Ian,
Onwards and upwards. In Gary we trust.
It’s the Statistical / Probabilistic Edge in which we trust. 
Regards
Gary
Actually Nick we are into uncharted territory as far as researched drawdown goes - we are at record levels. As I mentioned in the very first post of this entire thread, the peculiar market we have had for over six months now is Spa3 investor kryptonite. Volatility combined with the market chopping and changing sectors daily had led to unprecedented churning which means we have had an abnormal amount of loss trades. The market is extremely frustrating at the moment with no logical behaviour - Wes goes ex - dividend yesterday and gets slaughtered, jbh goes ex - dividend today and the same thing happens. It appears the fear and greed emotions are magnified - any hint of price action weakness ( and going ex dividend isn’t even a weakness, price should adjust to recognise the dividend) and the market panics for the exits and Spa3 traders cop another sell order and the churning continues. Extremely frustrating.
As Buffet said, the market can remain irrational longer than you can remain solvent. Scary stuff.
Just checked the market, DMP down 15%, lucky I am not holding any. I really feel for those that might, I was in a 20 drop last year with DMP, very painful.
BHP goes ex dividend tomorrow, could be very painful considering the huge dividend. I wonder how many punters out there are only holding for the dividend and will dump tomorrow.
Ivor et al,
“I have been told that the system has an edge and it is supposed to protect us from the downside.”
No system can protect you from ALL downside. Not managed funds, brokers, mechanical systems, money managers, financial planners, and especially not discretionary approaches, whether value of technical based.
The market Index is a system. A mechanical system too! It is ALWAYS in the market by way of having weighted position sizes ‘invested’ in its constituents equivalent to their market capitalisation percentages.
The cost to an Index of ALWAYS being ‘invested’ is that it experiences 50%+ downside from time to time (Nasdaq had 82% downside in 2000 - 2002).
The benefit to an index of ALWAYS being ‘invested is that it captures ALL of a bounce off market troughs, especially large V-bottom retracements.
SPA3 Investor portfolios are NOT ALWAYS invested in the market.
The cost for this - missing V-bottoms in the market and the growth that comes from that.
The benefit of this - missing the experience (dollarwise & psychologically) of the 20-25% & 50-82% downsides in market Indices and the losses/drawdown that comes from that.
To be able to outperform over the long term, any investing approach, SPA3 Investor included, has to maintain enough exposure to the market to allow sufficient growth, but not too much exposure such that the larger Index downsides can be avoided.
This means that an ongoing balance of exposure to the market is required. A very difficult equation to solve. And one that will never be perfect, EVEN in hindsight!
The cost to balancing ongoing exposure is that THERE WILL BE DOWNSIDE. It is impossible to have ZERO DOWNSIDE.
Put differently, to achieve UPSIDE, we have to EXPERIENCE DOWNSIDE.
Is it possible to know in ADVANCE what the DOWNSIDE will be? NO!
Because “Anything can happen.” And “Every moment in the market is unique.” Meaning that price action will be different in the future within the framework of similar up and down cycles and trends.
Can we get a very good idea in advance what drawdown can be to guide our expectations? YES, we can.
Please watch the recording of the Connect & Grow webinar from today, 23rd February, 2022.
I presented a section on “Handling setbacks”. There were also many questions on handling drawdown during the market analysis portion of the webinar.
Yeah I have DMP - it’s been a nasty one across a couple of strategies I use in the past 6 months or so - interesting that lots of market leaders (80% is the stat I heard) fall 50% from their peak.
I am wondering if the ATR trailing stop “tuning” is a bit tight for DMP.
I tried an ATR TS (EMA) 21:4.5:3.5 on the chart and found that it avoided the recent whipsaws with the “penalty” that it generally got into the stock a bit later overall. However maybe this is a “safer” setting. This was of course only judging this by eye rather than any sophisticated analysis.
