Investment Software | Investment Articles

Sep 21

Reducing your risk during times of market volatility, or any time, can help preserve your portfolio. There are several ways you can achieve this while maintaining either an aggressive or conservative investment strategy.

A principle of investing is to minimize drawdown, the percentage your portfolio drops at any one time or between the market highs and the lows. If you invest with the buy and hold philosophy you will most likely experience dramatic drawdowns over the course of time, and while your portfolio may recover from these losses, if you need to cash out part or all of your money in the midst of these drops, you will suffer with big money losses. This is the underlying fault of the buy and hold concept.

The alternative to buy & hold is to be willing to trade and:

• Take profits• Cut losses to a minimum• Buy at the best opportunity

Using a good investment software program you should be able to set buy sell rules to help you reduce risk. Some of these rules may give you signals for when to simply get out of the markets, while others will help you avoid massive or even medium size losses (drawdowns).

Keys to risk reduction include:

• Standard Deviation – adding this type calculation to your analysis can help to reduce risk as sell signals are generated when a ticker drops too far from its “typical” deviation or up-down movement.

You can use standard deviation with many types of analysis: alpha, relative strength momentum, return…are just a few examples.

• Benchmark Exit – this signal will tell you when to quit investing and either move to cash or a safer position like bonds. The signal is triggered when a key index like the S&P 500 cuts down through its moving average (a moving average between 90 -150 seems to work best).

• Equity Curve – an equity curve based on a group of tickers can signal when to stop using a particular investment strategy set of buy sell rules. An equity curve uses the moving average of the strategies performance. A stop signal is generated when the performance line of the strategy cuts down thru the moving average line (a moving average of 100 works well in volatile times while 250 works during a long term upward running market).

You can even employ two or three of these risk reduction conceptions at the same time. You can have a strategy, for example, analyzing the performance of a group based on return with standard deviation and also look at the benchmark exit or the equity curve to be sure it is a good time to invest or a good time to use the particular strategy’s set of buy sell rules.

Author Raymond Dominick is the designer of Dynamic Investor Pro investment software for stocks, ETFs and mutual funds. He has been investing in the markets since his teenage years. An experienced business manager and journalist, he has been a registered investment advisor representative, also a professional photographer who loves escaping to the wonders of Glacier National Park in Montana. View his software at: http://www.dynamicinvestorpro.com

Sep 13

How to Discover Today’s Winners

How can you tell the economy will get better? What about good buy opportunities in the market? Do they always exist?

There are many answers to these questions. Sometimes events cloud the overall picture. Sometimes there may not be good investments but getting prepared to make an investment is just as important.

If the markets are down and nothing looks good, but a major company announces they are buying another company or pouring money into a new project, that company is saying, “we think the future is great.” Does it mean you should buy that company or an ETF or fund holding that company, no, not necessarily. But you should view the news as a sign that some people in the business world see a strong future. On the other hand if there are multiple reports about different companies taking similar action then maybe, even if the markets are down or dismal, it is a time to be taking your own stake in the future.

Most news on the front page or TV is negative if not downright bad news. This makes it difficult to detach your emotions from seeing good or positive news and indicators pointing to opportunities. In this respect all the different books and articles about positive thinking are equally important to manage your investment portfolio. Without a positive and open attitude you may miss the news report that could result in either an immediate or future investment.

Some of the obvious ways to gauge the future of the economy come from the various economic reports that are release every week: housing sales, consumer confidence, inflation, and the list goes on and on. Many of these reports are good. Unfortunately the headlines about these reports are usually based on the first two paragraphs and not the entire report. Many times a report may sound negative but upon reading down into the nitty gritty you will find evidence of positive aspects.

What it amounts to is simple but often befuddling: be willing to look past today’s negative news to find indicators of the future. Look at the trends in your investment analysis software program so you are prepared to buy when the time is right. If you are using a software program this doesn’t mean just watching a single chart, but the trends of different groups or sectors of the markets and different charts to see how the all correlate and where they are pointing.

Check out an equity chart for your group or the S&P 500, perhaps with a 100 day setting to see what type of signal this chart is generating.

If you are keeping you mind grounded with solid facts and information you will almost always find there are investment opportunities and if there are none that meet your goals with your risk basis, you will be better prepared to act when the time is right.

View his software at: http://www.dynamicinvestorpro.com

Aug 29

Three Ways to Avoid Market Crashes

How many times have you seen the markets crash and watch portfolios shrink like a never washed cotton shirt? Before the market dives there are three methods that can help you preserve your shirt and your cash.

