The Meltdown Begins

The woodshed is calling my name today. It's not going to be pretty for most of us out there. Fortunately, I've been working on not getting bothered when things go south. I've got my protective stops in place and I'm going to let the market do it's thing. I'll crunch the numbers after the close, but I'm done looking at this disaster until then.

I wish I had more experience under my belt. If I did, I could do a better job of managing the summertime insanity. Last year at this time was awful too. Maybe I just need to take a vacation at the end of May and come back to things in August.

But for now I plan to continue to plug along throughout the summer. If anything, I'm being forced to learn some additional money management lessons. Hang in there everybody!

After the close:

Ouch. The final tally--down --5.54%--my worst showing since June of last year. AZZ took a plunge that tripped my protective stop on the way down. VSEA was my next biggest looser. I didn't have anything that made money today. These are the kind of days that shake the uncommitted out for good.

Days like these make keeping a trading journal essential. It's easy to get emotionally wrapped up in a terrible day like today and think that all is lost. But when I looked back to this same week last year I was down 6% for the week. So far this week I'm down just 4.27%. Despite some awful days last year, the return on the portfolio was still pretty good.

So, I hope everybody is taking things in stride and setting themselves up for the comeback--whenever that may be.

No bragging today. I'm down 1.66%. This little "correction" is a good thing for the market and for me. When things go up for too long, I get emotionally distraught and make mistakes to preserve my gains and to avoid the "big correction" that usually never comes. I'm still nearly 100% invested and I plan to remain that way for at least the rest of the week.

Dow's down, I'm up. I like days like today. The market is down and I managed to squirm into .43% of gains. I only checked the market a couple of times today which was good because when I last checked I was down about a percent. I'm doing a better job at controlling my emotions (making money always helps). The true test will come when things take a turn for the worse.

Not too shabby. I was too scared to use any of the stock screens that I've gleaned from Research Wizard yet. So I just went with what I knew and it worked out pretty well for me today--up 2.48%. I'd be sitting pretty if I hadn't made mistakes the past few weeks but hopefully I've learned from them.

KRSL mocked my sell last Friday with a 4.62% gain today. I knew that would happen, but I'm happy to be rid of that stinker.

This Week With StockPunk

I'm planning to slowly integrate some of my Research Wizard screens into my portfolio. My current screens didn't change much this week so I don't have a lot of free cash to drop into my new ideas. I plan to follow some of the screens that backtested real well in the following months to see if they are truly reliable.

Don't forget to send in your questions for StockPunk's first ever question and answer session. I'm nearly at my limit for questions, but I can still take a few more if you send them in before June 9th.

What This Week Taught Me

I shouldn't have purchased KRSL and held on as long as I did. I missed part of the huge sell off a couple of weeks ago and thought because it still qualified on one of my screens that there was still opportunity there. There wasn't, and it has been my experience that after one of my stocks drops that much, I need to leave it alone and move on. I've seen very few come back from a 30% sell off and I should have applied that knowledge instead of mindlessly following my screens.

I should have held on to PCP. It hasn't left my screens and my stop was too tight and triggered last week. That kept me out of about 5% of gains.

Week In Review 6-01-2007

This was a better week for me and my trading. I avoided the emotional spasms that have encumbered me the last few weeks. I really set my mind to follow what I know works, and to let things happen the way they were supposed to happen. My portfolio was up 1.99%.

My best screen made 3.47% and the worst made 1.23% so I'm getting better at not over-managing my screens. I'd like to be closer to the best screen than to the worst.

Not much to discuss today. Again my portfolio jumped around all over the place today. I ended up losing .36%. I dived in to Zacks Research Wizard last night. There is a lot there to play with, but I really like how things are set up. I've developed some screens of my own already that seem to have potential. I plan to start trading a portion of my portfolio with my new screens next week.

Once again the market whips itself all over the place. My charts were bouncing back and forth all day.

I haven't had a day over 1% since May 11th. Today I am up 1.52%. I've got a ways to go to recover my "stupid tax" losses.

After a three years of hemming and hawing (is that how you write that?), I purchased a subscription to Zack's Research Wizard today. I've been testing it for the past couple of weeks, and I've really discovered some time-saving ways to evaluate my screens and ideas. I used to go through reams of information (I have a stack of paper two feet tall) to get certain types of historical data. I found ways to get that same information in a few seconds.

The subscription price is $1,600 and that provides 6 years of historical data. I've talked with a lot of folks that nearly drop dead when they hear a price like that but I spent nearly that amount on my dumb '99 Plymouth Voyager yesterday and there is no way that thing is going to make me any money.

I've met a few traders out there who hurt their returns because they are too wrapped up in nickels and dimes. They are afraid to exit a $20,000 losing position because of a $7 commission. They spend all their time looking for free information when they could be making a lot more paying somebody else to do the leg-work for them.

I think there is a lot of fear out there because of shysters who have taken people for all they are worth. I'm sure that hurts the businesses of reputable companies that want to help people make money. My experience with Zacks over the years has been very positive.

I figure this is money well-spent. I'll let you know how things go throughout this next year. I hope to develop some new screens and after the summer, I'll be sharing those screens (and some of my older ones) with StockPunk readers.

A crazy day, today. Wide swings in the morning. I ended up +.10% after being up around 1.5%. I guess it's better than losing. I had no emotional swings today, however. I did everything I set out to do this morning without getting too wrapped up in the details.

I was devastated that StockPunk wasn't chosen by Charles Kirk as one of his 75 favorite websites. I thought that by posting a picture from Star Wars, I might be able to tip the scales. Of course, if I was reading this blog I'd probably steer people away from it.

Speaking of Star Wars, if you think you spend too much time obsessing over stocks, check out this Star Wars fan's website. He's done nearly the entire Star Wars movie in ASCII animation. I can't imagine the amount of time that must have taken.

When I was a kid, I memorized every line of dialog from start to finish of both Star Wars and The Empire Strikes Back. I can still recite any part of each movie on cue. I'm such a loser.

Recently, I saw a picture in the local paper of a Star Wars storm trooper standing next to a mailbox with an R2-D2 decal on it. I read the caption and discovered that the guy in the storm trooper outfit was a friend of mine from 20 years ago who was obsessed with the Star Wars trilogy (I guess he still is). Back then he made a light saber out of a cattle prod that gave an excruciating shock if he zapped you with it. Ahhh, those were the days.

Ask StockPunk

My first ever "Ask StockPunk" will be posted on June 10th. So send your questions to stockpunk@yahoo.com. You can ask me anything you want about my screening, my portfolio management, how much time I spend trading, whatever. I've been answering a lot of mail individually and I thought it might be helpful for everyone to be able to read what StockPunk readers are thinking.

However:

• I can't answer questions about individual stocks because I'm too stupid.
• I'm won't recommend (or discourage you from buying) any particular stock.
• I won't reveal the year of the coming Apocalypse (2012), because it's too much for you to handle.

Scott

This Week With StockPunk

Not much in the way of changes this week. I'm planning on weighting my portfolio more toward one of my screens that is outperforming the others. My plan is to put 70% of my portfolio in the stocks that pass this screen (if three or more pass). I plan to put a 9% stop from the purchase price on each stock and leave it alone until it no longer passes the screen.

Please tune in daily to watch me self-destruct.

