned much from that bear market, and continue to buy and hold index funds or, worse yet, still hold the old tech stocks, just hoping that they will come back.
(4) The housing excesses, and the collapse of the housing market. Excesses which were inexcusable and which brought us into another recession, from which we are now recovering.
During this period of time, and earlier, of course, I have traded stocks and mutual funds. I have had reasonable success, primarily because I have been willing to sell out if things got bad. When I first started the site, I did not have any disciplined way of timing the market, however. At this point, thanks largely to the good work of others, such as the posters on the FT-Talk board, Marty Chernard, TimingCube (which has disappointed me recently), and Trend Macrolytics, I have a number of resources for timing the market. Even without those resources, however, it was abundantly clear to me that it was time to by sell the end of March of 2000. I remember feverishly selling a bunch of mutual funds over a dial-up line in mid-March in a Red Roof Inn in Colorado Springs, where I was staying on a business trip. It was a terrible motel, with pipes that howled whenever anybody turned on the water, and a terrible market. I have never been in a Red Roof Inn since. It had been a heady period, and I did manage to make the best of it, in part by trading leveraged funds like UOPIX on margin: Nov 1999: +28.09%; Dec 1999, +39.01%; Jan 2000, -11.5%; Feb 2000, +46.60%; March 2000, -10.10%. After that, without a well-constructed market timing methodology, I thrashed around a bit until I found some good market timing schemes.
I spent some time using VectorVest. The program has some good aspects, since it has a mathematical way of combining fundamental and technical analysis. In addition it contained a fairly decent market timing scheme. However, it is a bit of a scam, since the "Riding the Wave" chart they used to put on their website did not represent what they did in real time in their model portfolio. In January of 2000, for example, they went short the market, lost money, and missed much of the subsequent upward movement. Conveniently enough, that does not appear in their promotional stuff. I just went to the VectorVest site, and the "Riding the Wave" chart can no longer be found. In addition, there is no mention of market timing, or their market timing system that "has never failed and never will fail," as they used to claim. I wonder why.
During the bear market, it became rather obvious that market timing was an important component of any trading strategy. In addition, just as when you buy something, you need a reason to buy, when you buy something you need also to have a plan for selling it. This can be a price target, a stop, or a momentum-driven indicator - sell when the momentum gives out. It amazes me that there are a lot of people who simply do not have any plan when it comes to selling. Often, a person's failure in the market can be traced to a lack of any discipline for when to sell a stock or fund. For example, I have a friend who bought SUNW in 1999 and owns it still. There were many opportunities to buy and sell that one, and in fact I did have a profitable trade in SUNW once myself.
I have been trading mutual funds and stocks actively for some time. In earlier times, I have traded funds based on a collection of heuristic relative strength algorithms, but more recently I have been using automated (mechanical) methods to perform relative strength trading. This site explains what those automated methods do, and how to set them up. It also has some explanation of both heuristic methods and mechanical systems used for market timing. It also gives some examples of when I thought it was best to depart from the mechanical systems.
As of February, 2007, I returned to trading mutual funds. I was not happy with the results of stock trading, and so used a hedging strategy described on the Couch Doggie page. Unfortunately, market volatility has made it difficult to hedge successfully. In August, 2007, I turned to trading ETFs and CEFs, and that has worked out reasonably well.
Currently I am trading stocks. I was late to get into the market in 2009, but have been doing OK these days.
Mutual fund managers do not like you to sell their funds at all. They would rather have you hold a losing position, so that they can still collect their fees. The fact is that if I can know when to sell, the fund manager can also know when to sell, or to hedge with short positions. They simply do not do so successfully, and I have heard money managers say really stupid things like "Well, the market always goes up eventually, so why should I sell now?" Does the market always go up eventually? How do you know that, and how much money will you lose before it goes up or you die of old age?
At any rate, I am writing this document in order to share my experiences in relative strength trading. I have been reasonably successful using this method, and so I want to share with others. This is a totally free site. No advertising, no "kickbacks" from any of the commercial sites or products that I use and recommend.
Some one of the Motley Idiots [Ed note: some idiotic person who posts on one of the Motley Fool message boards, and who is usually a militant buy and hold investor] just could not believe that there wasn't some way in which I was profiting from this site. Obviously he had not read very far into the site. Then he accused me of being on some kind of an ego trip because I thought I could do better than just buying and holding an index fund. The fact is that I have just about always beaten the indices over any period of several months, at least when I was trading mutual funds. Now that I am back to trading stocks, we will see how I do.
