New Subscriber Orientation
The Nuts and Bolts
First things first. I’m David Alan Carter, and I develop and maintain rules-based investment strategies that I trade in my own accounts (both retirement and traditional brokerage accounts). Beginning January 1, 2019, I opened up these same strategies to subscribers.
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You’re here because you signed up for a single strategy or all five. The reason you signed up was to improve returns and reduce risk within your portfolio.
My goals, exactly.
Each of my strategies works toward that end. They may tap different asset classes and use different parameters and technical indicators to get there, but each is programmed to improve returns over time, while reducing the risk inherent in stock market investing.
So, what are these strategies, basically?
Each strategy is a monthly rotation model. On the last trading day of the month, each strategy sends out an email newsletter identifying the ETF picks for the upcoming month (American Muscle might include one or two individual stocks among those ETFs). If those picks are different from the prior month, the strategy will liquidate the old picks and buy the new with the proceeds. If you intend to follow the strategy, you'll be doing likewise.
Of course, as an investor, you can use a strategy however you want. They are, after all, just tools. And you can choose how to use that tool. But the strategies were designed as monthly rotation models - out with the old, and in with the new each month.
What follows is information relevant to all the strategies, and subscriptions in general. For specifics on any particular strategy, please consult the Members Page for that strategy.
My goals, exactly.
Each of my strategies works toward that end. They may tap different asset classes and use different parameters and technical indicators to get there, but each is programmed to improve returns over time, while reducing the risk inherent in stock market investing.
So, what are these strategies, basically?
Each strategy is a monthly rotation model. On the last trading day of the month, each strategy sends out an email newsletter identifying the ETF picks for the upcoming month (American Muscle might include one or two individual stocks among those ETFs). If those picks are different from the prior month, the strategy will liquidate the old picks and buy the new with the proceeds. If you intend to follow the strategy, you'll be doing likewise.
Of course, as an investor, you can use a strategy however you want. They are, after all, just tools. And you can choose how to use that tool. But the strategies were designed as monthly rotation models - out with the old, and in with the new each month.
What follows is information relevant to all the strategies, and subscriptions in general. For specifics on any particular strategy, please consult the Members Page for that strategy.
What We Don't Do
- We don't touch your investments. You make the trades and manage your investment accounts (see "What You Do," below).
- We don't touch your credit card. Paypal processes all payments and manages subscriptions.
- We don't provide financial advice specific to an individual. There are a couple of reasons for that: a) every investor is in a different place in life and has a different tolerance for risk, and b) we don't have CFP, ChFC, CFA, CIC, FRM, or anything else behind our names. We are acronym-free, and simply not qualified to provide personal financial counseling.
What We Do
We provide automated algorithmic market analysis tools that produces strategy trade signals according to the set of funds provided to it for its analysis. OK, let's translate that into English. We do two things:
1. Newsletter
The primary service to investors is the newsletter. This is an email letter that each strategy sends out monthly that identifies the ETF picks for the upcoming month.
The Timing Behind The Picks:
Each strategy selects its ETF picks for the upcoming month using a lookback time frame that ends at the close on the last trading day of the month. The strategy then invests in those picks on the close of the first trading day of the new month. The picks are specified one full day in advance of the actual trades. [i.e. On the close of April 1, 2020, the strategy will invest in the picks from March 31, 2020.]
The Timing Behind The Newsletters:
Each email newsletter – with those ETF picks -- is sent out prior to the opening bell on the first trading day of the month. SIDEBAR: I try to get the newsletters out the evening before - normally between 9:00 PM and 11:00 PM Eastern Time on the last trading day of the month. But that's contingent upon when I receive my data feed. If data is delayed, it could be the next morning. Just so you know.
The Timing Behind The Picks:
Each strategy selects its ETF picks for the upcoming month using a lookback time frame that ends at the close on the last trading day of the month. The strategy then invests in those picks on the close of the first trading day of the new month. The picks are specified one full day in advance of the actual trades. [i.e. On the close of April 1, 2020, the strategy will invest in the picks from March 31, 2020.]
The Timing Behind The Newsletters:
Each email newsletter – with those ETF picks -- is sent out prior to the opening bell on the first trading day of the month. SIDEBAR: I try to get the newsletters out the evening before - normally between 9:00 PM and 11:00 PM Eastern Time on the last trading day of the month. But that's contingent upon when I receive my data feed. If data is delayed, it could be the next morning. Just so you know.