I'm trying to put together some new screens today, but I haven't been able to figure out how to backtest them. For example, for some of my screens I use the Zacks ranking. I've been printing out the Zacks ranking of all my passing stocks since August of 2006, but I have passing companies from before that. I can't figure out how to get past Zack rankings. I'd like to see what the Zacks ranking on, for example, Toll Brothers (TOL) was on February 15th 2005. I can't figure out anything from the Zacks website so if anybody has any idea let me know.

Recently, I've developed a screen that looks for fundamentally strong stocks that aren't followed by analysts. My thinking was that there are a lot of stocks out there that are "under the radar" and as soon as folks figure out that the company is kicking it pretty good they'll jump on board in droves. And because the stock isn't being followed closely by anybody significant, it has a lot more room to jump when everybody catches on.

That screen has now surpassed all my others for the year at 40.75%. Since October of 2006 it's up 164.79% which more than doubles my next best screen. Unfortunately, my data only goes back to October of 2006 and I cant figure out a way to backtest beyond that.

I signed up for a two week trial period with Zack's Research Wizard. It really is an excellent screening system, but until I can duplicate the screens I run and get somewhat similar results, I'm hesitant to go beyond the trial period. I am quite comfortable with my screens, but they don't seem to translate well with the parameters of other screening programs. I wish I could just cut an paste criteria and have identical (or at least similar) results.

Research Wizard does have the coolest and quickest way to backtest a strategy that I've come across. I do most of my backtesting by hand--looking up historical stock prices, calculating gains or losses and popping it into a spreadsheet. It's time consuming and cumbersome. I was contemplating have my pre-teen daughter do some number crunching for me, but I don't think she's quite ready yet.

Week In Review 5-25-07

Well, well, well. I got taught a thing or two this week. I lost 3.94%. My best screen made 5.11% and the worst lost 2.16%. So in essence, once again, I lost more than my worst screen trying to keep from losing. Benjamin Franklin said, "The definition of insanity is doing the same thing over and over and expecting different results." He also told people to read this blog for a practical example.

Not really--he's been dead a long time. But lately I've been the personification of insane behavior. I've written about what I should do, but I do the opposite. I thought that by sharing my experiences with people, I might be held more accountable. Thanks to the folks who have encouraged me to stop acting like an emotional idiot and get back on track.

My goal during the three-day weekend is to refocus and reapply what I've learned over the past four years.

StoxInvestor had some nice things to say about me on his blog. "This guy has developed some interesting screens and has an impressive track record. What I am most impressed about is his money management. If you read some of his older posts, he discusses how he manages and closes positions. He manages them by using a trailing stop. To close, he simply tightens the trailing stop. I think this is a great idea for squeezing some extra profits while switching holdings. You could even use buy trailing stops to get into positions. I think this is a great way to manage a screen."

He'll probably delete me from his blogroll after reading about the mess I've made of things this week.

This is where I've been taken the last two days. Yes, that's a woodshed. Today I lost 2.48%. I am still using stops (despite my ongoing realization that they mess me up every time). I got out of HDNG before it plummeted. I guess I can call that a minor victory among all of my other disastrous calls.

I wish I had more experience under my belt because I haven't quite figured out what to do once I reach a goal. My goal this year was to make 20%. When I reached that goal last month, I wondered if I should take my gains off the table. Last year the same thing happened. I reached my yearly goal by May and then lost half of it by July.

The only encouraging thing is that last year at this time I was only up about 10%. So, hopefully I won't continue to make emotional mistakes and I can end this year like I did last year. Stay tuned because maybe you'll be able to witness the day to day self destruction of StockPunk. Wouldn't that be something you could tell your kids.

Pradeep has an article about struggling traders at Stockbee. He mocks me.

Since March 13th I've avoided a -2% day. Today that streak was broken. Like last year at this time, I've strayed from my routine and from what works. I've allowed myself to get caught up in news, hype, fear and arrogance and it has taken its toll. Hopefully over the weekend I'll be able to think things over and learn from my mistakes.

The "Lost" finale is on tonight. I'm feeling pretty tired so I don't know if I'll watch it tonight or some other time. I watched the "24" finale on Monday. That show is getting kind of tiring. At least it didn't end with something crazy like it usually does.

You know, sometimes I amaze even myself. -- Han Solo

I look at my portfolio and I just shake my head. How can I know the right thing to do and still try to second guess it? Am I so flawed as a human that I can't learn from my mistakes? Why do I trust my judgment over the data when I know that my judgment is NEVER right? Is fear THAT powerful. I'm thinking that it is.

I made a choice to exclude one stock that appeared on my screens but that was making me mad--AZZ. All last week the thing lost money and I finally got rid of it. Since Monday it is up 23%.

The market is a crafty little devil. It took back my gains from yesterday, almost to the penny.

My brilliant positioning that I discussed on Monday is keeping me from big gains. I'm so freakin' smart. One of my screens is up over 7% in two days. That's for a portfolio of stocks, not just one! I've made nothing. Zilch.

I'm reading The 4-Hour Workweek by Timothy Ferriss this week. It's a bit over the top, but there are some good ideas in there about wasting time. I've written before about how my constant interaction with the market only costs me. I've got so many better things that I can be doing than constantly worrying about whether a trade I made was the right choice and trying to guess what the market is doing through my constant monitoring.

It almost seems like I'm going back to my old habits:

• Trying to avoid losses by utilizing buy stops to catch only big gains
• Second-guessing my screens and choosing the stocks that I feel are ready to pop
• Being so worried about losing that I avoid gaining
• Getting worked up about daily (and even intra-daily) ebbs and flows
• Spending too much time worrying about what everybody else is saying and doing
  
• Wishing I would have bought the latest "hot" stock that showed up on somebody else's list
• Worrying that the market is at it's top and that I need to somehow prevent a big loss
• Avoiding thinly traded stocks because I want to be able to "get out quick"
• Trying to figure things out using charts and patterns (I don't think I have the knack)
• Getting sidetracked by fancy gizmos (that TradeStation sure looks cool)

I need to shake myself up and get out of this rut. My fear is that as soon as I start trading like I should, the market will tank and it will confirm all of my old habits.

It's funny how I can write about my stupidity and still be stupid.

An OK day. Up .88%. My stop on KRSL triggered. It qualified on my screens after dropping over 30% so I thought maybe I could catch a big gain if it happened. I put a stop on it for a 7% gain and it triggered early. That scared me because I had visions of another big drop right after the bounce at the open, but it was able to hold on through the day which is an encouraging sign. I don't know what made it pop, so hopefully I made the right call.

I also obtained some ARII after it bounced up in the morning. AZZ showed up on one of my best performing screens, but of course I chose not to buy it. It was up over 7%. That screen lost 5% last week. It made all of that up today. I'm going to keep my eye on that one.

Bill Fleckenstien is at it again. He's comparing today's market to the one in 1929 here. Don't ask me.

This Week with StockPunk

Remarkably, my screens have remained pretty much the same for this week. I'm 75% in cash now thanks to my liberal (and destructive) use of stops last week. My plan for this week is to dip my toes in slowly.

Large caps are still pushing higher while the small caps are struggling. Whenever my screens get beat by the DOW I get a little defensive. I would really like to avoid any sort of nasty correction, but I am getting tired of missing out on a rally that won't quit.

So my plan for this week is to build in some stops to catch any dramatic gains (over 5%). If things tank or meander aimlessly, I'll be positioned to avoid my emotional distractions.

Week In Review 5-18-2007

A crummy week for me. Lots of mistakes and regrets. Down 3.38%. All of my screens but one did better than me. The best made .84% and the worst lost 5.72%. The small cap stocks fared the worst and I had plenty of those.