Anyway, the main purpose of this site is to demonstrate strategies that do much better than buy and hold. Consider this, from the latest entry in my Journal:
So here are the annualized results for the indices over the last 10 years: SPY (with distributions reinvested) - 1.01%, QQQQ (with distributions reinvested) -6.43%, Russell 2000 (IWM did not exist 10 years ago) 2.17%, EFA and EEM did not exist 10 years ago, but those indices were closely matched to FOSFX and FEMKX. FOSFX (with distributions reinvested) -.71%, and FEMKX (with distributions reinvested) +7.94%. So the only thing that did better than a money market fund, on a buy and hold basis, was Emerging Markets. So much for investing at home. Of course, all those things could have been traded profitably.
Actually, the index fund buy and hold mentality is more a religion than a strategy for making money in the market. Given the terrible record noted above, it cannot be termed a strategy for consistently making money in the market, and so there has to be some element of religion involved. Only a religion so consistently overlooks facts - I did spend 5 years in divinity school, so I know how to spot a religion.
Every now and then somebody writes in to a message board or something and wants to know if it is better to pay off his house or "put the money into the stock market". There are definitely times when one alternative is superior to the other, but it is not that simple. Paying off the house is indeed simple, assuming that you have the money. Just send it in. But the person asking for advice seems to think that putting money into the stock market is equally simple. Of course, it is very simple unless you want decent returns. You need a way of deciding when and what to buy, and a way of deciding when and what to sell. You need a plan, or a system, or something to enable you to make profitable decisions. This site is intended to give you a way of making profitable decisions in the stock market. There are many different ways, of course, and this site only presents one. Nothing is guaranteed, but it is better to start with a plan that has worked in the past than no plan at all, or one that has failed miserably.
I am not a stock market guru. I do not have any special insights into the workings of the market; in fact much of it is a total mystery to me. I simply use a collection of technical indicators to guide me. Technical analysis deals with what is happening now, not with what should happen in the future. As I pointed out above, most of what is on this site is not original with me.
I do not have all the answers, nor do I believe that any single method of trading is the "one and only" method to use. I have just been successful using the methods I outline on this site. Another alternative for trading stocks is CANSLIM, and everyone ought to investigate this method. I have found it much more time consuming than what I currently do, but it can be very rewarding.
I am interested in promoting discussion of this way of trading stocks and funds. I will share all of my knowledge freely, but I am also interested in what other people are doing in this area. Please let me know if you have any ideas on how to improve these or other trading systems. I do not intend to put up a message board on this site, however, since there are other message boards already in existence, and there is no point in competing.
Take a look at the message boards at FT-Talk, as well as the other message boards on the links page. Or, you can E-mail me at firstname.lastname@example.org. If you do E-mail me, please put "kalostrader site" in the subject line. I am not able to filter out all spam, and your message may well come intermixed with stuff for enlarging my penis, making my breasts bigger (good combination!), getting me out of debt, refinancing my mortgage, and some lovely suggestions on what I might do with various barnyard animals.
I have published my trading record in the past, and recently (September 2003) began to publish it again. I stopped the publication at the end of 2006. I have resumed publication of my Journal, but it is very time consuming to publish each trade, and so I am only giving the results. Currently I am trading at both TDAmeritrade and Schwab, and that only makes it more difficult to publish the individual trades.
I do not intend to issue buy and sell signals when I make trades. If you want that sort of service, then check out the Fundbuster site, which does provide that service. The pages on hedging are excellent. Another alternative is to have Dave Serbin manage your money - Web site coming soon (7/12/2007).
A new excellent site is Mark Keitel's Mutual Fund Trading. Let him tell you which trades to make.
In addition, let me just point out that I am not a registered financial advisor, and that I do not have any formal training in finance or economics. The information on these pages is just my opinion, and if you believe that you need the services of a financial advisor, go find one.
[ Top ] [Introduction] [The Dogs] [End of Funds?] [Couch Doggie Portfolio] [Pick Good Funds] [Stock Trading Systems] [ Trading Systems ] [Simple and Profitable] [Journal] [ Timing ] [Selection ] [ Common Sense ] [ Statistical Noise ] [ Mechanical Hibernation ] [Best Ever ] [ LTBH Results ] [ Beat Market ] [ Technical Voodoo? ] [ Charts Do Not Lie ] [ Bad Advice ] [ Analysts ] [ Gamblers, etc. ] [ Relax ] [Links ]