With the aid of computers and many software programs you can activate key signals that can tell you when to exit the market before your portfolio becomes totally at risk.

• Equity Curve

• Benchmark Exit

• Ticker Rank + Combo Charts

Equity Curve – Michael Carr, in his book “Smarter Investing in Any Economy” writes about using an equity curve to signal when to stop using a particular investment strategy.

This equity curve chart is a type of moving average chart. When the price line of the group’s strategy cuts down through the moving average of the groups tickers, then a sell or “don’t use” this strategy signal is generated. In other words, this strategy is not making money and it is either time to switch strategies with this group, switch to a different group of ticker symbols, OR move to cash or bonds to safeguard your money.

In his book, Carr writes about an equity curve based on 250 trading days, but in turbulent market times an equity curve based on 100 trading days or even a bit less will provide more safety.

Benchmark Exit – this exit signal is similar to an equity curve or moving average but is based strictly on the performance of a major index. I prefer to use the S&P 500 (SPX) but the Dow Jones index or the Nasdaq index could also be used.

The signal is based on the price line of the index as compared to the moving average of the index. When the price line cuts down through the moving average or equity line of the index it is a signal to exit the markets and move to either bonds or cash. In my experience I have found a setting of 100 trading days works extremely well and has consistently moved me out of the markets prior to major crashes.

Ticker Rank + Combo Charts – this technique is a bit more complicated yet is still easy and gives very strong signals for reducing risk and keeping your money safe.

The first element of this method is to see where the ticker symbol of your holdings or potential buys stands in comparison to the performance of the benchmark in your group of tickers. For Example: Is the ticker you hold or want to buy ranked above or below the S&P 500 based on your method of analyzing the data (relative strength, alpha, return, etc.). If your ticker is below the S&P 500 then it is under-performing and is most likely not a good investment choice.

The next step in this method is to examine two key charts: moving average and full stochastic. Both of these charts should be giving out buy signals if you are going to buy the particular position.

If the ticker ranks below the S&P 500 and both charts are giving sell signals then the best course is to protect yourself by either moving to cash or bonds.

These three methods will enable you to avoid losing large chunks of your portfolio. You can either employ all three or just one or two to protect yourself.

Aug 23

You Can Score Great Gains With Dividend Based Investments

Investing in high-yield, consistent dividend paying stocks, funds or even ETFs is often suggested as a conservative way to get income into your checking account while providing a strong degree of investment security. While this may be true, investing in these type positions can also provide great gains and huge profits.

So investing in high-yield dividend payers isn’t necessarily just for conservative investors because you can reap some great rewards and build a strong portfolio with these positions. In fact even a moderate to aggressive investor may be hard pressed on why they should avoid these investments.

I conducted a variety of tests to show how these investments can pay off quite handsomely and build anyone’s portfolio, especially a retirement account.

For my test I put together a group of 43 dividend paying stocks. A little research on the internet, especially the S&P website helped me find a good group of solid companies that have consistently paid dividends over many years. I added the S&P 500 ticker, SPX, as a benchmark against which the performance of the others would be compared with my investment software program.

Because I wanted to take advantage of the dividend income I set my sell rules to a preference of holding a position at least 90 days. This automatically minimized the number of trades I would make. Since I also use stops to prevent losses during market declines some trades did take place within 90 days, so I set my test to evaluate trading on a weekly basis as if I were taking a quick look at my portfolio each weekend.

To further protect myself, in some of my tests I set a sell signal that moved me either out of the markets or into bonds whenever the price line of the S&P 500 dropped below its 100 or 65 day moving average. Even with wanting to trade just every few months there were times when the program had me trade more frequently in order to minimize losses.

The test period began with January 2005 and ended at the end of July 2011, a little over 6-1/2 years or 79 months. During this period the markets, as measured by the S&P 500, gyrated thru many ups and downs including the recession of 2007 – 2008 and its recovery.

The results are based on how many positions you would hold at any one moment. In other words, always investing and holding just one stock or three or even five out of the group.

The results vary, but in general the more positions you hold at the same time, lessens the total potential gain, the amount of money you can make. The gains during this 79 month period range from 92% to 399% or on an annual averaged basis from 11% to 28%.

Holding one position: 224% – 399% with compound annual averages of 15% – 28%.

