This Is The Only Way To Invest

It seems like the tone in the blogsphere arena nowadays goes something like this—if you are not investing/trading like we are then you are wrong and we are going to tell you all about it.  I’ve been in the business since 1997, straight out of college and while there was a lot less accessible information back then I believe that was a big plus based on what I’m seeing now. Today we have too much information, a lot of the information is accurate, some is misleading, biased, wrong, etc… All this information probably leads to analysis paralysis for most people who are starting out.  One day they read that momentum is the way to trade, the next day they read someone else who says value is the way to go, then they read that day-trading is best thing in the world, after that its asset allocation, etc…I’m going to state some opinions that are based on 17 years of empirical observation.

1.  Owning growth/momentum/fad stocks are great when they are going up, know your time frame and how to manage them.

2.  Owning growth/momentum/fad stocks are not great when they are going down, know your time frame and how to manage them.

3.  Owning value stocks are great when they are going up, not so great when they are going down.

4.  In general terms if my intentions were to make money and not to do what I’m comfortable doing or what my practice allows me to do then within 1-12 month time frame I would rather own today’s momo/growth/fad stocks over value stocks.

5.  In general terms I would rather own today’s value stocks versus last years momo/growth/fad stocks, I would probably double down owning today’s value stocks versus the momo/growth/fad stocks of 2 years ago, triple down on today’s value stock versus momo/growth/fad stocks of 3 years ago.  Know your time frame.

6.  You are probably better off owning momentum/fad/stocks in the early stages instead of waiting until they peak and become mature companies and perhaps become a value stock, hence $INTC, $CSCO, $MSFT, $AOL, $LU,$DELL, ETC..if making money is your thing.

7.  There is a time, place and time frame for all type of investments; growth, value, cheap, junk, fad, hybrid, shorts,etc… know your time frame and how to manage them, a combination of all is probably your best bet.

8.  80% of big winners give back 50% of their gains and 50% give back 80% of their gains, it is probably best not to buy a momentum stock after it has run up for 2 years, know your time frame and your technical analysis stages 1-4.

9.  “The Russell 3000 index measures the performance of the largest 3000 U.S. companies, 98% of the investable U.S. equity market.  40% of the stocks had a negative return over their lifetime, 20% of stocks lost nearly all of their value, 10% of stocks recorded huge wins over 500%.  80% of the gains are a function of 20% of the stocks.—guess what…..the stocks that lost all their value and had a negative return over their lifetime some where value stocks, some where household names, some where momentum stocks.

10.  In roaring bull markets buy and hold is probably the best strategy and everything else sucks; tactical, active, asset allocation, etc…

11.  In a prolong bear market buy and hold sucks, tactical, active, asset allocation might help.  Some strategies work better than others in certain markets, diversify.

12.  Some people make money buying high and selling higher, some do it buying low and selling high, some do fundamental analysis, some technical analysis, some both, some try to outperform the market, others just want to be involve and ride along.  What determines which is right and or wrong is the outcome. Try telling Miguel Cabrera or Ichiro Suzuki that their awkward batting stance is wrong, the outcome of their careers says other wise.  Last year I bought two books, one from some one who does IBD style trading who was a wizard in the 90’s and the other book was about a fellow who turned a few thousands into millions doing pretty much the opposite of IBD, who is right and who is wrong?

Here’s the bottom line;  Not everything is black or white, wrong or right, certain styles work best for some people, certain styles work best for others, certain investors invest one way and believe that every other way is wrong and stupid, some invest their way but believe in diversification to take advantage of the different seasons, others invest their way but know and accept the fact that their way is not always going to be in tune with the market, others jump from strategy to strategy looking for the SECRET SAUCE every time they have a drawdown or read a well penned blog.  On that last point imagine if the leader in missed field goals in the history of the NBA went to the gym every time he had a bad shooting night to try a new shooting form, then he would’ve never became one of the greatest of all time.

Sign Up For Free Updates

We might be able to help with your investments;

Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

$SPY $IWM $XIV

 Photo courtesy of aarO0n

In Case You Are Wondering What Is Happening Underneath the Surface

The Russell 3000 index is comprised of the largest 3,000 U.S. companies, basically its 95% of the investable U.S. equity market.  Here is what the majority of stocks are doing versus some of the major indices that are sitting at highs resting.