What I learned this week--

My disaster with KRSL taught me to quit trying to outsmart my screens. I was lucky to get rid of that thing with a loss of 10%. The only other stop loss that I benefited from was with AZZ. I got rid of it at $27.01 and it ended the week at $25.63. The other stocks I stopped out of went on to embarrass me SYNL, VSEA, CPA.

I let my emotions get the best of me this week. Instead of seeking comfort in the returns of my "system" I turned to the opinion of others and tried to prevent big losses by second guessing. I should have been slightly up or at least even this week. It was a good lesson for me and I hope that I will apply it to my trading in the weeks to come.

I must admit, though, that I am a bit squeamish about things right now. I went back to see where I was last year at this time and was a bit astonished to see that I was up only 8.24%. Last May was pretty rough (and so was June and July) and I would be bothered if I gave up much more of the gains I've made so far.

I'm glad this week is finally ending. Unless the market drops 10% today, all of my decisions have been stupid. I never like to be hoping the market falls just to confirm my emotional decisions. That's a bad place to be.

Another disappointing day -.88%. I've given back all of last week's gains in my attempt to keep them. I'll have to chalk up this week to another learning experience.

This is one of those gut wrenching days. I've got 50% in cash and I don't feel good about missing out on days of gains. I am tempted to revisit the stocks that I stopped out of earlier. I also see the value of patience (but not enough to actually be patient).

I think it's probably best to lick my wounds the rest of the week and regroup this weekend.

Down .26%. Must control emotions. My screen was UP 2.14%. That's the kind of stuff I'm talking about.

I'm getting some great advice from lots of you. Keep it coming in.

Burned by my emotions again . . .

Once again my "gut" has betrayed me. I stopped out of CPA yesterday thinking that the market was starting to weaken. Why did I think it was weakening you innocently ask? Because everybody said it was, and I listened to them. Time and time again, I listen to the "chatter" and diverge from my trading plan. Has it ever worked better for me to trade that way, you ask? Um, no. Why do I still do it? You might think I do it because I'm an idiot. You are right.

I went to a free financial seminar a couple of weekends ago expecting a sales pitch and tidbits of worthless information. I came away from it with some new perspectives that challenged my thinking.

One of the concepts was about how the fear of losing financially hinders winning financially. You can see that played out in my daily experience. All of my mistakes have been driven by fear. There's always that lurking pit in my gut that today could be the day that the market drops 10% and I need to be out before it does. I think by always trying to position myself to miss the big loss I have kept myself from making more than enough gains to offset the difference.

Here's what I mean. Since January, I've been combining the results of two stock screens to choose my portfolio of stocks. One of those screens has made 42% YTD and the other has made 23% YTD. Averaged together that makes 32.5% (not taking commissions or spreads into account). Last Friday my portfolio was at about 27%--a 5.5% difference in 4.5 months. So, essentially, I've lost 5.5% in 4 months because I'm scared of losing--which is what I've done. If I keep on like this my screens will beat me by over 16% by the end of the year. That's a pretty high price to pay for letting my fear control my decision making.

I think once I am able to completely control my fear, I'll be able to make some really decent returns. The opportunities are out there, and I hope to be able to communicate to everyone out there that fear keeps us from succeeding in anything.

If you are interested in listening to the guys from the seminar you can stream their local radio show here.

What a day. After nearly gaining everything back from yesterday, I ended up losing MORE than yesterday at the close. Two of my stops triggered--AZZ and CPA. It appears selling KRSL was a good decision since it backed off another 16% today. Apparently the third quarter results weren't as good as people were expecting. I wonder how much of yesterday's decline was insider selling.

Things definitely are looking sloppy now, and I'm losing my confidence in this market. I've got stops on everything now and I wouldn't be surprised to see most of them trigger by Friday.

I'm getting a bit nervous about things, so I've gone back to setting some stops. I made it two weeks without stops. Not very impressive. But right now they provide some peace of mind.

I'm interested to see where KRSL is headed this morning. Premarket makes it look like it is going further south. I'll be angry if it mocks me and rallies today.

KRSL drops 16% on NO NEWS. I'll tell you what happened. StockPunk said he was getting out. Unfortunately, StockPunk waited for it to drop 10% before bailing.

I am reminded again by the market that I am a chump. I thought I had things figured out this morning. I just needed an average day to get me to my goal for the year. The evil market knew this and decided to humble me yet again. Why is the market so mean to me?

I thought HDNG was going to be my savior again, but it ended up shedding a 4% gain and ending up in the hole. SYNL was about my only position that looked sweet.

Value Blog Revue & Stockbee

I've noticed recently that some folks who are visiting StockPunk are coming from Value Blog Review so I took a look at the site last week. I'm very impressed. It is rare to find somebody willing to educate and share information for FREE and Value Blog Review does just that. The reviews of trading books and trading blogs are invaluable. It is great to have somebody out there weeding out the worthless information and promoting practical stock blogs and books.

Another blog that I've taken an interest to lately is StockBee. I've had a few readers of StockPunk mention how much they like Stockbee as well. Stockbee has a LOT of information about screening and unemotional trading. He's got some very interesting charts and I've noticed recently that the information he shares is getting really cool. I'm not sure how he compiles the data for his Market Monitor, but I sure like it!

I need some stock trading advice . . .

Well, it's Monday morning and I'm already making big mistakes. I wrote yesterday that KRSL dropped off my screen. I figured that this morning I would keep an eye on it and sell it if things went downhill. My hope was that I would make a few more bucks.

Things went south fast and before I knew it KRSL was down over 12%. I watched it to see if it would come back and it flirted with -8% a couple of times and then went back to -12%. So I begrudgingly sold it at -10%. I should have put a stop on it before the open, but I was worried about a big premarket drop. There was one, but not as big as what I ended up losing because of my greediness. Another lesson learned (but probably forgotten in the next 10 minutes).

This Week With StockPunk

Just a few changes. KRSL and MIDD have dropped off my screen. HOC is a new addition.

My Plymouth Voyager (hey, I'm a family man) just made it to 120,000 miles. My goal is 200,000. I found a website for Chrysler owners whose cars or trucks have gone over 200,000 miles here. I read it for encouragement. MSN has some good articles here if you are trying to eek out every mile your car is worth.

I've come to the conclusion that cars are the number one reason people don't have any money and can't build wealth. It is so easy to be dazzled by the thought of owning the newest and best car. But they drain your wealth so quickly as they decrease in value.

Just so you don't think I'm a minivan driving wimp, my first car was a 1969 Buick Skylark Gran Sport. It had a 455 cubic inch engine (not the original 400) and got 8 miles to the gallon on a good day (14 on the highway). I bought it for $400 and received $1500 for it after it was stolen and wrecked. That was the only car I've owned that I made money on. I now work for the organization that reimbursed me for the damage that was done to my car. It's a crazy life, but somebody's got to live it. Or something like that.

Here is a graphic of a spreadsheet of my daily gains and losses over the past couple of years (click on the graphic to see a larger image). I've made it too small to see the specific numbers (I don't want anybody making fun of me)--it's the pretty colors I want you to focus on.

You'll notice the colors next to the first arrow. There are lots of reds and dark greens. These were the crazy (crazier) days of my trading. The reds represent days of more than a 2% loss on the portfolio. The dark green are days I gained more than 2%. The white areas are less than 1% gain or loss. The lighter green represents portfolio gains of 1% to 2% and the yellow represents the same in losses. As you can see, things whipped around pretty hard for me. I was risking too much on each trade and I experienced wide swings each week. That wasn't good for my heart.

