Saturday, January 1, 2011

A Look At The IBD 100

Investor's Business Daily has changed its weekly format from the 100 best stocks to the 50 best stocks using a revised stock screening method.  We will see if it improves the results next year.  Using IBD's market calls, I performed a few tests to see how the IBD 100 performed during 2010.  These are as follows:

  1. I - Buy the top 10 stocks from the IBD 100 on a "Confirmed Uptrend" and sell them on a "Market In Correction".
  2. II - Same as I except use an 8% stop loss.
  3. III - Buy breakouts of the top ten stocks from the IBD 100 "boxed" with formed bases as of the first posting after a "Confirmed Uptrend".  If there are less than 10 listed, then only buy those and no others.
  4. IV - Same as III except use an 8% stop loss.
  5. V - Buy the top 10 relative strength stocks from the Russell 3000 on a "Confirmed Uptrend" and sell them on a "Market In Correction".
  6. VI - Same as V except use a 16% stop loss.
The results were:

  1. I - 7.08%
  2. II - 17.16%
  3. III - 9.83%
  4. IV - 11.69%
  5. V - 31.30%
  6. VI - 42.78%
The relative strength approach beat the IBD 100 hands down.  However, it must be said that the volatility was much greater with a 30.02% and 18.64% drawdown for 5 and 6, respectively.  Nevertheless, using a relative strength screen may be a better approach based on total return.  If safety is the primary concern, then using strategy 4 would be the best approach as the drawdown was only 2.82% and the strategy averaged more than 50% cash during the year.  Slippage and commissions were not considered.

 As impressive as some of the results were, the hassle of buying multiple stocks on each buy signal does not seem worth the trouble, but to be fair I have not done the same test for 2009.  Nevertheless, I believe I will concentrate on trading market ETFs with leverage.

It seems to me that the big money in buying individual stocks is made with longer holding periods.  For example BIDU is up more than 500% since the 2009 low for a period of almost 22 months.  Therefore, my current approach is to build positions in stocks that I believe have the potential for outsized gains over the next one to three years while also trading market ETFs and options for shorter term gains.  My goal is to achieve a 60% to 100% average annual return without huge drawdowns.  Presently I am running just under 40% since I began this blog.

3 comments:

Anonymous said...

They are all negative returns so why use any of the methods

Trader Craig said...

Actually, they were all positive. It's just a hyphen between the numeral and the result. Perhaps I should have used a bullet instead.

Anonymous said...

Anonymous,you are so funny. Lol