Holding two positions constantly: 216% with a compound annual average of 19%.

Holding three positions constantly: 128% – 151% with a compound annual average of 13% -15%.

Holding four positions constantly: 149% with a compound annual average of 15%.

Holding five positions constantly: 92% – 134% with a compound annual average of 11% – 14%.

Thus with prudent sell & buy rules, especially rules to protect you when the markets dive, you can earn both dividends and substantial gains with a portfolio that includes investing with a group of high-yield dividend paying stocks, ETFs or mutual funds

Aug 15

How Often Do You Need to Trade?

How frequently do you need to trade ETFs, stocks or mutual funds to make money? Most folks will say daily, but the answer may surprise you.

Using a software program that enables back testing I conducted a series of tests using a small group of ETFs. The group I used contained 12 sector ETFs and SPX, the S&P 500 as the benchmark or comparison symbol.

I decided to keep my test somewhat simple although I could have added in more selling rules that could have made the results, the money earned, even better. I tested with buy signals based on the Alpha method of relative strength analysis, a ranking cutoff to maintain ownership in the best tickers, with the best purchase and trailing high stops the program could find to provide the best results.

My key variable was how long did I prefer to hold a position before selling. An important element regarding this factor is that it was a preference that could be over-ruled by the stops to prevent massive losses.

Comparisons were made between:

• Daily trading
• Weekly trading preference
• Monthly trading preference
• Trading every few months as a preference

In all situations, even with wanting to trade just every few months there were times when the program had me trade more frequently in order to minimize losses.

The test period began with January 2005 and ended at the end of July 2011, a little over 6-1/2 years or 79 months. During this period the markets, as measured by the S&P500 gyrated thru many ups and downs including the recession of 2007 – 2008 and its recovery.

The surprising results:

Daily trading or the willingness to trade daily: portfolio gain possibilities of 118% to 128% with anywhere from 228 – 595 trades. That’s 2.88 – 7.53 trades a month.

Weekly trading preference: gain possibilities of 232% – 243% with anywhere from 95 – 132 trades. That’s 1.20 – 1.67 trades a month.

Monthly trading preference: gain possibilities of 224% – 247% with anywhere from 53 – 94 trades. That’s 0.67 – 1.19 trades a month.

Trading every few months: gain possibilities of 268% – 301% with anywhere from 44 – 152 trades. That’s 0.56 – 1.92 trades a month.

In other words you don’t have to be a daily trader to make good money investing. In fact being willing to review your portfolio on a weekly basis to catch sell signals may be the best approach and the most profitable. Even if you only want to adjust your portfolio occasionally as with the monthly or every few months trading concept it is still best to check things once a week to be sure you won’t get burned by a market drop as happened to many retirement accounts during our recent recession.

Aug 9

Key Principles of Safe Investing

Safe investing? Is there such a thing? Almost everybody want to know that when the put up their dollars they are going to get them back with more, maybe a little more, maybe a lot; but they don’t want investing in stocks, funds or ETFs to be a gamble.

Investing need not be a crap shoot if certain simple, common sense principles are followed. But even safe investing does not mean there will be no loses along the road to increased wealth. That doesn’t mean, “Stop” investing is not for you. Think about it as driving down a road or highway. How many roads have you been on that are totally smooth, easy to drive and safe? Yes there are roads like that; ones that have just been built or resurfaced, just like there are new stocks, ETFs or funds…but how many days or weeks does that perfect road last?

Then there are roads that are bumpy, and ones filled with potholes. Or how about the broken up, dirt, gravel and rain trenched or rutted roads that can bust a tire, break an axel or tear off an oil pan? Investing can be just as dangerous, risky or safe as driving.

There are a few key principles to safe investing:

• Tell yourself, and write down how much you are willing to risk your money: a little or a lot. It’s just like deciding what roads you would prefer to avoid.

• Identify the types of investments you consider safe for either all or part of your money. This could be dividend paying stocks, funds or ETFs or bonds, or funds or ETFs that are indexed or follow certain industries or sectors of the economy

• Recognize how much time you are willing to put into managing your money for its future growth. If you are willing to spend 30 -60 minutes every day you can jump to the best performers almost instantly. If your life allows you about 30 minutes once a week then your investment process should be based on technical analysis that gives weekly buy and sell signals that meet your ‘willingness of risk’. If your time is very limited and you only want to spend an hour every month or two than you can choose between technical analysis based on this time frame or you can choose to go the fundamental route of picking investment position for the long haul.