The bottom area shows trading more recently. There are fewer big gains or big losses. Things are moving gradually but steadily. That's better for my sanity.

Things smoothed out a lot when I began risking less than 2% of my portfolio value on any one trade.

Week in Review 5-6-2007

I'd have to say it was a pretty good week for the portfolio--+3.94%. I am now $453 away from my financial goals for the year. I did a pretty good job combining my screens and averaging out a gain. My best screen did 6.42% and the worst did -2.72%. I now have a screen leader amongst my varied strategies. It has made 152.89% since October of 2005 which is 50% above my next best screen.

I don't have any idea what my screens will do in a bear market, so I'm a little nervous about blindly following the highest performer over the last year and a half. I've got more data for the big picture, but my specific way of using the information is relatively new.

I recently developed a new screen that shows some promise. I only have data dating back to October of 2006, but the screen has grown 167.20% in less than a year. I'm planning to wait until October of 2007 before I discuss the specifics of that screen (it is really very simple).

Ouch

Another tough one. HDNG saved me from a meltdown. I would have been better off not monitoring (yeah, I can't quit). There were wild swings in my account all day. Believe it or not, I was up 1.5% around 10 am. Then things went all wacky on me. I was down a percent and then up more than .50% and then back down again. I ended up losing .73%--not too awful considering what everything else was doing.

Things continue to inch forward. Up .34% today. I would have done better if I owned AOB. So far this week I've done pretty well at controlling my emotions. I've watched a few wild swings without reacting which is a good thing for me. I plan to hold things the way they are through Friday. I've got 3% more to gain before I make my financial goals for the year, so I'm feeling pretty positive.

Today exemplifies my lack of predictive abilities. I ended up gaining .18% after being down nearly 2% this morning. That's why I continue to stress that (for me) the best way to trade is unemotionally and mechanically. My emotions kicked in when I saw EVERYTHING losing ground. I questioned my decisions to hold on to SYNL after its 11% gain yesterday. KRSL was down 2% and I wondered if I should have grabbed my gains (it ended up over 6% today). I was pleasantly surprised when I went over things after the close.

10:28 am CST Today I am too curious to stay away from the tape. After I have a good day, I'm always tempted to see if my fortune carries on the next day. Today is not one of those days. I've given back nearly everything I made yesterday.

But, dang it, that's OK. It doesn't matter what happens on one day.

Carl Futia has an interesting take on the recent jibber jabber being expressed because of the market's all time highs and winning streaks. It's called No Punch at This Party.

I like to read both size of the story because it gives me a better perspective and calms me down a bit. I think this element of fear is what keeps so many people from thinking they can do well in the market. Even when things are looking good there's always the idea that things are "too good" and a crash or major correction is coming.

That's what makes it nice to be a little guy in this giant market. It doesn't make a lick of difference what I do with my money. Nobody is going to bat an eye if I jump in or out of the market and that gives me a huge advantage over the big boys with their billions of dollars. If things go south, I can be back in cash in about a second. Try doing that with a billion bucks.

Not Too Shabby

I like days like these. Just about everything popped the way I hoped it would. I didn't get into SYNL until it was already up 6%, but it ended up a bit over 11% for the day. I would have enjoyed the whole 11%, but I'm not upset with myself for waiting a bit to see what was happening. Overall, my portfolio was up 1.85%.

KRSL had a pretty good day as well.

Fleckenstein is crowing again about the coming market crash. Who knows.

I apologize to Jim who was the friend I referred to in Sunday's post. I referred to him as a "body builder" when in reality he is a "power lifter". I think that my analogy still holds true. Although I would have to say that he has built up his body. I don't think he weighed more than 120 lbs in high school (I didn't break the 120 lbs mark in high school either).

Things look pretty good so far after the market open. I'm looking for a good point to jump into SYNL. It opened up 4%. I'll wait a bit to see if it drops off. What will happen, though, is I'll wait too long as it rises, I'll jump in when it is at it's peak for the day, and then it will drop and I'll lose 7%. Hey, at least I know myself.

This Week with StockPunk

A few additions to the StockPunk watch list. SYNL and VSEA are both in the semiconductor industry. That's about all I know. If I try to find out any more, I'll over-analyze things and end up creating more problems for myself.

Some of you have questioned my use of stops last week. I told everybody that I was swearing off stops from here on out. Here's what happened:

I forgot about a 5% trailing stop on MIDD that I had placed weeks ago. It triggered and I didn't have any real reason for having the stop. MIDD is once again on my "buy" list but I'm holding off since I sold it just a few days ago.

My other stops were 3% trailing stops on stocks that had dropped off my list. The stops didn't work for me in either situation so I'm thinking in the future that I'll just follow the stocks and sell them at my own discretion.

A few folks have asked me if I own every stock on my Punky Stocks watch list. No, I don't. Right now I own (or will soon own) six of the nine. The Punky Stocks list is not a "buy list". It is a list of stocks that I find very attractive and that are candidates for my portfolio. I don't divulge my portfolio list to discourage "copy cat" traders who think that because I've got some good returns that I am some sort of guru. I've tried the copy cat approach with dismal results (see my results for 2005) so I wouldn't recommend it.

My goal with this site is to demonstrate that you can do well as an individual trader in the stock market. It doesn't take a degree in securities (mine is in marketing--a "C" average) to buy and sell stock and be profitable. I hope that I am able to encourage folks each day with my drivel.

Marathon Trading

A friend asked me today why most people don't invest like I do if it is so simple and generates such good returns. I told him that there are several reasons:

• people think you have to be on the "inside" to make any money
• people don't trust the financial markets and feel that it's all a big scam
• people are too afraid to lose money so they choose very conservative investments
• people are to impatient and get scared with negative returns and bored with incremental returns

I told him that trading and investing is a lot like working out (he's a body builder). It takes a long time of good days and bad days to see any results. Sometimes at the end of the year you're surprised at how well you've done even though the day to day routine doesn't reflect that.

My wife ran a half-marathon today (I can run a half mile). There's an investing analogy in there, but I just wanted to let everybody know because I'm pretty impressed.

Week in Review 5-04-2007

For starting me off in such a foul way, the week turned out to be pretty average. I lost .48%. My screens did better than me--the worst did .68% for the week and the best did 2%. You guys are probably getting tired of me babbling about how my brilliant maneuvering always ends up stinging me by the end of the week.

It was hard to watch the market surge higher while I struggled. I had a couple of stops in place that triggered on me. I sold MIDD at 136.22 and it ended the week at 138.89. Brilliant move.

All my other sales were planned with good reasons. I ended up with nearly half of my portfolio in cash. I was kind of hoping for a couple of down days so that I could feel good about having cash out of the market. Oh well. We'll see what the screens say this weekend.

I'm not sure what happened to Wednesday's post. I know I wrote something earth shattering. Something that would change the way you trade for EVER. But I forgot what it was.

An OK day. At least I beat the indexes--up .79%. This looks like it's going to be another week where I curse my decision to use stops. Everything that I've sold is rallying (of course). I'll let you know just how foolish I've been tomorrow when I compare my performance against my screens.

Part-Time Trading

Kirk had a link to The Market Speculator today and I found this post about part-time trading particularly interesting. I've got a full time job as well, and even though I have market access during the day (my work day usually starts after the market close anyway), I've found that ignoring things is much more enjoyable for me.

