Tag Archives: stocks

Ideas For An Ultra-Low Volatility Index Part VII

Here are the Ultra-Low Volatility Index strategy’s rules. Buy the PowerShares S&P 500 Low Volatility Portfolio ETF (NYSEARCA: SPLV ) with 80% of the dollar value of the portfolio. Buy the Direxion Daily 30-Year Treasury Bull 3x Shares ETF (NYSEARCA: TMF ) with 20% of the dollar value of the portfolio. Rebalance annually to maintain the 80%/20% dollar value split between the positions. The index is very Zen in its elegance. We are combining the S&P 500 Low Volatility ETF with a 3x leveraged exposure to long duration government bonds, which acts as an imperfect hedge. Because of the leverage inherent in TMF, we can allocate more capital to SPLV. In addition, it is not necessary to have margin exposure. Personally, I think most investors want a portfolio that will tread water, hold its own, and only drop slightly when markets are going crazy. Low drawdowns and ultra-low volatility enable an investor to hang on and to actually enjoy the possibilities of the long term. For too long, people have had the pain theory of investing pounded into their head . Or as I like to call, it “The Bill Ackman School For Kids Who Can’t Read Financial Statements Good And Wanna Learn To Do Other Stuff Good Too.” Many of these “special people” (and let me be clear, by “special” I mean reckless and dumb) believe that in order to enjoy a decent return, that they first must endure the pain of having positions move against them, in order to eventually triumph in a grand quest for the truth of their own genius, against all odds. The pain theory of investing sounds very heroic and glamorous, but in reality, a smooth ride allows investors to hold on to their positions in order to enjoy the benefits of the long term. Why get shaken out, when you can have a smoother ride? And the smoother ride, in this case, has a higher return across a full bull/bear market cycle. Here are the index’s results: (click to enlarge) Click to enlarge (click to enlarge) Click to enlarge I will be the first to admit that this strategy is not brilliant or original. It’s just solid blocking and tackling. The current trend towards complexity in the investment world is not just disturbing – it’s also not profitable. Recent blowups like Pershing Square ( OTCPK:PSHZF ) highlight the importance of protecting investor capital. Unfortunately, many managers have the misguided urge to prove their genius, rather than to make money and to protect investor capital. Remember, it’s not about pretending that you’re always right. It’s about making money. A good investor resists the urge to make it all about his own ego. He makes it about safeguarding investor capital. Like a good doctor, the first directive must be to “first, do no harm.” In future posts, we will examine ways to apply conservative risk control to portfolios in order to hedge or to move to cash during a simultaneous collapse in stocks and bonds. Thanks for reading. We feature even more impressive strategy indices in our subscription service. If this post was useful to you, consider giving it a try. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points, which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program, which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Medical Stocks Take Bloodbath; Valeant Creditors Demand New Terms

Disgraced drugmaker Valeant Pharmaceuticals ( VRX ) continued to sell off along with the rest of the medical sector Thursday as reports surfaced that creditors were demanding new terms as the company defaults on its massive debts. Reuters cited anonymous sources saying that in early talks, lenders were asking for higher interest payments and a pledge to pay a larger amount of the bank loans from the proceeds of any Valeant asset sales. Valeant has been in breach of its reporting covenant since Tuesday, when it missed its 10-K filing deadline, which it has 60 days to resolve. However, if it doesn’t file by March 30, it will also be in default with its bank creditors and will have only 30 days to resolve the default. Valeant is about $30 billion in debt after a years-long buying spree, culminating in a failed attempt to buy Allergan ( AGN ) last year. Allergan subsequently merged with Actavis and is now in the process of being bought by Pfizer ( PFE ). By late afternoon on the stock market today , Valeant stock lost 11.5% to 29.69. Medical groups tracked by IBD, even those unrelated to drugs, accounted for the seven worst performing groups out of IBD’s 197 industries. The generic drugs group led the slide with a 2.8% decline. The hardest-hit individual stocks were Valeant’s fellow specialty drugmakers, some of whom have consciously followed Valeant’s business model. Mallinckrodt ( MNK ) authorized a $350 million stock buyback but was down 4.1% to 53.42.   Endo International ( ENDP ), which is headed by former Valeant executive Rajiv De Silva, hit a three-year low of 27.62, trading down 11.4% to 30.03. Horizon Pharma ( HZNP ), which has been criticized for pricing policies much as Valeant has, was down 6.8% after selling off for the last three days. Among major drugmakers, Eli Lilly ( LLY ) tumbled 4.7%. Eli Lilly fell intraday to its lowest level since late 2014.

FedEx Earnings Report Lights Fire Under Air Transport Group

The air freight transport industry group was Thursday’s top performer, thanks to a big move in FedEx ( FDX ), which reported better-than-expected earnings. The group is rated only No. 72 out of 197, as of Thursday’s IBD, but it is moving up quickly. It was rated No. 146 just six weeks ago. The rise of the air freight group should be considered a good sign for the global economy. If shippers are busy, the reasoning goes, then so are the manufacturers. And consumers are buying. FedEx, which reported after the close Wednesday, said lower fuel prices and a late surge in online buying helped boost earnings and revenue. The company posted adjusted Q3 earnings of $2.51 a share, a 24% increase from a year earlier, beating Wall Street’s consensus of $2.33. Revenue of $12.65 billion beat estimates of $12.26 billion. It marked the third straight quarter of earnings growth acceleration. The stock gapped higher, surging above its 200-day moving average in massive volume. The stock might be building the right side of a long, deep base. There are just five stocks in the industry group, where the need for a fleet of jets and trucks is a barrier to entry. United Parcel Service ( UPS ) was up sharply in sympathy with FedEx. It appears to be completing the right side of a base. UPS got a boost Feb. 2 when it reported Q4 earnings that beat the Street. It was a critical quarter for freight haulers, which have been criticized for slow deliveries during the holiday shopping season. UPS earned $1.57 a share, a 26% increase from a year earlier and better than the $1.42 consensus. Revenue was up just 1% from a year earlier. CEO David Abney said in the conference call after the report that the company was able to optimize available capacity during the weekend prior to Christmas and collaborate with shippers to tender shipments ahead of the original schedule. “This moved our peak day up to Dec. 21 and smoothed volume for the rest of the week, ensuring our customers’ packages reached their customers’ doorsteps before Christmas,” Abney told analysts. Another company in the group, Air Transport Services ( ATSG ), gapped up for a 16% gain March 9 when it announced earnings that were better than expected. But another press release from the company may have excited investors more. The company said it had agreed to operate a U.S. air network to help Amazon ( AMZN ) make deliveries. The company said it will lease 20 Boeing ( BA ) 767 freighter aircraft and provide gateway and logistical services. A fourth company in the industry group is Atlas Air Worldwide ( AAWW ), whose stock has been lagging and is still trading below its 200-day moving average. The stock also trades on the thin side, with just 316,000 shares changing hands on an average day. It’s earnings growth in the most recent quarter was just 3% above that of a year earlier and represents a serious deceleration of growth. Analysts expect a 75% decline in the next report. Revenue growth decline 3% in the past two reports.