Nasdaq Composite vs % of Russell 3k stocks > 10 day moving average

Russell 2000 vs % of Russell 3000 stocks > 10 day moving average

SP500 vs % of Russell 3000 stocks > 10 day moving average

The importance of negative divergence

Sign Up For Free Updates

We might be able to help with your investments;

Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

$SPY $IWM $XIV

How To Manage Money Like Joel Greenblatt

This is a great video by legendary investor Joel Greenblatt.

Joel talks about;

1. Diversifies with longs and shorts.
2. What’s is the secret ingredient in investing.
3. Top performing managers from 2000-2010, the top quartile who ended with the best record 97% of them spent at least 3 of those 10 years in the bottom half of performance. 79% spent at least 3 years at the bottom quartile of performance, 47% of those who ended up with the best record spent at least 3 of the 10 years at the bottom decile of performance.
4. The only metric that you need for institutional inflows and outflows.
5. Some cheap valued names.
6. TWTR, ZNGA–Shorts
7. The best strategy for most people.
8. The biggest hurdle to high returns.
9. Equal weighted > Market cap weighted index.

Sign Up For Free Updates

We might be able to help with your investments;

Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

$SPY $IWM $XIV

6 Lessons From The Top Endowments on How To Manage Your Money

I just finished reading The Ivy Portfolio (How to Invest Like the Top Endowments and Avoid Bear Markets), its a gem , an easy fast read that will give you a wealth of information you can put to use fairly easily that can benefit your account tremendously.  I will highlight some of the points that were important to me but I strongly suggest you get a copy of the book here.

“16.62% is the annualized return that the Yale endowment has returned per year between 1985 and 2008 versus 11.98% a year over the same time.  Harvard returned over 15% a year also beating the SP500 both endowments managed this with less volatility than the SP500.  Harvard and Yale endowments are the ones the book focuses on.  A $100,000 investment in the Yale endowment in 1985 would be worth $4 million by June of 2008, the same investment in Harvard would be worth $3 million versus $1.5 million in the SP500. Both endowments had less volatility than the SP500.”

1.  Active Management over Passive; “The top endowments rely on security selection and market timing rather than buy and hold.  The big endowments actively manage almost all of their investments at approximately 95%, their active security selection skills–not asset allocation  is the most important factor in determining the relative performance”.  There is a huge debate nowadays about passive investing versus active investing, here is my take; 1. there is no such thing as passive investing. 2. In a roaring bull market it is really hard to outperform the SP500 while at the same time trying to protect capital (top argument), as a matter of fact the top 2 endowments under-performed the SP500 in a majority of the up years between 1985 and 2008, all that was needed to outperform was down markets which is something that we have not seen in while.  Let’s see what happens when we get a correction that lasts longer than 2 days.

2.  Performance:  1985- June 30th 2008 Harvard and Yale average annualized return 15.95%, volatility 9.75%, best year 36.60%, worst year 0.10%.  U.S. stocks annualized return 11.98%, volatility 15.60%, best year 35.82%, worst year -17.99%.  In those 24 years U.S. stocks closed positive for the year 20 out of 24 times, (83%) this is why it is hard to be a perma-bear, the odds are against you.  Harvard and Yale managed to only outperform U.S. stocks 8 times during the 20 up years, in other words 12 out the 20 up years the endowment under-performed and if there was blogging and twitter back then Harvard and Yale probably would’ve taken to the wood shed every year they underperfomed the SP500.   90% of the difference in performance came in the down years. 1988 U.S. stocks down -6.98%, Harvard/Yale +2.75%, 2001 U.S. stocks -14.83%, Harvard/Yale +3.25%, 2002 U.S. stocks down -17.99, Harvard/Yale +0.10%, June 30, 2008 U.S. stocks -13.12%, Harvard/Yale +6.55%.  One of the key ingredients for active management to show their skills, worth, and reason for existence is down years in U.S. stocks.