These last couple of days have really upset me for some reason. I've lost a bit over 3% of my gains, but I've still beat my yearly goal so far. I think I've gotten a bit too comfortable with constant up days, and I need to refocus. My wife said that I should just quit trading if I'm going to get so bothered by a couple of rough days.

Things didn't end up as badly as they started today, but I still got my clock cleaned compared to the indexes--down 1.16%. I've already started rethinking my "no stops" policy which is exactly what I was worried would happen. I've got to keep my emotions from controlling my decisions. They have NEVER helped me make a good decision. I wonder if there are any therapists out there that specialize neurotic traders. I bet they could clean up.

Emotions would have had me buying SPAR at the market open. It was up over 6% in premarket and it has been pretty strong since I sold it a couple of weeks ago. I would have been pretty unhappy watching that thing throughout the day.

I can't believe how bothered I was by my losses yesterday. I kept going over what I should have done and how I could have avoided my suffering. My goal is to be an unemotional investor and I still have a long way to go.

One of my recent favorites SPAR is rocking in premarket trading. I am going to be unemotional and leave it alone. I have some cash that (for my sanity) needs to remain in cash.

I am still long on everything so we'll see how today goes. Happy trading.

Ouch

Not a good day for me. I was up .50% until this afternoon and then everything went south (yeah, I looked a couple of times). I still own KRSL and it tanked big time--over 8% so that didn't help matters much. Overall the portfolio lost 1.88%.

I Screen, You Screen, Kirk Screens

Charles Kirk has just released his "Stock Screening Machine" for members. Yet another reason to divvy up some cash and get over to his members only website. I've had a look, and the whole concept looks very promising.

As a trader, I really think screening stocks is the only way to stay ahead of the game. There is no possible way to go through 8,000 stocks, look over the numbers, do the calculations, and come up with a watch list. I wouldn't know how to do that without a computer anyway.

What is cool is that the folks who screen stocks are really on the cutting edge of a new way to look at the market. Just a few years ago, stock screening was virtually impossible. The amount of data alone was too much for a computer to handle. It would have taken hours if not days to download the data (which wasn't available anyway). It would have taken hours to crunch the numbers (my laptop does it in less than 15 seconds). And it would have cost way too much to trade on an ongoing basis (thank you discount brokers).

Computers and the internet give guys like me a tremendous advantage over folks who traded even just a few years ago. Take advantage of the tools that are out there. You'll be glad you did.

Not much is changing for me this week. I'm all in right now, and I'm keeping what I have for another week.

Week in Review 4-27-06

I'd say it was a good week. The portfolio made 3.8% this week. I was able to stay unemotional throughout the week and I really benefited from staying away from all the chatter. My friend Sean attempted to drag me back in, but I resisted. It was nearly 4:30 today when I remembered to look and see how the day went (down .62%).

I surprised myself with how much extra time I have when I'm not tethered to the trading board. I avoided wrestling with the daily swings and held on to my original purchases without the aid of stops.

Month In Review--April 2007

The month of April wasn't too shabby, but with the gains of the market as a whole, I should have expected to do OK. The portfolio made 7.02% this month. That was OK compared to my different screening approaches. Here are the results of four approaches I'm monitoring right now. Each combines the Zweig screen with a "qualifier".

• Zacks #1 stocks--4.08%
• The 5 highest in Relative Strength--14.16%
• The 5 highest in ReturnGrades--8.47%
• Zweig alone (buy & hold for the month)--5.95%

The highest Relative Strength stocks tend to perform very well in bull markets like this one. Since October 2006, the Relative Strength Approach is up 73%. The Zacks #1 stocks are up 38.56% for the same period.

I've beat a couple of my yearly goals so far, so I hope things continue. I wanted to make over 20% this year, so if I can hold on to things for the remaining 8 months, I'll be able to check that off. It looks like I'm on my way to another +60% year, but I'm not going to count my chickens just yet. There's at least one guy saying that everything in the whole world is in a bubble right now. I wish I was smart enough to know. I'm just plugging away with what I do know and we'll see how that turns out.

I'm getting spoiled. Yesterday I whined about losing .01%. Today I gained .63% and I'm not satisfied. My dad is happy if he makes that in a YEAR. That may be a good indication that things are getting a bit out of hand and that I need to be a bit more cautious. I'm not sure what being more cautious means since I've sworn off stops.

I hate days like this. The Market is up big-time and I'm not. Fortunately I only looked things over once--a half hour before the market close. I was doing OK then, but I ended up losing .01% at the close.

Screening for Seasonality

A lot of folks see a long term trend toward the summer being a generally awful time to have money in the stock market. In his book Winning on Wall Street, Martin Zweig discusses the power of trading during certain times of the year. Charles Kirk posted an interesting link that discusses the seasonal trends here and here.

Since the Zweig screen is my favorite, I went back to 1998 to see how the screen did during the four summer months and compared it to how it did the final four months of each year. The results weren't as dramatic as I expected but they were interesting. The average return each year during the summer was 3.83%. The average return each year during the fall and winter months was 17.51%.

That's quite a wide margin, but the maxim "Sell in May and Go Away" doesn't seem to apply when you are making nearly 4% each summer. That summer average of 4% includes a nearly 30% loss the summer of 1998, which really skewed the numbers.

So, I haven't been convinced to walk away from the market from now until September. But it is never a bad idea to be more defensive during times of the year when the market is on the weak side.

An comment from last night:

Just curious what your bear market strategy might be. The Zweig screen and Zacks stocks tend to do OK during bears. Would you maintain the same style, get out of the market, or switch to plan B?
Another question would be, how would determine that you're in a bear market?
Obviously, May 2006 looked pretty bear like.

My Answer:
Good question. I'm not smart enough to know where the market is headed. I thought things were looking pretty awful in February and if I would have stayed out for March and April I would have missed out on 15% worth of gains.

You're right about the Zacks and Zweig screens doing OK in struggling markets. You mentioned last May. My portfolio of Zweig and Zacks stocks lost 6.9% from May through July. Not too awful. Higher Relative Strength stocks did slightly poorer losing 10.20%. So if things did start to get sloppy, I would probably avoid some of the more volatile stocks that aren't rated on Zacks.

An OK day. Up .73% thanks to KRSL and HDNG. I made it all day without watching the tape. Yay for me. It felt pretty good to not experience the pangs of constant flux. I'll have to admit that I was tempted at times. But I endured.

I signed up for Barchart's Morning Call newsletter a couple of weeks ago (it's free). I don't know what's going on but I have yet to get the Morning Call in the morning. Usually it comes at dinner time or not at all. I'd like it a lot more if I was able to read it in the morning, but that's just me.

It's probably better that I don't get it anyway. I don't make good decisions when I'm basing them on premarket or after-market chatter.

I signed up for Media Sentiment's newsletter six months ago. It was an interesting concept (and just $10 a month), but I don't read it any more. I'm not good at the whole day trading thing. I'm not good at shorting stocks either. And I'm scared out of my mind when it comes to options. What's the deal with those things anyway?

Maybe someday I'll be a "real" trader and figure those things out. Someday.

A Good Day

Today made up for my miserable week last week. Up 3.07%. I pulled the trigger on KRSL right before it took off this morning. It had a great day on good news. I'm hoping that the euphoria hangs on through the whole week and I don't have to give back too much.

