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HOUSTON April, 2009. WALL STREET AND MY STREET. The following is just my perspective. I was a lookout at Pearl Harbor. May not be dependable. Am certainly not responsible ***Redneck disclaimer.

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slide1

HOUSTON

April, 2009

slide2

WALL STREET

AND

MY STREET

slide3

The following is just my perspective.

I was a lookout at Pearl Harbor.

May not be dependable.

Am certainly not responsible

***Redneck disclaimer

slide4

This has myreality written all through the process. It is not necessarily “right” but appropriate for ME.

…it fits my age (old), tolerances (not very) and blood pressure (very high)…

slide5

… it does not matter how frequently something succeeds …

…if failure is too costly to bear…

Optimizing…..over confidence….believing Wall Street

BERNIE MADOFF!!!

slide6

…in the land of…..

“TRILLION DOLLAR BAND AIDS”

AND

“SITUATIONAL ACCOUNTING RULES”

slide7

PLANNING FOR

(AND DEALING WITH)

FAILURE***

***FAILURE = BAD DECISION OR LOSING MONEY

slide8

NO

INDICATOR OR SYSTEM

GIVES

CONSTANT ADVICE

slide9

"You can\'t simply plan to get a 10% return

because that\'s the number you need"

slide10

“I don’t care about the economy,

I just need to make some money”

slide11

Winning by NOT LOSING

20%, 20%, 20%, 5% beats 30%, 30%, 30%, -20%.

15%, 15%, 15%, 5% beats 25%, 25%, 25%, -20%.

20%, 10%, 5%, 5% beats 30%, 20%, 15%, -20%.

5%, 5%, 5%, 5% ties 15%, 15%, 15%, -20%.

It doesn’t matter what year the -20% occurs in examples above

slide12

WALL STREET

  • YOU MUST STAY FULLY INVESTED AT ALL TIMES
  • IF YOU MISS THE BEST 10 DAYS OVER THE PAST 5 YEARS YOUR RETURN IS _____
  • MY STREET
  • IF YOU STAY FULLY INVESTED YOU PAY THE MANAGEMENT FEES REGARDLESS OF PERFORMANCE (FUNDS)
  • IN ANY TEST YOU RUN, IF YOU “MISS THE 10 WORST DAYS” IS ALWAYS SUPERIOR TO THE “MISS BEST 10 DAYS”
slide13

WALL STREET

  • ASSET ALLOCATION REDUCES THE VOLATILITY OF YOU PORTFOLIO
  • YOU CAN’T TIME THE MARKET
  • MY STREET
  • ALLOCATION REDUCES RETURNS & MAY HELP VOLATILITY
  • HAD POSITIVE RETURNS IN 2000,2001 AND 2002
  • ASSET CONCENTRATION (INCREASES RETURN AND VOLATILITY)
slide14

WALL STREET

  • THE MARKETS ARE EFFICIENT
  • THE MARKETS ARE RATIONAL
  • MY STREET
  • WHO BEST TO EXPLOIT INEFFICENCIES THAN INDIVIDUALS
  • IF THE MARKETS ARE RATIONAL (THEN MAYBE WE INDIVIDUALS ARE NOT)
slide15

Range Of Investor Emotions

Optimism “Investing isn’t so difficult”

Excitement “I’ll be able to retire early!”

Thrill “I am a brilliant investor” (Maybe I should write a book)

EuphoriaThe point of maximum risk

Complacency “It’s just a normal correction, a great time to buy”

Anxiety “If I double down it won’t take long to recover”

Denial “Its only paper losses. I’m in it for the long-term”

slide16

Range Of Investor Emotions

Desperation “What’s going on? When will it stop going down?”

Panic “I’ve lost most of my money. I may never be able to retire”

Capitulation “I’m selling everything and I’ll never own stocks again”

Depression “I wonder how cat food tastes?”

Defiance “Stocks may be going up but I’m not taking the risk”

slide17

HOW FREQUENTLY DO YOU TRADE?

HOW MUCH MONEY DO YOU TRADE?

WHAT ARE YOUR PERSONAL TOLERANCES?

There are no RIGHT or WRONG answers….but we all must know our personal answer to the three questions above.

slide18

Why we do what we do

How we do what we do

slide19

Do you have measures to determine if you have an investment “edge” ?

Do you have a process to identify and purchase leading stocks/funds/ETFs/futures?

Do you have a process to “trade up” positions you own?