• Just as detours pop up and routes change how we go from one place to another be prepared to change course with your investments. Perhaps today you only want to spend an hour every few months managing your portfolio but who knows what will happen that may make you switch to weekly management. Keep this in the back of your mind because as we all know, what we thought we were going to do when we left high school is probably not exactly the road we have traveled. If you are going to use a software program to help manage or make investment decisions, be sure the program is flexible enough to allow you to switch course when you want.

• And remember your exit strategy, having a signal that tells you when to hold off investing and go to cash to preserve your money when the market crashes or bounces. It’s just like knowing where you will get off a freeway when you see that sign saying ‘construction ahead’.

Aug 5

There Are Always Winning Investments

Can you always find a winning investment? What about when the markets are in turmoil either from economic forces, nature’s disasters or political forces?

The answer depends upon two factors: how you define “winning”, and when you want the stock, ETF or fund to produce gains.

When the markets are in turmoil and almost everything is dropping there may be safe havens that can be defined as winning investments. These include: bonds (or bond ETFs and bond funds), money market cash accounts, and high yield dividend paying stocks, funds or ETFs with trong long-term history of always paying their dividends. Winning investments in these situations can also be based on the concept of buying low with the idea of holding the position for a mid to long term measured in years, not days, weeks or months.

While most software programs that provide buy – sell recommendations are based on immediate trends there are a few programs that allow you the option of configuring them so you can pick long term investments or safe investments. You can do this in a variety of ways. One method would be to include a few “safe” type positions in your regular groups so that when most ETFs, stocks or funds are underperforming the analysis will shift towards these safer positions that will then reduce risk while offering modest gains.

Another method would be to create a group of high dividend yielding investments, either stocks themselves or ETFs or mutual funds. By setting the buy rules based on long term investing you would reduce turnover and volatility while maintaining minimum risk with modest gains or income.

Fundamental analysis can also be used to find long term investments. This is the method used by Warren Buffet. This method requires careful study of potential positions over many days and weeks before a buy decision is reached. When the markets are down or in turmoil such analysis coupled with the willingness to reap results in the distant future can bring excellent gains.

Who can best utilize these approaches?

Everyone. Some investors think these approaches don’t apply to them because they want to make money “today” or because they are either nearing retirement or are retired. But when the markets are convoluted putting pat of your portfolio into safe areas is simply a way to reduce risk and maintain your portfolio’s value. Retirees today need to remember that life expectancy is growing and keeping a vibrant portfolio with long term potential is critical.

View his software at: http://www.dynamicinvestorpro.com

Aug 3

Investing Keys During Inflationary Times

Inflation is a scary word. Everyone all but panics when the word is mentioned. But during inflationary times it is even more important than ever to stay invested in the markets.

Simply put inflation means prices are going up. The degree of inflation is the key because prices are almost always going up. When inflation or the consumer price index is rising 1% or 2% inflation is pretty tame although it still means your wages can buy less this month than last month or a year ago. However, when prices start jumping 4% or 5% or more than it gets downright scary.

During inflationary times the markets can react in different ways just as you can react in a variety of ways. The markets may tank because the Wall Street gurus fear the economy is going to bust or it may soar right along with the inflationary price spiral. Some investors will try to ride a climbing market while others will head for safety in precious metals, bonds or even cash.

The important factors to keep in mind are simple:

• Your buying power is going down as inflation goes up and stays up.
• Investing that equals or beats inflation is the only way you can maintain your buying power.

The challenge to investing in inflationary times revolves around that ‘ol phrase, “Jack be nimble, Jack be quick.”

If you are a long-term investor and only check your portfolio every few months, then you probably should switch to conservative but safe holdings that won’t tumble when inflation is checked. Positions like high yield dividend stocks, ETFs or mutual funds; utilities, or perhaps a bond mix and maybe precious metals.

If you can spend 30 minutes watching your portfolio every week or two then you should be able to continue investing safely and even moderately aggressively with the right software package to guide you. Remember, if inflation is running at 4 – 5% then you need to exceed that figure to stay ahead of the game. While you may have strategies that analyze the ticker symbols over different time frames you should probably watch or have strategies with both short and medium time frame analysis so you catch sudden movements while watching the overall picture for a bit longer viewpoint.