Others are predicting gloom and doom. Bill Fleckenstein at MSN thinks that this market is a repeat of March 2000 and we're just about to take a similar dive. I like being ignorant. I admit I have no idea what's going to happen.

I do know that buying and holding right now is a foolish proposition. The bulls cannot hold out forever (even though I've been impressed with what they've been doing lately). I'm going to take advantage of things as long as I can.

That's what's great about being an individual investor. I can jump in and out like a little mouse with my measly amount of money and nobody knows or cares.

If market crashes today, I'm set up well. I'm 80% in cash. If it has a terrific day, I'll probably be scrambling to buy. If I do buy, then I'm sure the market will have a huge sell-off and I'll lose my shirt. The market knows me like that.

A few folks have told me that they are following my "system". I'm not sure what they're thinking.

• Do I really even have a system?
• I don't even follow the system if I have one.
• Every time I've followed someone else's system, I got burned big time.
• Why would you invest like a guy who whines every day about how he has no idea what he is doing?

The answer: You wouldn't. So don't. You'll be much happier if you come up with your own way of tapping into that insane tornado of cash called the market. There are as many ways to trade and invest as their are people. Let your own personality and style help you decide what is the best method for you.

I write this blog for people like me who love the challenges of the market. Despite what most money managers tell us, there are ways for average folks like us to exploit the inefficiencies of the market. If a goofball like me can make a few bucks, anyone can.

This Week with StockPunk

Everything is staying pretty much the same for me for this week. There are no new stocks on my watch list. I've got a lot of cash to put to work thanks to my inability to jump in last week and my inopportune use of stops.

The weekends are starting to drag as I look forward to Monday. Is that normal?

Too Much Information

On Saturdays I have some time to peruse some other blogs and see what people are talking about. I cannot believe how much information is out there. It seems everybody is doing something different or is focusing on a different aspect of the market. Charles Kirk has a list of his favorite blogs on his website. Clicking on one of those brings up a whole new list of that person's favorite blogs. The amount of information seems infinite.

That's why I enjoy stock screening so much. It takes a LOT of information and weeds out all but the stuff that's most important. I can get a list of my picks for the week in less than 15 minutes! For me, that's the way I want to be spending my time.

I've tried other methods. I've tried to copy the techniques of others (take a look at my 2005 performance to see how that worked out for me). I've tried to buy stocks that made sense to me (ala Peter Lynch) and that worked for the last half of 2003 (but what didn't work the last half of 2003). I've tried to religiously follow the recommendations of a newsletter (The Stock Superstars Report in 2004) and did OK, but I knew I could be more independent and learn more if I managed things on my own.

So that's where I'm at now. I'm trying to avoid all the information that gets me worked up and causes me to make mistakes. I've been too cautious as everybody doom and glooms this rally. I need to avoid much of the information and focus on what works for me.

Pulling out the Stops

I've been trading for nearly four years now and I can only think of a couple of times that stops helped me out. Maybe the bad days overwrite any good days in my memory (I've only been keeping a trading journal for a year), but I think I would remember times that I got my tush saved by a stop. It just doesn't happen enough to justify all the blood, sweat and tears that I put into calculating them.

I know stops are an important part of many traders' toolboxes. But the way I trade doesn't seem to benefit from most of the stops I set.

So from here on out, I'm banning my use of stops. I will ride out the good times and the bad without worrying about support levels, moving averages, or market crashes.

Week in Review 4-20-2007

Finally this week is over. I had a difficult time this week watching the indexes beat me into the ground. I ended up making a measly .39%. Every one of my screens beat me pretty soundly. The worst did 1.52% and the best made 3.92%. Once again, I prove the futility of trying to manage things with my own perceived brilliance.

Mistakes I Made This Week:

I had a few stocks that were no longer passing my screens. After a good day on Monday, I should have sold them. Instead I put 3% trailing stops on all of them hoping to capitalize on further gains. My greed ended up costing all of Monday's gains even as I watched the DOW press higher.

Another stop on AOB was poorly placed. It triggered on Thursday, and the stock recovered.

My fear of KRSL kept me from 6.51% worth of gains. I've also noticed that my stop earlier this month on CPA (see earlier posts about my disappointment with that one) prevented me from gaining 20%.

The more I experience in the market, the more I am convinced that I have very poor predictive abilities. Everybody says that my returns are great. I wonder how much better they would be if I quit sabotaging everything with my constant "refining".

All the chatter says were in for a very positive day today. I'm struggling to resist buying some knee-jerk stocks. I hate missing out on good days, but the best thing for me is to let things go until this weekend. It's so dang hard, though.

Well, things went pretty awfully for me again today. Another day that the DOW beats me. I am officially even for the week after being up a couple of percent. Once again, my use of stops did more damage than good. I sold AOB on a downward spiral at $10.30. It ended up at $10.50. I hate it when I start to hope that a stock tanks because I've already sold it. We'll see what happens tomorrow (yeah, I'll watch it, even though it'll make me mad if it makes money tomorrow).

The bulls can't seem to let go except with the stocks I own.

Things aren't looking good in the premarket. Overseas markets look awful. Fortunately, I'm positioned pretty well for a terrible day as I've stopped out of most of my holdings. It's time to cruise through the rest of the week and regroup during the weekend.

I got beat by the DOW again. AOB was my biggest downer. HDNG recovered after I sold it. I'll be interested to see if my trading expertise beats out the dumb screen. My prediction--it won't.

One of the hardest things for me to do is letting things work themselves out. I always want to help my stock picks with stops, forecasts, premarket chatter and charting, but as I've said in the past, it is rare that my effort helps me make better decisions.

Maybe I need to just accept the fact that I'll never be able to trade unemotionally and develop a plan to minimize the damage my emotions cause. I guess that's kind of what I'm doing now, but I still get ticked off when things don't work out. If anyone has a secret to unemotional trading, please share it.

10:12am CST Things aren't looking too positive for me today. One of the hardest things for me to deal with is the emotions of day to day swings in the market. One day barely makes a difference over a year's time, but for some reason I still am affected by crummy days. I've sold HDNG and NOV. AOB is looking weak too.

Patience is THE BEST quality to have as a trader. EVERY SINGLE TIME I've rushed into or out of a trade, I regret it. But it sure is taking me a long time to learn my lessons.

Well my gut comes through after all. KRSL drops 7.66%. That would have wiped out all of my gains and made me quite unhappy. Sometimes it's best not to mess with those volatile weasels. Of course, tomorrow it'll shoot up 50% and I'll flip out once again. This is my messed up life.

Overall I made .27% on the portfolio. The DOW beat me and that makes me unhappy.

I've got a busy day today (meetings all day) so I won't be able to watch the tape. Usually, that's a very good thing for me. So, I'll keep things the way they are and find out how it turns out at the market close.

Why I suck

I couldn't do it. Even after KRSL dropped at lunch time to under 6% after shooting past 8%, I still wimped out. I could have doubled my return today if I had just gone with the screen and not listened to my gut. I need to really keep track of how many times my gut is wrong because right now I feel like it's about 97.3% of the time.

Still, I shouldn't beat myself up too bad. It was a good day overall. I managed to eek out a little over 1.2% even though I had a lot in cash. Now the issue becomes what do I do tomorrow?

Using Risk Grades with my Screens

I was introduced to the RiskGrades website when I was following the Stock Superstars newsletter that AAII offers. Riskgrades are proprietary calculations that analyze volatility. A grade is given for the general market and you can compare individual stocks or even a portfolio against the risk of the market. You can measure the "Risk Impact" of adding or deleting a particular stock to or from your portfolio.

