I
make it a point to record the performance of the Momentum Strategies Report on a weekly basis. I believe this is important for providing
subscribers (and potential subscribers) with an accurate representation of how
the newsletter has performed in the recent past. Instead of posting the performance in the form
of percentage gains/losses (as most newsletter do), the cumulative results are
presented in the form of a simple line graph.
The old saying “charts don’t lie” applies in this case.
Below
is the performance graph of the last 16 months.
It shows the cumulative performance of the stock and ETF recommendations
made in the “Trading Positions” section of the Momentum Strategies Report.
The
above graph is an unvarnished reflection of how the recommendations made in MSR
have performed since January 2013. The
trend is up, as you can see, yet the performance has admittedly lagged the
broad market S&P somewhat. This is
typical of any technically-based trading strategy since it’s difficult to
exactly match, or exceed, the performance of the broad market in a bull market
due to the use of stop losses during market downturns. In my experience it’s always best to err on the
side of caution since you never know just how far down a market pullback will
go before reversing. The downside to
this conservative approach is that the market tends to “whipsaw” a trading
system that relies on a stop-loss mechanism in a bull market.
The
upside to using a technical trading discipline is that your drawdown and
relative volatility will be much lower than that of the broad market. And in bear markets a technical trading
system such as ours will invariably outperform the broad market, even without
resorting to short sales.
Providing
even more perspective on the long-term use of a conservative technical trading
system, the following chart shows the long-term performance of the individual
stock and ETF recommendations made in the MSR newsletter. Keep in mind that we typically employ tight
stop losses and only rarely recommend short sales or inverse (bearish) ETF
trades. The following graph therefore mainly
represents more than seven years of long-cash positions.
One
thing becomes quickly apparent upon a cursory view of the above graph, viz. the
lack of volatility from 2009 to the present.
Back in 2007 and the years preceding it, I embraced a much more
aggressive trading philosophy and used much looser stop losses when making
trading recommendations. This increased
our upside (as in 2007) but also increased our downside during the volatile
period immediately prior to the 2008 credit crisis. This taught me the valuable lesson of
embracing tighter standards when screening for potential stocks/ETFs and the
use of a much more conservative stop loss system. It also instilled in me the importance of
minimizing the number of trading recommendations at any given time due to the “multiplier
effect” during volatile periods (which is a double-edged sword).
In
summary, the trading system employed in the MSR newsletter is one of the most
conservative, yet consistently reliable systems you will find in any stock
market newsletter when it comes to delivering long-term gains without exposure
to extreme volatility. It’s based on the
principle of making market commitments only when the odds are decisively in
your favor. Otherwise, a cash position
is warranted in the name of capital preservation – the first commandment of the
financial markets.