2. Members Page
The secondary service to investors is the Members Page. Each strategy has its own Members Page, accessible through your My Account popup window. Members Pages are there for those investors who wish to dig deeper into the strategies, or follow performance week to week (or in the case of the Trade History table, day to day).
The components of the Members Page:
The components of the Members Page:
- Downloadable Newsletter: Each month’s newsletter is available at the top of the Members Page. Click the "download file" button, and the newsletter will open in your browser window in a PDF file format. Get back to the previous page by clicking your browser's "back" button or arrow. TIP: on the last day of the month, if you’re wondering whether the newsletter has gone out yet, check the download file. If it shows the previous month, then the newsletter hasn’t yet gone out.
- Tabs: A line of tabs helps organize important information about the strategy: Summary of the strategy, Assets selected for inclusion in the model, Mechanics behind the strategy, Strategy Updates & News offering details of modifications to the model over time, and Q&A specific to the strategy.
- Total Return Charts: Four charts keep investors visually apprised of strategy returns vs. the benchmark during different time frames. Total Return and Volatility are noted in the bar graph to the right of each chart. Charts are updated weekly.
- Annual Performance Data: This table details Total Returns by the year, and notes the strategy’s max drawdown for each of those years. A comparison to the benchmark is included. All numbers in percentages. Updated weekly.
- Risk and Related Metrics: This is a “catch-all” table of relevant data reflecting the full span of the backtest period. The overall Total Return; CAGR (Compound Annual Growth Rate); Sharpe Ratio (if applicable); correlation of the strategy to its benchmark; volatility; maximum drawdown. Updated weekly.
- Trade History (current year): This table tracks month-to-month returns and volatility for both the strategy and its benchmark. NOTE: This table is updated daily after the close (it generally updates in the evenings anywhere from 8:00 PM to 11:00 PM Eastern Time or later, depending on data availability). Importantly, the table also includes the strategy’s provisional picks in the bottom row marked “Next Update Looks Like…” Look just below the table for a detailed explanation of provisional picks.
- Trade History (past years): A collection of tables from years past marking month-to-month returns and volatility for the strategy and its benchmark.
- Previous Version of Strategy: If applicable, this block section contains data relevant to a prior version of the strategy before modifications noted in the tab “Strategy Updates & News.”
What You Do
You execute the trades in your own brokerage account. You can trade within an existing account or open a new one, that’s up to you. Traditional brokerage account or retirement account, that's up to you. You are in complete control of account management and trade executions. As such, you should be familiar with buying and selling equities and have access to a broker that trades U.S.- based ETFs.
A couple of points to ponder:
- If you wish to mirror a strategy precisely, you’ll need to execute any necessary trades at or near the close on that first trading day.
- How imperative is it to get the timing just right? It's not life and death. Whether you execute your trades within a few hours of close, or even a day or two later, it won't blow up your returns. Yes, it will make a slight difference over time - but that could be to the slight upside or the downside.
- When do I trade, personally? I don’t worry about hitting it on the mark. I make it convenient on myself. I’ll shoot for trading sometime mid-day or early afternoon on the first trading day of the month. I place market orders, get the trade done, and move on.
A Few Questions (and Answers)
Is there a case for waiting to make a rebalancing trade?
Sometimes, yes. If the first day of the month is a news-driven, tear-your-hair-out kind of day with extreme volatility and 1000-point swings, you could certainly make a case for holding off rebalancing trades for a day or two. Especially if your current funds from the previous month are holding up well in the face of such volatility.
Waiting a couple of days or so will also give you a chance to see whether the provisional picks change as a result of that volatility. If they do, and particularly if that change involves an asset class change, those provisional picks might be the better bet. For more information, see the blog post… Provisional Picks: If Ever There Was A Time..
Waiting a couple of days or so will also give you a chance to see whether the provisional picks change as a result of that volatility. If they do, and particularly if that change involves an asset class change, those provisional picks might be the better bet. For more information, see the blog post… Provisional Picks: If Ever There Was A Time..
Is there a case for going half in?
Sure - see the above scenario. Or, if you foresee the likelihood of headline risk in the next couple of weeks, you could take a one-half position in the strategy’s picks on day one, and pick up the other half on day 15 based on the provisional picks. Basically, you’re in control of your trading and the timing of those trades. The strategies are here to provide a framework.
Is there a case for doing nothing?
