Weekly Update

Where the market’s gains are

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Published September 30, 2016


One aspect of investing that never gets old – we never, ever know where the gains are going to come from. Last year it was the biotech stocks leading the way in the first half of the year. Then, they hit a wall and tumbled hard while the FANG stocks (Facebook, Amazon, Netflix, Google/Alphabet) stepped up to carry the Nasdaq 100 near new highs. While the Nasdaq was holding up well small-cap stocks were struggling to a negative yearly return. Below the surface of the broad market indexes there are almost always some stocks showing well.

In our menu of services, it is the Guru’s job to find those stocks. The TradeGuru has a long track record of excellence. This is a service that does not proactively enter and exit the market like our TimingCube or FPResearch Models do. Instead, TradeGuru simply offers two lists of ten stocks that look poised to deliver out sized gains over the ensuing four weeks. After the four weeks, you rebalance to a new list of stocks. You can use either or both of the GuruFolios – either Folio A or Folio B. Each have ten stocks selected by our proprietary stock screener. We think our screener does a pretty good job!

Chart 1: Annual raw returns for the GuruFolios

Annual raw returns for the GuruFolios

For example, last year the more value-focused Folio B was strong with a +14% return in a flat market. This year the market remains just better than flat. But growth stocks are having a great time. Our more growth-oriented Folio A is up +23% year-to-date! We find it especially impressive how Folio A got here. Here are the returns for Folio A for each four-week cycle this year. Note that the first four-week cycle began in mid-December – thus, cycle 1 is mid-December to mid-January; cycle 2 is mid-January to mid-February, and so on.

Chart 2: Folio A from TradeGuru is having a BIG year!

Folio A from TradeGuru is having a BIG year!

Folio A has ripped off 8 consecutive months of gains on its way to its 23% return year-to-date. Note that the biggest gains occur when the market turns from negative to positive. So far in 2016 that was in the February to April periods. Most of the time, it is just one or two of the ten stocks in the portfolio that generates all the gains. We cannot know which one or two will carry the day. So we buy our entire portfolio of ten stocks. Wait for the winners to emerge, building our wealth, then rebalance to the new portfolio after four weeks and repeat.

What about those very dark periods in the market when nothing is going up? The TradeGuru has a Broad Market Gauge which seeks to inform us whether the market is healthy for us to be buying our portfolio of stocks. The Gauge will not keep us from experiencing routine market pullbacks. Instead, it is designed to prevent us from putting money into the stocks when the chances are very low for a positive return. As we have seen, the biggest gains come from the initial thrust out of a weak market. Thus, we want to be on board for those big gains. But we also cannot stand for the heavy and ongoing losses a bear market will bring. The Broad Market Gauge tries to keep us from wrestling with those losses while putting us in our favored stocks when the rebound is underway. Powerhouse gains from winning stocks. That’s what the Guru is all about.

Exclusive one-time offer
Existing TimingCube subscribers will receive an exclusive one-time offer of $399.95 (instead of $499.95) per year for the first year. Simply subscribe as usual and drop us a note for us to apply the refund. It’s a simple, inexpensive way to try out a world-beating investment strategy. To subscribe to TradeGuru and get access to this world-beating strategy and exclusive offer, go to www.tradeguru.com.

For more information and the opportunity send us an email asking for the discount.

If U.S. cities were countries – economically speaking

On the surface at least the below table of how the largest U.S. cities compare in economic generation to entire countries looks interesting. However, to us, it merely begs tons of questions that the article from which it is taken doesn’t attempt to answer. For example, if Houston’s economy is about the same size as Sweden’s with only 2/3 as many people, Houston’s per person economy is substantially larger than Sweden. I grew up in Houston. Houston is a great city, having diversified away from its dependence on energy with some of the surrounding suburbs being among the most successful and diverse towns in the entire country. Sweden routinely ranks as one of the best places in the world to live. Houston is rarely even ranked as one of the best places in the U.S. to live much less the world. So many, many factors involved in this apparent gap in quality of living. It would be interesting for the authors of this chart and accompanying article to at least take a next level look at how a city like Houston can have a per person (capita) economy that is 50% higher than Sweden, yet have a quality of living that appears substantially less than Sweden for the majority of its residents, at least if what you read about Sweden is largely correct – e.g. low crime, broad citizen benefits, clean cities, healthy population, etc.

Chart 3: Comparing economies of major U.S. cities to similar sized countries (economically)

Comparing economies of major U.S. cities to similar sized countries (economically)

Source: How America’s $8.6 Trillion-Generating Cities Compare to Entire Countries
with a tip of the mouse to Liz Ann Sonders at Charles Schwab

Market Update

Volatility returned to the markets this week with Monday’s trade punctuated by fears of a contagion caused by Germany’s largest bank, Deutsche Bank (DB). The bank has been struggling with a U.S. Department of Justice fine of $14B related to mortgage-backed securities leading up to the financial crisis. German Chancellor Angela Merkel noted that she would not support state aid for the bank which then sent shares of the bank tumbling and took stocks broadly with it in a -0.9% slide. Markets rebounded +0.6% Tuesday as buyers stepped in to halt a steep overnight slide in Deutsche Bank shares. Wednesday saw a further +0.5% gain as reports suggested OPEC has reached an agreement to limit production.
This agreement would offer support to oil prices which have been under pressure ever since Saudi Arabia vowed to let production spigots run regardless of the impact on prices. Deutsche Bank fears returned Thursday to knock stocks down anew, leading to a -0.9% slump. Adding to the negative tone was severe weakness in the healthcare sector on concerns regarding the pricing of Mylan Labs’ EpiPen product and the appearance of Congressional concern about drug pricing policies in general. The volatile week concluded in a positive trading session Friday. Deutsche Bank rallied on rumors their fine from the U.S. DOJ would be dramatically reduced while money flowed into stocks in a possible quarter-end portfolio positioning move. The +0.8% lift brought stock indexes back near even for the week.

Warm wishes and until next week.