September 30, 2012

A Kind of Review

I have had this web page up for over 15 months now. Its prior version has been on since 2008, and during all this time I have promoted the concept of trading over a stock accumulation process as a methodology that has more than the potential to out-perform most trading methods out there.

The basic principle is simple: instead of just being a trader or a long term investor, you become both. You trade over a long term hold objective, this way you can benefit from both methodologies. By re-investing the trading proceeds you can accelerate the performance level and thereby gradually reduce the doubling time.

Over the last 4 years, I've provided the mathematical structure to support the  methodology, and over the last 18 months provided simulation upon simulation applying these trading procedures (over real market data) to various existing trading scripts.

But overall, what ever simulation I performed, it was as if none of it seemed to be considered relevant or of consequence to the outside world. It was as if having reached such high performance levels you were now in the incredible category. A no man's land more akin to utopia than reality. To everyone's understanding it could only be doctored or manipulated data. As if all were saying: “I can't reach those numbers, then nobody can, and therefore the numbers are not real”.

I used for testing ground the old Wealth-Lab 4 site which has been replaced by a newer version in 2008. The old WL4 simulation program is still operational and functional. It is not as extensive as its newer version, but for what I need to do, it is sufficient. I take the occasion to thank the Wealth-Lab people for having kept it alive. I think it was a nice gesture as well as a low cost advertising solution.

There are only two things you can supply to the WL4 simulation program: the script you want to test, and the stock on which your script is to execute. All the simulations are for 1,500 trading days (about 6 years). It's like programming and executing in the cloud. My suggestion is: try it out, see if your trading strategies can perform at the same level as mine. The WL4 simulator is free and has a lot of flexibility which would enable programming what ever concept you may have.

This month, I celebrated the two year anniversary for the 3 small funds I manage. I have an aggregated average of 41.02% CAGR (compounded annual growth rate). For those that preferred the other formulation: the aggregate portfolio is up 98.9% since inception 2 years and 2 weeks ago. It is not as much as some of the claims I have read, but this is not a simulation, it is what is: results from live trading accounts.

Based on my methodology, the 41.02% CAGR is just a number on an exponential curve which I am sure will flatten out at some point but still remain at a higher level. Progressively, the CAGR should continue to increase, shorten the doubling time further, but still come to reach a plateau. There certainly must be a limit to how high performance levels can go!

At 40% CAGR, the double time is 2.06 years. At this rate, one could get 1,024 (210) times the initial capital in some 20.6 years. The last 2.06 years of those 20.6 years will be worth 512 times the initial capital; whereas adding 2.06 more years would double the 1,024 times to 2,048 times initial capital. And, I think, that should be the main objective of any portfolio construct.

At these CAGR levels, the main concerns become the initial portfolio size and the number of doubling times that can be achieved over the life of the portfolio.

It is, IMHO, more a matter of doubling time and how your trading methods can help in reducing doubling time (for the long term). It is not an easy task, but the tools are there to make it a much easier undertaking.

The doubling series goes like this: (2, 4, 8, 16, 32, 64, 128, 256, 512, 1024, 2048, …). As one progresses in the series, each level increases by as much as was done before it. The only way to go through the series: is level by level. You can't reach the end without passing through all the levels from start to finish.

Created... September 30, 2012 © Guy R. Fleury. All rights reserved

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