Do you have “disciplines” that preserve capital?

slide20

DECISION MODELS

Market Risk Model

Asset Commitment Model

Fund Selection & Management Model

..And how they are linkedto each other..

slide21

SOME EXAMPLES OF AND “EDGE”

***DEFINITION OF “EDGE”

A positive expectancy for a profitable outcome

slide22

To trade profitable in the long run, you must know your edge….

If you have no edge, you should not trade for profit…

Establishing and recognizing your edge is a prerequisite to predicting whether trading will be profitable.

slide23

DETERMINING THE MARKET ENVIRONMENT

LONG TERM:

Relative Strength

Price

New Highs / New Lows

Advancing / Declining

slide24

IMPORTANCE OF

LEVEL AND DIRECTION

FOR

PRICE OSCILLATOR

slide25

USE WEEKLY DATA

ASSUMES PERFECT TRADES

BIG PICTURE MARKET FORCES

MOST PRODUCTIVE: LONG OR SHORT

WHERE WE ARE TODAY

slide26

WEEKLY PRICE OSCILLATOR

LEVEL AND DIRECTION IMPORTANT

12/26 MACD

  • Mid point level 67% of time
  • Data since 1930
slide29

12 / 26 MACD

((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100

From 1930 to Current

Above 0 levelBelow 0 level

Going UP 8.40% -0.90%

Going DOWN 1.70% -7.70%

slide30

12 / 26 MACD

((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100

From 1990 to Current

Above 0 levelBelow 0 level

Going UP 7.16% -0.08%

Going DOWN 0.40% -6.81%

slide31

12 / 26 MACD

((Mov(C,12,E)-Mov(C,26,E))/Mov(C,26,E))*100

From 2000 to Current

Above 0 levelBelow 0 level

Going UP +6.3% +3.0%

Going DOWN -1.1% -9.7%

slide32

PRICE OSCILLATOR DATA POINTS

(level only)

S&P 500 Data: (1930) 62% time >0 level

>0 Level WeeklyMonthly Yearly

+0.21% +0.86% +10.32%

<0 Level +0.05% +0.23% +2.76%

OTC Data: (1980) 62% time >0 level

WeeklyMonthly Yearly

>0 Level +0.50% +2.11% +25.36%

<0 Level -0.11% -0.48% -5.74%

Any conclusions???

slide33

Level and direction

3-4 up/down moves per year

>0 Level, down direction = correction

<0 Level, down direction = “cat food”

slide37

LEVEL AND DIRECTION

USING

DAILY DATA

slide39

DOMINANT MARKET THEORY

An edge

Relative measure

Jim Stack

OTC / NYSE

NDX / SPY

Russell growth / Russell value

Smoothing……macd & stochastic rsi

slide43

RETURNS FOR DOMINANT MARKET

Daily 1990 SPX & Nasdaq

Relative         Ave. Ret        Ave. Ret

Strength        Nasdaq          SPX       

SmlCap        3.44%            1.83%

LrgCap        -0.36%           0.15%

% SmlCap Dominant    57.1%

% LrgCap Dominant     42.9%

For period of dominance

Data points from 1980

slide46

DETERMINING THE MARKET ENVIRONMENT

SHORT TERM:

Price

Highs / Lows

Advancing / Declining

slide47

ALL BUY SIGNALS ARE NOT CREATED EQUAL

VARIED EXPOSURE TO THE MARKETS IS APPROPRIATE WHEN CONSIDERING THE MARKET ENVIRONMENT

slide50

UNDERSTANDING

“UP FROM DOWN”

slide52

SIMPLE DECISIONS

THE DECISION ZONE

Stoch(28,13)/2+RSI(14)/2

slide54

Sell Zone <50

No Sell Zone >65

Fund

Decline

Fund

Rise

Trend Measure for All Mutual Funds

Our trend measures keep us with the trend

slide55

THOUGHTS AND POSITIONS FOR THE MARKETS

AT THIS TIME:

Long term: level (low) and direction (up)

Intermediate term: measures positive (but weakening)

Timing signals: 2 of 3 models are positive (long term is negative)

BE CAREFUL: A “trading” opportunity is upon us soon… ….MAYBE….SBIG

slide57

IN CLOSING

EVERY DAY I want to know:

What is the “dominant market”

What is the long term level and direction of weekly measures

What is the consensus of 3 timing systems

What is the intermediate term market environment

slide58

At age 66, I’m

developing a 3rd

and last career path

slide60

ATHENS CAPITAL MANAGMENT

1-877-460-7941

[email protected]

(returns data up front)

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