How to Get the ‘Outliers’… Stocks That Rise 100%+

Performance means everything in this day and age.

It doesn’t matter if you’re in the classroom or the boardroom…the sporting field or the financial arena. Performance is a key measure of success.

Sure, other things matter. Not everything comes down to a league table.

But nothing has quite the cut through as cold hard numbers.

Nowhere is this more the case than in financial markets. It’s all about the numbers. I know this from many years of experience. The numbers regularly make or break careers.

I recently wrote about performance in my weekly Quant Trader report. Specifically, it was about the sell in May and go away effect.

I’ll give you the facts about the saying in minute. More importantly, I’ll tell you a simply strategy that could give your portfolio a BIG performance boost.

But first, I’m going to tell you about a performance review you should skip.

Many traders look at their portfolios on a daily basis. It’s easy to do. You simply logon to your account and presto…you have today’s profit and loss figures.

I think this is a mistake. It emotionally ties you to your portfolio.

You’re constantly riding the ups and downs. You feel good when the market is up…but take an emotional hit when it’s down.

I know. I’ve been there.

Imagine riding the roller coaster hour after hour…day in, day out. It would be exhausting. You’d eventually want to get off…and stay off!

I think markets are similar. You need to look after yourself emotionally. It will help keep you in the game for many years.

My personal portfolio has a number of stocks. The last time I looked at my P&L was at the start of the month.

Don’t get me wrong. I’m not being flippant about my portfolio.

I broadly know what each stock is doing. And each position has an exit point.

At present, most of my stop losses are a fair way off. I simply don’t need to tally the numbers every day. They’ll be what they’ll be. I can’t change that.

What I’m doing is not worrying about day-to-day movements. I’m taking some of the emotion out of trading. This mentally frees me for other things.

This is something I practice. It gets easier and easier to do.

Here’s a suggestion if feel you can’t turn away from the daily noise.

Do an experiment. Try looking at your portfolio every few days…or maybe once a week. See how it feels. You may find this style of trading removes some emotion.

Don’t sweat the daily movements. It’s just not necessary.

So let me get back to the sell in May and go away effect. This is the market’s tendency to underperform between May and October. It’s the trading equivalent of an off-season.

And research backs this up.

A 2001 academic study crunched the numbers on 37 stock markets. The findings were amazing. May to October was seasonally weaker in 36 out of 37 countries.

Australia was one of the test markets. Since 1936, the All Ordinaries average November to April return is about 5.1%. The May to October period shows an average of around 2.4%.

So how’s this year shaping up?

Well, it’s been like clockwork. The All Ordinaries made its highest close for the year on 27 April. It’s been mostly one-way traffic lower since.

Here’s a chart for the All Ordinaries.

This shows the price action from 1 November 2014 to 17 June. You’ll notice the green vertical line on the chart. This indicates the end of the seasonally strong period.

Yet again, it appears April was a good time sell. So why not just walk away in May?

The answer is simple. There are still profitable trading opportunities. The key is to use strategies that help keep us out of trouble.

My algorithmic system for ASX stocksQuant Trader — has a number of built-in safety measures. They have two main objectives:

  • Increase the odds of a good entry, and
  • Limit capital losses when conditions deteriorate

The last six weeks have put these processes to the test. So let’s see how Quant Trader is fairing so far. Have a look at this next chart.

This chart shows the performance of every long signal up to Wednesday’s close. The first trade was on 17 November 2014 — the date Quant Trader went live.

To be clear…Quant Trader members are following these signals in real time.

It assumes placing $1,000 on each signal. And it doesn’t take into account costs or dividends.

Now here’s a chart for the All Ordinaries over the same period.

The two graphs have some similarity. And that’s what I would expect. The underlying market will always have a large influence on long signals.

But there is a key difference. Look closely at the last six weeks. You’ll notice Quant Trader is weathering the correction better than the broader market.

The reason for this is simple.

Quant Trader only buys intostrength. It automatically excludes stocks in a downtrend from entering the portfolio. This can make a BIG performance difference.

You see, Quant Trader is cherry picking. The aim is to own strong stocks. While avoiding — or shorting — the ones pulling the All Ordinaries lower.

It’s a case of buying what’s rising…and sidestepping what’s not.

This isn’t to say every signal will be a winner. But it means you’re trading with the trend. In my experience, this shifts the odds in your favour.

Until next week,

Jason McIntosh
Editor, Quant Trader

Editor’s note: It’s your final chance to sign up to our free ‘outsider trading’ tutorial today!

Over four online sessions you’ll get a glimpse into a world few investors even know exists. And you’ll get it from Jason McIntosh, a man who was a senior trader (Vice President, in fact) at one of the biggest investment banks in the world for nine years.

Jason is a genuine quant. He’s not going to be giving away all his crown jewels in this free Trading Series. Nor will we be infringing on the intellectual property of any investment bank or hedge fund.

But if you’re interested in trading…or just intrigued with HOW some of the smartest and richest traders in the world make their money…you should make sure you claim your seat in the four free lectures.

Don’t delay. The first one is going online today.

And it’s free. We want any Port Phillip Publishing reader who’s interested to be able to sit in. Click here to make sure you get access.

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Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, Markets and Money is published in 7 countries with a worldwide readership of almost 1 million people.

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