I did not expect protection from “ALL downside” but I did expect some protection. I have noticed that when the market falls my portfolio falls by more. When the market goes up my portfolio again underperforms.
When I first enquired about SPA3 investor I asked about past drawdowns and I was quoted figures of 14.69% and 15.1% which I though were acceptable and hence that was one of the reasons that I decided to proceed.
The benefit of this - missing the experience (dollarwise & psychologically) of the 20-25% & 50-82% downsides in market Indices and the losses/drawdown that comes from that.
Since I started with SPA3 investor I have lost 14.2% of my initial capital. Over the same period the market has risen by 6.85%. The SPA3 investor system has underperformed the market for me by 21.12%.
My current drawdown is 25.75%!
Despite your comment above I am not “missing the experience” with the spa3 investor.
This is not a trivial downside!
Ivor
Hey Ivor, i feel your pain and have also been hammered. Early gains were wiped out and now I’m way behind. But it’s the long game I’m playing. I like the football game analogy in the training. We’re watching a few seconds in a 2 hour game. I’m here for the long haul and we all should be the same (or putting our money in the bank instead). It might not work for everyone, but i treat my money as points in a game, rather than real money. Helps me stay objective and rules based.
I never thought this system would always outperform any particular index on any given relatively short term time horizon. Long term, I hope it will outperform most (and certainly anything i would have done after a twice weekly scan of the afr).
Good luck.
Hi All,
I hear you. Like you, all I am seeing is ‘a sea of red’ in my portfolio for a while now. This is the market we are in. The market we choose to invest in.
As a 20+ year Share Wealth Systems customer, I have seen this market scenario and accompanying forum commentary many times.
I have traded/invested using every SWS product produced since the company started. I currently invest using only SPA3 Investor because it works for my work and lifestyle at the moment. I have a core ASX.IJH timing portfolio, along with a satellite ASX EW portfolio.
What I have learnt over the years as an SWS customer is:
1. To succeed with SWS products, you need to be a stayer. As sure as you see a ‘sea of red’ in your portfolios right now, you will also see a ‘sea of green’ one day. It is sooooooo tempting to bail right now. I know. I have been there. Closed down my portfolio (in the red), only to hear a few (or several) months later SWS announce that the public portfolios have made new equity highs. Egg on my face. The journey continues.
2. Do not ignore the sell signals. Ignoring a sell signal is tempting, right? Of course, in the heat of the moment, ‘I know better’. Sometimes it works, but most times, it does not work. Key learning for me has been that the system’s value is knowing when not to be in the market rather than when to be in the market. Think about it. What other call to action do we have other than a well-researched system with an edge? So, why second-guess the system?
3. Get excellent at executing each trade. Once you know your buy/sell trades, log in to your broking account, and make the trade. Don’t blink. 30 secs flat per trade is what it should take you between logging in and logging out of your trading platform.
4. Respect your Trading/Investment Plan. The rules are the rules. Set yourself a timeframe (every 6 or 12 months) to revisit the rules, but don’t tinker with the rules on the fly. It is freeing to be mechanical.
5. Keep a Trading Journal. For example, take a snapshot of the ‘sea of red’ in your portfolio now, and add it to your journal. You can revisit this snapshot in a few years when (not if) the following ‘sea of red’ is in front of you. You will be glad you took that snapshot today.
6. Use the SWS staff. The SWS staff are super-helpful and are there to guide and advise you to achieve your long-term goals. Over the last 20+ years, the team have always been open and available to help and coach me along my investing journey. I continue to engage them today.
7. Consider your risk allocation. In the early years as an SWS customer, whenever my portfolio was getting hammered, one of my first reactions was to blame the SWS product. It is always easy to blame someone else, right? Then one time it occurred to me the issue was not the product, it was my over-allocation in high-risk stocks. If you feel anxious and stressed in the current market, consider whether your core or satellite portfolios are over-allocated in high-risk instruments. If you are unsure, discuss with SWS staff (see point 6).