Another interesting tool that I use is the Return Grade measure which looks at the risk of stock and compares it to the return of the stock over a given period of time. The stock is given a "grade" based on its risk vs its return. I like to plug in my list of stocks from a screen and see what stocks have the highest return grade because it sometimes gives me a different perspective on the screen list.

A couple of years ago (when I was even more dumb than I am now) I followed some portfolios that picked out the top 10 "Return Grade" stocks from the list in my screens. I saw some pretty amazing returns for about 5 months, but month 5 was awful so I assumed that the idea was worthless.

So now I am revisiting the idea because I think it has merit. I started paper trading (I don't take commissions or spreads into account) the concept again in October of 2006. I chose to pick the top 5 "Return Grade" stocks from the Zweig screen (as provided by AAII) and the return over the last 6 months has been 39%.

What's wrong with me

I wanted to buy KRSL this morning and I watched it open at 2% up. So I thought I'd let things shake out a bit before I jumped in. Now it's up 6% and I'm definitely too wimpy to jump in. I'll probably watch it go to 20% and then buy and watch it drop like a brick. That's just what I do.

I don't have real clear signals this week. I've got about 17% in cash so I'm trying to decide best how to use it. KSRL continues to have great Relative Strength and did well last week, but the thing is a volatile little monkey. I'm also watching CRR but I don't know that one too well. HDNG, GRMN and MS have dropped off my Punky list. I'm putting a trailing stop on each. I have no idea how this week is going to pan out.

Yesterday went better than expected. I'm up a little bit for the week. Premarket this morning is struggling so we'll so he how this wimpy week ends up.

4:09 pm CST Week in Review: The week ended up OK. Up 1.04%. I'm glad I didn't take my Dad up on his bet, although my other screens did end up making over 3%. AOB saved me today.

My mistakes this week:

• Selling SPAR on Monday. I should have left a 3% trailing stop on it to allow it to grab a little bit more. It didn't make much, but I think my stop was too tight.
• I also should have bought KRSL. I let my emotions get the best of me because it had a terrible week. My approach is supposed to be non-emotional. KRSL made 8.48% this week which could have boosted my returns.

I sold PCP today at the end of the day. We'll see how good a decision that was next week.

Not much going on today. Things don't look overly positive. Looks like this is a "just wait it out" kind of week.

Kirk said that he is getting his cool new members only stuff up and running this afternoon so that gives me something to do. Yippee!!!

Screening Fun

A couple of stocks I'm interested in (SPAR & NOV) were mentioned on Kirk's screen of the day today. It always makes me giddy when I own a stock that's gathering interest. I get even more giddy when a stock that I own goes up more than 10% in a day. It's been a few months since that has happened. I'm pretty sure it's not going to happen today. . .

Rick writes:

I stumbled across your blog site about your investing experiences and was intrigued by your methods. I have been buying/selling stocks and funds for close to 10 years now. I never really spent much time researching or really trying to make any money. My first round was with DRIP's and although I only made about 5-6% it was fun. I then moved to funds and typically made about 10-12% a year and at the same time I dabbled with stocks. I almost always ended up losing money with stocks.

After a couple years away from stocks, I decided to get back at it. This time around I am taking it serious and I am going to learn what I am doing before buying anything and try to make very educated decisions. I am a member of Zack's Premium, as well as a couple other sites, and I am starting to get more comfortable with the screens and started to build some of my own custom screens. I haven't paid much attention to AAII's site until I came across your blog.

I am interested in why you like the AAII site so much, what do you gain from it that is better/different than what I can get either free from other sites or from Zack's? Any advice you could offer?

Also, thank you for recommending Kirk's report, it is a Gem that I never came across before.

My Reply:

Thanks for sharing some of your experience, Rick. I am always fascinated to see what other people are doing because there are a million ways out there to work the market!

Here's why I like AAII.

1. It's cheap compared to most sites. I was a member of just the site for a few years. At $40 a year, that was a bargain. I learned a bunch each month and I really cut my teeth on AAII's risk management and stock screening.
2. They're honest. Most sites "cook the books" a bit to make themselves look better than they really are. Just look at Hulbert's Financial Digest (I recommend subscribing) and you can see how inflated nearly every newsletter or service makes their returns. I subscribed to AAII's Stock Superstars Report for a couple of years, and I was extremely impressed with how accurately information was reported. The same goes for their stock screens. I've tracked them myself to confirm the numbers (because some of them are hard to believe) and have always found them to be accurate. I haven't found many other stock sites that are like that.
3. The screens have nearly 10 years of data. AAII's stock screening started in 1998 which is years before I got into the game. In their screening area they track performance on a monthly basis. I've been hard pressed to find any other site that provides that type of information.
4. I like other members of AAII. I went to a local meeting of AAII members and I was the youngest guy there (I'm 40). It looked like a room of Warren Buffets. And they asked questions like Warren Buffet. There weren't any "hot shots" that tried to dazzle with their revolutionary techniques.

I've found that Zacks shares many of those attributes. The site has shared an enormous amount of information for free over the years (they just started charging for Premium) and for the most part, they avoid sensationalism.

I'm always looking for alternatives. I have an irrational fear that AAII will close shop and my sources for information will dry up. So I would like to have a couple of backup sources for data eventually.

Not much to report today. Things look generally positive. This should be a "go away until the market close and see what happened" type of day, but I'm sure I'll have to look every once in a while. I like my Yahoo stock ticker Widget that's on my desktop. The quotes are delayed 20 minutes and that helps me not take things too seriously.

3:32 pm CST I got a little cocky at lunch time when I was up 1% for the day. I ended up making .17%. Watching the tape today only got me upset.

An OK day. SPAR sold when I set a stop at last Thursday's close when the stock was up 2%. It ended up bouncing back a little bit but not enough to make me curse my decision. HDNG was up pretty good today. I'm glad I didn't knee-jerk sell it last week.

jt writes:

Hi:

sorry to be such a pest but i would like to ask one more question concerning your process. What software do you use to test and what is your source of data? You also mention testing back from January 2003 (in your recent post about using RS as a filter. Have you ever tested your strategies under different conditions (between 2000-2002 for example?)

My reply:

I use AAII's Stock Investor Pro for both the screening and data. The service provides new numbers each week and I've been real happy with value that AAII provides.

I started following AAII's screens in 2003 (I had no idea what I was doing back then and some would argue that I still don't). My own modifications came just a couple of years ago. I have searched far and wide for a way to backtest my ideas but everything I've come across is too expensive or cumbersome. If anyone out there has some good ideas on backtesting please let me know!

SPAR is the only stock that has disappeared from the screen. It still looks strong though. Cramer gave it a "buy" last week. I'm going to give it a little room to roam and dump it like a bad habit if it goes south on me.

My goal is to make 3% this week. My Dad wanted to bet me that I wouldn't be able to make it. I didn't take the bet.

Kirk has some good stuff going on at his site.

You know you're a little messed up when you don't like three day weekends because the market is closed.

KRSL has shown up on the screen again, but I'm not touching that thing this week. It lost over 13% last week and I'm too scared to make any commitments. That means everyone else should buy it now because it'll probably shoot up 45% this week. You can thank me later.