3.  “The Russell 3000 index measures the performance of the largest 3000 U.S. companies, 98% of the investable U.S. equity market.  40% of the stocks had a negative return over their lifetime, 20% of stocks lost nearly all of their value, 10% of stocks recorded huge wins over 500%.  80% of the gains are a function of 20% of the stocks.  Let that sink in for a second.  Stock picking is not easy, especially if you want to hold something for the long term as many do but don’t have the fortitude to do it.  How do you get around this?  Own the Russell 3000 and take a small portion of you assets for individual stock picking if you wish. Most funds are closet indexers, they own every SP500 stock and try to outperform by putting more money in their favorite stocks.  Shorten your time frame as far as holding stocks if you are an active manager, James Simons from Renaissance Capital once said that if you wrote a book that started with I Love New York it was a lot easier to try to figure out what the next 3 words were going to be than the next 12 chapters.

4.  Trend following model will underperform buy and hold during a roaring bull market similar to the U.S. equity markets in the 1990’s.  The ability of the timing model to add value needs to be recognized over the course of an entire business cycle, however.  In other words, negative years in the markets are necessary to outperform.  With so much real time data everyone is extremely focused in the short term, if their strategy does not beat the SP500 one month they want to change their strategy.  Some clients end up chasing performance trying to ride the guy who’s had the hot hand in the last 3 months.  Now, I’m sure some twitter gurus who will say “I killed in the 90’s, read my book on how I made 50k% etc…”  But we hear about those amazing numbers of the 90’s but never get a chance to see their performance through an entire “business cycle” a.k.a 2000 and on…

5.  The time to buy is when blood is running in the streets–Baron Rothschild.  (mean reversion).  From 1975 to 2007 the average return for all asset class was 12.97%, if the asset class was down 2 years in a row the average return increased to 23.19%, if the asset class was down 3 years in a row the average return was 33.93%.  WOW.  Currently there’s a couple of asset classes that are down 3 years in a row.  Buying blood is a lot easier said than done, and regardless of what you hear from the twitter gurus, mean reversion works.

6.  From 1984 to 1998 the buy and hold return for the DOW was 17.89%.  If you missed the 10 best days those years the returns go down to 14.24%, if you missed the worst days then your returns would be 24.17% annually, if you missed both the ten best and the ten worst your returns would be 20.31%.  Lesson here; defense is more important than offense, it does not seem that way in a roaring bull market but it is in an entire business cycle.  The biggest rallies historically have happened in bear markets, the book provides the reader a way to avoid bear markets while still enjoying most of the upside.  The goal is to avoid huge drawdowns.

In summary, diversify, diversify, diversify, avoid huge drawdowns, the books gives you a detailed way on how to do it, well worth the $10.99.

P.S. About those fees;

• In 2003 the 2 Harvard managers earned over $35 million each.
• In 2004 Harvard paid its top money managers over $100 million total.
• In 2007 the managers maid a $5.7 billion dollar gain.
• Many students and alumni had a hard time paying these managers multi million dollar salaries.
• The managers thought the school was getting a good deal for top-flight investment talent.
• The estimated total cost to manage the portfolio internally for Harvard was 0.5%.
• Meyer, Harvard’s money manager left in 2005 to launch his own hedge fund along with 30 Harvard staffers after all the backlash about his pay. Harvard pledged to invest 500 million in to his fund and pay the fund 1.25% management fee–$6.25 million and 20% of the profits…Harvard ended up paying him 10 times his salary to manage a few hundred million versus the billions he was managing at the school..

Sign Up For Free Updates

We might be able to help with your investments;

Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

$SPY $IWM $XIV

Swing Traders LinkFest, Bad News Bears

We Need More Bad News–Mike Harris

Another Myth Busted–Cullen Roche

Gold Is Poised For A Bounce–Jeff Hirsch

Back To Basics–Pradeep Bonde

Sign Up For Free Updates

We might be able to help with your investments;

Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

$SPY $IWM $XIV

Swing Traders LinkFest–TrendFollowing, Flame Out, Crude, Non-Farm

Just when I thought I was out they pull me back in–Josh Brown

Seasonality Suggests It’s Time To Buy Crude–StockAlmanac

A Total Wash Out For The Precious Metals–ShortSideofLong

Historic Flame Out In Energy–Dana Lyons

Non-Farm Payrolls SPY Performance Report–Chad Gassaway

Sign Up For Free Updates

We might be able to help with your investments;

Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

$SPY $IWM $XIV

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Captain Hindsight

This is pretty much a recap from the investing world on how you could’ve and should’ve been short at the beginning of the month and long in the middle of the month and out at yesterday’s high…enjoy…

Sign Up For Free Updates

We might be able to help with your investments;

Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

$SPY $IWM $XIV

Swing Traders Linkfest, The Best Is Yet To Come

The Best Weekly Recap–Urban Carmel

MidTerm Elections Stats–Chad Gassaway

Lessons From The Legend–Vic Niederhoffer

Incredibly Bullish Period–Rob Hanna

Sign Up For Free Updates

We might be able to help with your investments;

Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

$SPY $IWM $XIV

PHOTO; Museum of American Finance

12 Trading Lessons From The Volatile Month Of October

The month of October was very volatile month that caught many or at least the people that I talk to by surprise. The SP500 closed the month up 2.3% after being down 7% by October 15, the COMPQ closed up 3.04%, it was down at one point 6.18%, the Russell 2000 went from being down 5.5% to closing up 6.5% for the month. Here are a few takeaways from October that we can use going forward.

1. Don’t short oversold markets, the market has a history of bailing out the bulls not the bears.

2. Every now and then you might get lucky shorting an oversold market that becomes more oversold and stays oversold, but the distance between of every now and then is huge, don’t do it.  The odds are against you, especially after 2009.

3. Don’t bet on crashes, seriously don’t.  Take a look at history, they rarely happen.  The average intra-year decline since 1980 is something like 14% (less after 2009), 25 out 33 years the SP500 has had an annual positive return despite intra-year drops of 14%.

4. It has payed to hold your nose and put some capital to work when the market looks horrible, a lot easier said than done.

5. Oversold markets are different than overbought markets.  I would fade oversold markets probably 9 out 10 times but only fade overbought markets maybe 4 out 10 times, different dynamics.

6. Different strategies work in oversold markets, I prefer mean reversion strategies over breakout trades.  Ignore the twitter gurus who bash mean reversion trading just because they don’t do it.

7. It is best to trade index etf’s when you are trying to catch/play an oversold market, my favorite vehicle to do that with is XIV.

8. When the market is in a correction or deeply oversold, emotions are high, it is best to tune out the noise, just go back to October 15 on your stream and you’ll know exactly what I mean.

9. I have never been a fan of shorting the classic technical breakdowns, I rather wait for the break then the natural retracement bounce to initiate a short.  Years ago (pre 2009) my rule was that if the market was in a correction and sold off hard I would only consider shorting the market after it  bounced  for 3-5 days, in today’s market you have to wait a minimum of 7-10 days to consider shorting due to the V bottoms.  How To Properly Short.

10. The most reliable pattern of the last few years has been the V-bottom.  Many years ago V-bottoms were failure prone, now it has become the best pattern to buy.  Here is the scan; the vehicle has to be an ETF (no commodities), look for one that is oversold, down multiple days in a row, buy some, when it accelerates to the downside buy some more, hope the V-bottom pattern continues to work, sell over the next 7 days.

11. FIFO (FIRST IN FIRST OUT) still works, the Russell 2000 was the first to get hit out all the major averages and it was the first one to come out of the correction/pullback.  It had the biggest return with the least amount of draw-down this month.

12. Make whatever ideas you get from the stream your own, you have no idea if the tweeter giving out the idea is actually in the trade, you have no idea what his size is relative to his portfolio (his tweet might talk a big game, but in reality it might have a small bite), you don’t know why he is actually taking the trade, and chances are high that he will let you know when he is out of the trade if it works out and leave you with a “what a great experience this has been for me, glad I’m young” when the trade has gone against him.

Sign Up For Free Updates

We might be able to help with your investments;

Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

Photo; Giancarlo Rado

$SPY $IWM $XIV $GDX $GLD