Here's an e-mail I received this morning about a couple of my posts. I tried to clear things up a bit in my answer.

Scott,

I was amazed to see somebody actually implement one of the AAII screens with real money. Very ingenious of you to combine it with another system, Zacks, and achieve much better results, congrats on a job well done.

How is it that you're 70% cash if you are rebalancing weekly? Or have you started market timing?

The AAII strategy rebalances monthly, have you found weekly outperforms monthly? How much of an impact did the increase in transacation fee have, comparing to monthly rebalance?

Thanks for your interest! I'm still amazed that folks can find my website let alone read it.

I've been following the AAII screens since 2004 and I have run a host of scenarios. I even joined AAII's Stock Superstars for a year to make sure they were honest and reliable. I've found their information to be extremely accurate and well thought out. I would recommend anyone who is starting out and wants to learn about investing, risk management, portfolio management, tax implications, stock picking and analysis, subscribe to the Stock Superstars newsletter. I learned a ton by following their recommendations.

I think I misspoke when I said I rebalance weekly. What I meant is that I go over the screens and see if anything has changed from the week before. Many times nothing changes and I just hold on so there really isn't a lot of trading each month.

It is rare that I am have more than 25% cash, but it happens when my stops are triggered during the week. I will go over the screens this weekend and put some buy orders on enough stocks to be nearly 100% again. I've found that my market prediction abilities are elementary so I avoid market timing. I'm just not smart enough.

I have found that weekly evaluation beats monthly, but not by a huge amount (I guess it's huge over a few years). For example, my Zacks & Zweig screen rebalanced monthly made 43% in 2006 (not including transaction fees) compared to the same screen rebalanced weekly which made over 65%. This year the weekly screen has made 19.34% compared to 11.30% for the monthly rebalance. I really haven't measured the impact of transaction fees and taxes. Details like that bore me, but I might be surprised by the information.

I actually might make more if I were to mechanically rebalance each week, but my ego is too large and I want to think that my intellect has something to do with my returns.

Here's another e-mail--

Hi:

first of all thanks a lot for your blog. I found it very useful and a great source of ideas and your returns obviously speak for themselves !

I am sorry if this is repetitive but i am still not sure how your evaluation/rebalancing process works?

I use AAII screens myself and i understand they change/rebalance on a monthly basis? Although i do not currently subscribe to Zacks my understanding is their ranking system also changes on a monthly basis? Yet in your blog you mention weekly evaluation/rebalancing process?

If you subscribe to AAII’s Stock Investor Pro you can run screens each week. The same goes for Zacks. They send out new ratings early Monday morning each week.

Both services, however, base their documented returns on monthly rebalancing.

Scott

Not much going on this morning. 70% of my account is cash. Just waiting for the weekend. Waiting . . .

3:10 pm CST The week started out really good, but quickly devolved. I lost 1.92% for the week. I could have prevented some of that with tighter stops on SPAR and KRSL. Oh well, overall things weren't too awful. I'm not sure the direction we're headed. I'll make some decisions over the weekend. Everybody have a swell weekend.

Stock trading strategy

Well, I've been stopped out of several of my stocks. I just own a few now and I'll wait until Monday to make my next purchase decision. I always wonder if I should act on my premonitions (like my feeling that I should have taken my profits on Monday). I've never grabbed my money and waited. I haven't reached that nirvana state of patience like Kirk yet. He seemed to sit on his pile of cash nearly all year last year. I can barely go a couple of days without wanting to jump back in (which has dinged me with a couple of warnings from Scottrade for SEC violations when I unexpectedly got stopped out of unsettled trades). So, I'm going to take a few deep breaths and let the market do its crazy thing. Hopefully my two wayward children (SPAR & KRSL) will recover a bit today and make me a proud papa.
7:20 am CST The Street.com says that stocks are set to rebound this morning. I got that twinge in my gut that I need to jump back in full throttle. What's wrong with me!? Why can't I wait a couple of days and enjoy myself as my money lies safely in cash? I'm gonna wait, but I don't think that I'm going to like it.
4:00 pm CST Nothing too spectacular today. I stopped out of two more TSS & KRSL. All I've got left are PCP, NOV and SPAR. I'm ready to regroup this weekend.

Using Zacks Rating with my screens

One of my top ten books for trading is Ahead of the Market by Mitch Zacks. Despite its shameless promotion of the Zacks website and ratings (who could blame him), the book is very helpful in showing some market moving concepts. The Zacks rank is a great tool. It rates stocks based on earnings surprise (which is explained very plainly and thoroughly in the book) which over time seems to be a good indicator of short term movement. The earnings surprise screen on AAII has produced gains of 1165.2% since 1998 which isn't too shabby.

I've been combining the Zacks indicator with some of my screens for nearly two years and the results have been pretty impressive. For example, since September of 2005 the combination of Zacks ranking and AAII's Zweig screen has made over 100% in gains while the Zweig screen alone has made about 23% during the same period. So far, picking just the stocks that rate a "1" on Zacks and rebalancing weekly seems to really boost the performance of a very profitable screen.

I'm interested to see what's going to happen today. Premarket isn't telling me much. I think I'll keep my stops where they are. If this week continues its downward slide I'd like to take my profits with me and regroup.
11:58 am CST Things started out horribly, but have improved a bit. A couple more of my stops triggered -- HDNG, COL, TIE. SPAR & KRSL continue to suck but my stops are pretty wide on them. I've lost a percent and a half since Friday which I guess isn't too bad. I hope that things don't turn around too powerfully the next couple of days and leave me sitting in too much cash.