Ken has discovered some inconsistencies with what I have written and my current stock holdings. Here's what he said:

You mentioned you are holding or have held SPAR, KRSL, PCP, HDNG, TSS. From the data on AAII's website which is as of 2/28, none of those stocks have a number 1 Zacks rank. As a matter of fact, SPAR, KRSL and HDNG have no Zacks rank, N/A. Only one stock in the screen, GRMN, has a number 1 Zacks rank.
Please correct me if I'm wrong, but it seems you're not only buying the Zweig's number one Zacks rank stocks. As a matter of fact, out of the five top long term performing AAII screen, four of them will not have five number 1 Zacks ranked stocks in them. Only the Est Rev Up 5% screen will have at least five but then again that screen plays right into the hands of the Zacks number 1 rank's criteria.

My response:

Thanks for your question, Ken. Here's the deal. As I've mentioned before, I've also been tracking whether or not a stock's relative strength impacts its performance in a screen. I've found that it does (see earlier posts). So I weight the top 5 stocks with the highest relative strength and also consider whether the stocks are rated #1 by Zacks.

I've found that a combination of the two gives me better diversification and allows me to choose more stocks. Last week, for example, only 3 stocks were rated #1: NOV, MS, and GRMN. So I picked a couple of more that were rated high in relative strength.

I won't sell a stock if it slips from #1 to #2 on the Zacks rating unless it is no longer listed on the screen (I'll put a 3% trailing stop on it then). PCP continues to perform and even though it rates a "2" on Zacks it is still listed on the Zweig screen so I'll keep it until it starts weakening.

Screening for Relative Strength

I've been following the relative strength of the stocks that filter into my screens since January of 2003. I've been especially interested in the stocks that shake out as the highest relative strength in my screens on a weekly basis. For the Zweig screen, investing in the highest relative strength stock each week since January 2003 would have resulted in a 5656% compounded return so far. Holy freakin' cow.

It gets better. I hypothesized that if I mechanically invested in the #1 Relative Strength stock only when a MACD chart indicated that the stock was trending upward I could avoid some of the bigger losses. I started tracking what would happen in August of 2004. Less than 3 years later the returns are 4258% so far. Not too shabby.

Last year, I foolishly tried to invest a large part of my portfolio this way (in just one stock) and soon realized that I couldn't take the heat of the daily swings. My worst day zapped me with a 9% loss on my total portfolio. Despite the enormous past returns, I couldn't justify the worry and pain of large losses.

I've got a much more balanced portfolio now and I have taken the advice of traders who are smarter than I am. I no longer risk more than 2% of my portfolio on any one trade (a common rule of thumb with successful traders). The growth has been less exponential, but my sanity is what's important.

Week in Review:

HDNG kept me from having a pretty good week. That's the breaks I guess. Overall I was up .88%. We'll see what new information the three day weekend will bring. Enjoy the break.

Ten years ago, my wife and I lived in Timisoara, Romania. In Eastern Europe, something crazy happens every day. I wish I would have been able to blog like this so the entire world would be able to log on and experience the insanity. Instead I spent hours writing e-mails to different people, which was therapeutic enough.

This is my beautiful wife (how'd she ever get hooked up with me?) and me in front of Ceaucescu's "palace" in Bucharest. It is a reminder of what pure greed and arrogance leads to (he's dead and the palace--which is bigger than the Pentagon-- sits empty). I was humbled by the happiness and joy of the Romanian people despite their lack of wealth. It is good to remember how good we have it here and to make sure we share some of what we have with others near us and around the world.

--Not much going on today. I'm going to try and get some things done today. I have a more than full time job so my trading style suits me very well. It's not a big deal if I can't monitor things all day and, as I've said before, it usually works out better for me when I don't.

10:42 am CST--Well, HDNG is down 14% right now and I'm personally doing OK. No panic attacks or heavy sweating. Last year my portfolio would have been pretty devastated, but I've learned some better ways to manage portfolio risk since then. My overall portfolio is down 1.60% which sucks, but it doesn't freak me out. Last year my portfolio lost 9% in ONE DAY and I thought I was having a heart attack. I've had MANY more days where a stock went up more than 14% in one day (In 2005, I owned FORD which went up 45% in ONE DAY) so I need to keep things in perspective.

I believe my use of bold and color shows my passion.

3:58 pm CST -- My hopes that things would return to normal were dashed at the market close. I was down 1.74% thanks to HDNG--dang it. This is why despite some pretty decent returns, most folks choose not to trade this way. It's not easy to watch a stock drop like that. This is where a trading diary can make a difference. I can go back and remind myself that the rough days (not that this was really rough--more like disappointing) are just a blip.

Things look positive in the premarket chatter. I'll be busy most of the day so I'll have to let things work themselves out without my help. That's a good thing.

Charles Kirk posted an excellent article written by Doug Hirschhorn about risk taking and the fear of failure on his site. Take a look.

3:36 pm CST--I got beat by the DOW today which ticks me off. I was up .90%. Of course the stock that I dumped last week --CPA went up 5.55% today.

Nothing looks too exciting this morning although the premarket looks slightly positive. I don't have any stocks that really stick out so I'm working with a pretty big basket this week.

Overall not a bad day today--up about .60%. I was cursing myself at the open for jumping on things too soon, but it all worked out OK in the end. I still think I'm fooling myself to think I can time things, but I need to develop a more calculated system for when to buy. I've tried using charts, percentage stops and just plain old market buys, but I find it best if I just stick to one method and leave the emotion out of it.

Kirk reported that one of my big winners for last year AXR has really tanked this year. The screens I've run have really done a good job of identifying when a stock is done. I sold AXR at $116.48 and cursed myself as it rose to near $150. But today it is sitting at $75.26 --further proof that I really have no idea what I'm doing.

Here's one of the e-mails I received today:

I've been a Kirk reader for some time and have learned a lot from his stuff. He's what pointed me to your blog, which I found interesting, informative and amusing. Also, your 2006/2007 performance is very impressive.

As a Zacks Elite subscriber, I too use Zacks Rank with my screens. You mentioned you use Zacks with the AAII Zweig screen to boost performance. Now you've convinced me to join AAII, which I knew about but had never joined.

Would you mind sharing with me the details of how you rebalance weekly? Traders have differing methods for rebalancing, and I'm always interested in learning how successful traders manage their trades. Thanks.

My reply--

Thanks for your e-mail and your encouraging comments. I’m glad you found some things amusing. Sometimes I have no idea what I am doing and I think it is good to communicate that. The only thing that I can’t figure out about my performance is why an idiot like me can earn that much when there are much smarter folks out there who struggle to beat the market. It worries me sometimes that I have just been lucky the last couple of years and that I really am just a dweeb that doesn’t have a clue.

Zacks has a really cool stock screener called Research Wizard (you’re probably familiar with it). I’ve done the 2 week trial a couple of times and I like it, but I haven’t been able to justify the $1,000 per year price tag yet. I think I would be very interested if I could seamlessly incorporate AAII’s screens into Zack's screener. I use AAII’s Stock Investor Pro which costs around $200 per year.

I really don’t have a tried and true system for rebalancing. I don’t actually rebalance each week. I re-evaluate my holdings each week. I heavily emphasize stocks that match the Zweig screen, Can Slim Screen, and a few of the others and then filter the stocks with Zack’s #1 ranking. I hold around 5 stocks until something changes—either the stock no longer appears on the screens or it loses it’s Zacks ranking. (If the ranking changes from a “1” to a “2” I might tighten my stops a bit, but not much. If it changes to a “3” it’s over for the stock and I put a 3 percent trailing stop on it.) That’s pretty much it. Nothing too complicated.