An important key to successful investing in inflationary times is to keep your emotions in check. You may have an ETF or stock that has been rising to dizzy heights and your software program signals ’sell’ but you think “well the way it has been going it is going to bounce right back up and keep soaring.” Wrong attitude; greedy desires result in dramatic loses, most especially during sky busting inflationary markets. Pay attention to your sell signals and take profits. You can always invest all or part of your gains into another position for even more future gains. If you really like that ticker symbol that your program now says to sell, at least sell all that equals your original cost plus enough shares to equal a decent profit.

Again, the key to investing, whether in inflationary times or not, is to be flexible and to take profits without being greedy. In this manner you will not only stay ahead of inflation but make it work for you and increase your wealth, your retirement account and spending ability.

Jul 29

When to Get Back Into the Markets

Getting back into the market after you have moved all or most of your portfolio to cash requires both a plan and patience. Being impatient can put your portfolio at risk.

After you have moved out of the markets typically you will have to deal with two worries:

• Am I getting in back in too early or too late?
• Should I invest all my cash immediately or space it out?

The answer to the first situation is to trust the method of investing you have been using. If you are using an investment software program to analyze and provide buy/sell signals and it has been successful for you in the past, then wait for new buy signals. Of course you will continue to watch the news to see what the Wall Street gurus and politicians are doing because they have an immense influence on the market’s direction.

How much to invest should also be based on buy signals. If you sold six positions most likely you will be buying back in with six new symbols. But unless your program or methodology gives you six unique buy signals on the same day you will most likely just buy as the signals come, and this could take weeks or even months before you are again fully invested. Will you miss opportunities by waiting for your signals, perhaps, but by sticking with your methods you will also reduce risk and be more likely to garner future gains. Because different groups, like asset, sector or foreign groups of ticker symbols react different to market forces it is most likely that new buy signals will be spread out over time; but this is a good things as it helps keep you diversified and reduces risk.

In other words, if your investment methods have been making you money, previously told you to exit completely or partially from the markets, then the safest course is to continue your analysis at the same frequency (weekly for example) and move back in as your methodology suggests. Changing methods of analysis at this point can put you in the position of using unproven methods or results to make your investment decisions. Of course if you are using a software program that allows for back testing then it may be safe to switch techniques at this point.

Personally I find that it takes me a few months to get back to being fully invested. Yes, it is frustrating at times, but I just keep reminding myself it is safer to jump with a positive signal than to just jump not knowing what the outcome will be.

Jul 21

Your Key to Investing While Retired

There are certain principles, certain keys to investing if you are retired. Yes, there are many books on the subject and new magazine articles almost every month, but somehow they seem to either miss the key factors or their verbiage is so long the key points are glossed over.

It’s kind of like when I go for a hike in Glacier National Park. What I want to know is:

What are the key characteristics of the trial?

What are the viewing highlights along the trail and at its destination?

What’s the weather forecast?

What animals may I see?

Have there been bear sightings?

Because I’m not a scientist I don’t want to know the geology every ten feet along the way, nor the name of every flower, plant and tree (some yes, but not every darn posey).

It’s the same with managing your retirement funds. Concentrate on the key factors and then follow your trail map to success.

As a retiree your keys to successful money management are:

• Am I interested in managing my investments myself or should I use a professional advisor/planner? This is a key to your trail. And do I have time – 30 minutes or more a week? If you are going to self manage, what software program will you use?

• Do I prefer ETFs, or mutual funds or stocks? These are your viewing highlights and if you know how to classify or divide them into working groups, or have access to advice on this matter.

• Can you check your emotions at the door so you make unbiased decisions? Do market drops scare you like a lightning storm or can you shrug them off and keep on your trail because these are part of your ongoing weather forecast. Another aspect of your forecast is exactly that: what is your life expectancy? How long did your parents and grandparents enjoy life? Your investment diversification needs to be based on your life expectancy so you both earn and retain money for your trip down life’s trail; being too conservative with a long life expectancy ahead could result in a money shortage down the road while being too aggressive may risk your core too much.

• Are you easily distracted by news, comments or suggestions from friends that may sway you to buy or sell when your program or advisor gives different recommendations? These are the animal sightings that can distract you along the way, even as they are captivating at the same time.

• Do your strategies encompass signals for when to take safe cover, such as when there is a major market drop. Seeing grizzly bears in the wild is awesome, but preferably from a distance and if up close with bear spray in hand and knowledge of how to react to a bluffing or charging bear. You need the same safety plans when investing. A good advisor and some software programs take safety into account.

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