Early morning -- OK, I'm putting some stops in this morning. YTD I'm up 17.23% and I've got a few stocks that have served me well -- PCP, HDNG, KRSL, SPAR. I'm making sure that I've locked in those gains, but I don't want to miss out on further gains. I've got tight stops on PCP and HDNG and wider ones on SPAR and KRSL since they can be a bit wild and are thinly traded. So everything has a stop now and I'm protected (at least in my mind) from an impending disaster. We'll see how the day goes. I'll be out in the morning so there will be no opportunity to monitor until around lunch time--that's probably a good thing.

10:18 am CST Things look crummy today so far.
3:20 pm CST Things continued downhill. I ended up giving back just about everything from yesterday. Win some lose some. CPA finally stopped out.

I always get nervous after a good day. Do I hold on to the stocks that performed well or sell them to keep my gains? Nothing has changed fundamentally, in fact things have gotten better. But I get too worked up about leaving gains on the table. I'm not a day-trader. I am not smart enough to figure out day to day swings. I like to call myself a week-trader (some would say a WEAK-trader). I like to hold my stocks at least a week. That's not because I've got some magic system that only works week to week. It's because I really am my own worst enemy and if I allow too much thinking I mess things up. That's what I'm doing tonight. Too much thinking. OK, I've talked myself into letting things ride.

I'm going to stick to my guns this morning. 100% long, no buying or selling. We'll see how things go. 8:45am CST After a strong opening, things have backed off a bit. I'm going to close out my real time quotes and go do something productive. I'll check again at lunch time.
10:51am CST OK, I couldn't wait until lunch time. The market is wimping out due to housing data. I am currently holding my own--I'm down .12% so hopefully I can maintain through the rest of the day.

The day turned out much better than expected (up 1.3%). It makes me happy when I make money when the market struggles. SPAR & KRSL were my best performers. They were the stocks I was most worried about and yet they made me the most today. I don't understand the market sometimes. That's why I'm best off when I remain emotionless and just follow my plan without wavering.

I am getting tired of CPA (doesn't that ticker just sound like a money winner?). It has only lost money after teasing me the first day I bought it. I'm getting ready to dump it if it drops any more tomorrow.

Scuba

I haven't been diving in a couple of years. I'd like to go within the next couple. My favorite trip so far hands down is Fiji. I have never seen that kind of diversity of animal life anywhere!! The photo is one my brother took on the trip. It is my favorite.

I used some of the video footage that I took for a video display at the Omaha Zoo. If you're visiting the Zoo, take a gander at the video. It's on the big flat screen by the Coral Reef tank.

I'm going to make an attempt to write at least a little bit each day. I'm trying to get away from watching the tape all day (which I enjoy immensely unfortunately), but I think I can journal on a daily basis without my "need to know" addiction taking over.

Not much in terms of change this week. I'm nearly 100% long in my portfolio and I plan to keep it that way this week. I've got a couple of volatile stocks, KRSL and SPAR, but I plan to keep them unless something goes terribly wrong. I've got a couple new ones that I'm following this week MS and GRMN.

AOB shows some good relative strength and did well last week so that one might be a contender and IVAC is a brand new one to pop up on my screen. I'm going to put some tight stops on a few that are losing strength (CPA, COL). It should be an interesting week. Let's make some money!

A Good Week

Week in Review:

I went into the week scared out of my mind. Everyone was preaching doom and gloom. The market was getting ready to test some more lows. Contrary to my nature, I held on through the week and ended up making 4.17%.

Kirk mentioned on his site this week that he can't figure out how some of those folks over on the Zack's challenge (where you papertrade for a few months to see who's the best trader) are doing so well. Some of those guys are making like a thousand percent in a few months. What the heck!?

I made the mistake of trying to copycat some of those guys' trades last year and, as always, I got burned really bad. I don't know how they do it, but it's not going to work for me (because I don't know how they do it).

I've been in classes (working on a Masters degree) all week from 8am until 5. That pretty much eliminates any form of trading or watching the market. It has been a good experience for me. I come home after 5 and see how things went. It creates a lot less anxiety when you realize that there's nothing you can do. So far my lack of meddling has been good for me. Most of the time my decision making makes things worse rather than better.

Everything I’m reading says that I should expect another tumble in the market to test previous lows. I’m torn because I’ve made quite a bit back while the market is struggling to head back upward. I have no stops set because I’ve almost always been burned by them rather than helped by them. My gut says that I should just ride things out and not panic because no one really knows.

It’s 8:35am and the DOW is down 76 points. My portfolio is not down too much. The key is not to panic and to stick with the plan. That’s what my data over the years has shown.

I stayed about even until about noon and then the market went south. The DOW was down .95%

OK Week

Overall it was a pretty good week. I was up 4.17%. I held on despite my emotional tugs and things worked OK for me in the end. Folks are still says were headed for a decline that will test new lows. I figure that the only thing that seems to work is my strategy and I need to quit worrying about day to day fluctuations. I discovered an interesting phenomena with my screens. Two years ago one of my screens had a good month and that little bit of oomph has allowed it to surpass my best screen even though it has won out on a year to year comparison. I went back through and made sure the numbers were right and they were. So, despite the yearly totals, it’s the weekly stuff seems to make the difference. Interesting. . .