Strategy for Bearish Market

[nrhp99]

Super Stockpicker is awesome.  I have been using SS for about a year and SS has helped me have my best year ever in 2006 since I started investing in stocks about 8 years ago.

The one thing to be wary about is in a bearish market such as the one that started in February, the portfolios tend to have a very large drawdown.

I hope this is a trend, the stocks bought by Low Peg portfolio have done very well when bought in mid March when the market was very bearish.

Maybe Low Peg portfolio is the one to trade when the market turns bearish and the Momentum ports are drawing down?

[Super Stock Picker]

Hello,

Thanks for your kind words. We wish 2007 will be as good as 2006 for you...

Now, about the portfolios' behavior in bearish markets, it is a fact that the Low PEG Ratio is less volatile than the Price Momentum portfolios for three main reasons:

• It usually holds more stocks
• It selects stocks for which prices are not in a growth phase as spectacular as the Price Momentum does
• It tends to elect bigger capitalization stocks

For those reasons it makes sense that a bearish market does not hit the Low PEG Ratio portfolio performances as bad as the Price Momentum portfolios.

But, if you look at what happened in spring 2006, even the Low PEG Ratio portfolio had a large drawdown. It was less than the Price Momentum portfolios, but I would not say that this portfolio performs always well in a bearish market.

[bryanmcn]

I tend to use  the Weekly Momentum portfolio. It seems to be the first to enter into a position and the first to get out when it starts to turn down. I can't,  however, figure out why Inex Pharmaceuticals Corporation  (IEX) is still being held. One look at the chart and it is clear that the momentum is gone. I predict that this position will be sold soon unless it experiences a big dramatic turn around. 

[Super Stock Picker]

Hi bryanmcn,

Please note that all the price momentum portfolios sell a stock at the same time. The delay is applied only to the buy orders.

Also, about IEX, our rule to dump a stock is basically when it is not showing enough relative strength over the last 3 month period. This is part of the set of rules that have proven to be successful over the last two years. It means that we may dump some stocks that are still rising if they are better choices out there and we may still hold for a while stocks for which momentum seems to have disappeared like now for IEX.

Overall, it shows a good track records. It is your choice to dump a stock before we recommend it, but on our side, we will never loosen a rule to satisfy a single case.

Remember, no emotion should be involved in order to repeat successfully the same strategy over and over...

At the same time, we would try to think at improvements that can solve some of the big losses. Backtesting a stop loss addition to our portfolios is one of those possibilities.

[bryanmcn]

Hmmm...
Thats interesting. So the different portfolios buy stocks at different times but when one sells, the position is liquidated in any portfolio that holds it ...right?

[Super Stock Picker]

Yes,

That rule is true for the Price Momentum Weekly and the derived Ultimate Price Momentum series portfolios.

See that article that explains how this works:
http://www.superstockpicker.com/ultimate_price_momentum_series_study.html