Here is the contrast:
The black line measures the rate of price gain day by day for SPY during 2016 and continuing now into 2017. The purple line expands that buy & hold price gain accumulation by the compounding of larger price gains in SPY during the interim periods when stock positions were being held.
No double-counting is going on here. All the SPY gains are based only on SPY price movements. During the year, SPY prices declined in 117 days, 46% of the time. Many of the stock positions emphasized the other 54% of the time, being partly lifted by a good market surrounding, partly by their own advantages. The SPY parallels to those stock (period held) positions benefited accordingly, but only in terms of the SPY price at entry and exit dates of the stock positions.
Other lines in Figure 1 relate to the specific stocks on those daily Intelligence Lists. Because they had the advantage of market-maker [MM] expectations for coming prices, the benefit of higher amounts of price gain were further magnified by the compounding due to TERMD’s efficiency in the investment of time required. With 252 market days in a year and 20 stocks each day, over 5,000 positions are involved.
TERMD is an acronym for Time-Efficient Risk Management Discipline. It uses MM hedging decisions to protect firm capital that must be temporarily put at risk to help big-money investment clients make volume adjustments to their portfolios.
The discipline sets the top of the possible/probable price range implied by the hedging transactions as a sell target on each stock and requires a position taken on the basis of that forecast be closed out on the first date the price is reached or exceeded. If it hasn’t happened 63 market days after the forecast (3 months), the position is liquidated regardless of gains or losses. All closed out positions are reinvested the following day using forecasts made on the day of the closeouts.
Risk is managed by the discipline of not letting unfulfilled hopes deteriorate returns by extending the time investment when other better new prospects are available. And since positions must be held for the full 3 months when targets have not yet been reached, the power of fear urging a premature closeout is denied while there is still time for price recovery. Experience shows that this approach is productive, partly because of current-day market volatility.
Here is an illustration of TERMD in action: NFLX
Our forecast history for Netflix, Inc. (NASDAQ:NFLX) started in mid-2010. Each day, MM hedging actions offered a range of prices likely to be seen over the next 3+ months. A measure of where the market price was in relation to that range, called the Range Index [RI], tells what percent of the whole range lies below the current market price.
We insisted on an RI of no more than 25. It took 9 months before NFLX was appraised by the MMs as having at least 3 times as much upside as downside so we could take our first…