Thank you for taking the time to read my long post.
The above is not to convince anyone what to do with their portfolios in the current market. You do what works for you. I just thought it might be helpful, long-term insight to the forum members experiencing deep drawdown for the first time.
Enjoy your investing journeys.
Best regards,
John
John
Many thanks for your reassuring post.
Personally, I don’t have a problem in staying in. In fact I like staying in because it means that I don’t have to sell and realise a loss.
During times like this the difficulty I face is parting with stock like MQG. It reported well and the price shot up giving us a buy signal. Between then and now nothing has really happened to the company except for the broader market sell off due to the war. During times of war markets always tank and then have a strong recovery. The first stocks to recover are the blue chips such as MQG. Therefore, one misses out on the recovery. The next buy signal will trigger at around $194 which is around $17 away from todays close. That is around $5K-$6K for me of lost opportunity. We hardly make that these days in one trade. What are your thoughts ?
I think we are all in the same boat and echo the same sentiment as Ivor. But what is the alternative? quit and …???
You are welcome, Jermayne.
The potential lost opportunity you mention on MQG is not trivial. The thing is, how do you know, by holding onto MQG, that any of the other 40 stocks in the SPA3 Investor ASX universe will not produce even better $ results for your portfolio?
True story: many years ago, I discussed with SWS staff why the SPA3 Investor scan needed to show the stock codes for ATR BO/BAP signals as part of the scan results? For me, all I need to see is the buy signal type and ranking. The stock code only needs to be revealed after we unambiguously select the stock to buy. What often happens is that investors see a buy stock come up in the scan and start telling themselves a story about the stock; sometimes, to the point where they end up talking themselves out of the buy trade altogether. Typically, this storytelling is motivated by the need to soothe the fear, or fuel the greed. I used to do this early in my journey too.
Gary did a great webinar some weeks ago on pilots flying by instruments. Same here. My daily scan is one of my instrument panels, and I execute my sells and buys without batting an eyelid.
Going back to MQG and what to do in the current market, I appreciate all of the above may sound very blunt. But to me, it is as simple as that. Like many, I have been pummelled by FLT, NCM, JBH, DMP, and others, but I continue to take the buy signal on these stocks without hesitation. They will eventually come good.
You may be onto a great research idea about holding onto blue chips that recover during extreme market events. If you can research the concept and develop a great edge, then sure, add it to your Investment Plan, and execute accordingly.
However, before doing that, I recommend seeing Gary’s Big Picture series, where he covers SPA3 Investor performance during all sorts of market events over many decades. During those series, there is not a single mention of the performance of a particular stock; only the performance results of unambiguously executing every trade as it is presented to the investor over the very long term.
(Sorry if I have gone on too long and told you how to suck eggs. I just was not sure where you are in your investment journey.)
Hope this helps.
Best regards,
John
I hear what you are all saying. I have been a discretionary trader for about 40 years. I have had good years and bad years but in the past 40 years I have never underperformed the index by such a large amount. One of my favourite metrics is measuring my performance relative to the index.
I have 2 other portfolios that I manage myself. Over the last 5+ years I have been topping up on indexed etfs when the market falls. To add stability I have also been getting banking hybrids. That reduces my returns but also reduces the drawdowns. Over the period that I have been with Sharewealth my other 2 portfolios are up 1.9% and up 3.06% respectively compared to a fall of 14.2% in the SPA3 investor as of this evening.
I joined Sharewealth hoping to improve on my performance. This has not been the case. I have followed the system meticulously. I don’t mind lower returns as long as I protect my capital as best as I can. This has not been the case for me with SPA3 investor over the past 15 months. I have been under my initial capital investment for most of those 15 months (not just recently)
I know we can blame the market for all this. But remember that the xao was at an all time high of 7956 on 5/1/2022. Today it closed at 7253. That is a fall of only 8.8% from its all time high. That does not compare to my current drawdown of over 20%.
Great comments John - I can tell how advanced you are on your journey by the theme of your posts. That comment about the stock not being revealed is excellent - I have had the same thought process when I learnt of (I think) the Chinese market only having numerical codes and how this could possibly divorce yourself from all of the narratives attached to the company.
Out of interest, how many positions do you run in your portfolio?
Ivor
Yes that’s a rough return for sure - only thing I can suggest (and I think you may have done this) is go back through your trades and ensure you took every signal in order according to your plan. Only reason I say this is because I missed a couple of signals due to already having the names in one of my portfolios already (namely COH and WHC). This meant that I ended up buying MQG and DMP with obvious results. Just swapping those names over would have meant a considerable difference to current returns.
So what can I do? Tighten up the process even more and push on is most likely the best option. Or maybe explore the ETF options when that strategy becomes available to take the heat / volatility / activity back a notch. It’s a good time to learn anyway.
Ivor,
Your truth is your truth. Just as everybody else’s is who has commented on this thread. I think it is obvious that their beliefs about SPA3 Investor are different from yours at the moment. Why is that?
May I suggest that you be wary of recency bias and your belief being skewed by it, especially negative recency bias. Also, try to have a balanced big picture perspective that measures both negative AND positive outcomes, not just the one side (I’d say the same to anybody who had become euphoric after a big runup in their portfolio equity curve).
For example, you are comparing your outcomes with SPA3 Investor to alternatives during a negative market cycle. Even tho you haven’t experienced it with your money, a balanced objective evaluation would also compare SPA3 Investor to the alternatives you mention during other kinds of market conditions, including positive. And over a larger sample over a longer period of time.
The ASX EW Stocks Public Portfolio is there for you to do that. It’s real money that I have executed in exactly the same market as you. As have others. And the Simulator will be available soon (completing Alpha testing over the next 3 or so weeks then it’ll go to Beta) to allow you to run your own historical simulations with all kinds of different selections.
You should listen to the webinar that I presented on Wednesday this week too, if you want to improve. And to Nick’s and John’s suggestions. Thank you Nick and John for your insights.
My comments, and others, by no means make what you are feeling right now any easier.
But they do offer you an opportunity to get better at active investing and at handling periods such as these, which will ALWAYS be a part of the active investing journey.
And they also offer you a way of seeing that staying the journey does pay off, psychologically and financially.
Regards
Gary
My post from 22 Jan refers:
Blockquote
I did an analysis of about 140 trades of the SPA3 Investor and compared the results to a slight tweak of when to buy or sell after the signal.
My tweak is to buy a few cents above the 11am high if the high is higher than the high of the signal day. If it were not higher then I would follow it down after close of market with a conditional buy above the previous day’s high. I apply this in the opposite direction when instructed to sell.
Blockquote
i would suggest that today this would be of advantage to test this with the 4 recommended SELLS.
- MQG I would not set a stop loss as 11 o’clock price above yesterdays low. Wait for end of day and set stop at low of today.
- FLT I would not set a stop loss as 11 o’clock price above yesterdays low. Wait for end of day and set stop at low of today.
- FMG I would not set a stop loss as 11 o’clock price above yesterdays low. Wait for end of day and set stop at low of today.
- IVV I would not set a stop loss as 11 o’clock price above yesterdays low. Wait for end of day and set stop at low of today.
Then move them up every end of day to the low of the day.
There will be some that give a better and some worse result than selling at the close as per the SYSTEM, but overall I expect an improvement.
See how this goes even just paper trading it.
Malcolm
You can use my trades for your research and revert. FMG MGQ and FLT were all sold between 10.29 and 10.30AM. The prices I got were
FMG 18.70
FLT 18.46
MQG 180.19
And JB which i for some reason forgotten to sell yesterday 49.56.
All the above were sold for a loss some heavier than the others
Did not buy CIM
Understood John and thanks again.
I dumped the lot in the morning.