If you’re new to the strategies, or new to investing in general, by all means take your time. Observe the ups and downs of the strategies over a couple of months. Don’t do anything until you’re comfortable. And even then, depending on your propensity for risk, you can always ease in gently. Try a strategy or two in just a portion of your portfolio. See how it goes for a month or two. You can always commit more dollars in the future.
Should I be rebalancing twice a month?
As a matter of routine, probably not. There are one-off exceptions, noticeably when headlines have shifted the markets (something I address in more detail on the Members Pages regarding provisional picks). But in general, as evidenced in long-term backtesting, none of the strategies show an advantage to rebalancing twice monthly vs. monthly.
In general, trend signals in the marketplace tend to be higher around the end of the month. This phenomenon is most often explained by the fact that fund managers live and die by month-end reporting. As fund managers take action to improve investment returns synchronously with the month-end reporting cycle, they may end up inadvertently influencing the trends themselves.
But regardless of the cause, the effect of the month-end bump is observable. And something we want to take advantage of.
In general, trend signals in the marketplace tend to be higher around the end of the month. This phenomenon is most often explained by the fact that fund managers live and die by month-end reporting. As fund managers take action to improve investment returns synchronously with the month-end reporting cycle, they may end up inadvertently influencing the trends themselves.
But regardless of the cause, the effect of the month-end bump is observable. And something we want to take advantage of.
If the picks remain the same from one month to the next, is there a trade?
If the strategy's picks remain the same from month to month, you can let things ride. The exception would be if the percentages have gotten dramatically out of whack; you might need to sell a little bit of one, and buy a little bit of another in order to restore the percentage allocations.
How do you make this work in a cash account?
Cash accounts, in theory, require funds from the sale of an asset to settle (3 business days) before placing new trades using that money. But with our strategies, we want to sell the funds we don't want and buy the funds we do -- on the same day, with the same money. There are two possible fixes.
First, check with your broker. Many allow you to sell one security in a cash account and turn around and purchase another with those "unsettled" funds. [Retirement accounts are by definition cash accounts. But you'll find that many brokers extend the same trading courtesy.] Brokers do put a restriction on that new purchase, principally that you must hold that new security until the settlement date is reached for the funds used (3 days).
Second, turn that [non retirement ] cash account into a margin account. You fill out a form with your broker, and boom that's it. If you don't utilize margin money for investing, it won't cost you any extra. And it gives you the freedom to rebalance the strategies on the same day.
First, check with your broker. Many allow you to sell one security in a cash account and turn around and purchase another with those "unsettled" funds. [Retirement accounts are by definition cash accounts. But you'll find that many brokers extend the same trading courtesy.] Brokers do put a restriction on that new purchase, principally that you must hold that new security until the settlement date is reached for the funds used (3 days).
Second, turn that [non retirement ] cash account into a margin account. You fill out a form with your broker, and boom that's it. If you don't utilize margin money for investing, it won't cost you any extra. And it gives you the freedom to rebalance the strategies on the same day.
Find answers to more of your questions in 1) the FAQ page open to the public, the Troubleshooting page for issues relating to account access, etc., and 2) the Q&A tab located on the Members Page for each particular strategy.
Advice, In General
Remember that time when I said I don't provide financial advice specific to individuals? Well, that still holds. But let me offer up a couple of thoughts, in general.
One, diversity is your friend. Multiple strategies employed within a portfolio helps to reduce risk. Because each strategy uses a slightly different mechanism to identify market risks, and because each employs slightly different funds representing different market sectors and asset classes (although there is certainly some overlap), there is beneficial diversification at work.
Two, it's wise to be cautious. In this market especially, cash is the safe trade. On the scale of risk, from lowest risk to highest, here's how I would rank the strategies. Note: This is based only on max drawdown. There are other risk metrics to consider as well (e.g. Sharpe ratios, volatility, etc.).
Also note: the strategies undergo periodic modifications. An ETF may be delisted by its provider and need to be replaced. A blend of funds may no longer provide the hedge they used to. I may see an opportunity to adjust the parameters to improve returns or lessen the risk of the strategy. The performance figures and commentary below reflect the most recent modifications.
As of January 02, 2024, from lowest risk to highest...
One, diversity is your friend. Multiple strategies employed within a portfolio helps to reduce risk. Because each strategy uses a slightly different mechanism to identify market risks, and because each employs slightly different funds representing different market sectors and asset classes (although there is certainly some overlap), there is beneficial diversification at work.
Two, it's wise to be cautious. In this market especially, cash is the safe trade. On the scale of risk, from lowest risk to highest, here's how I would rank the strategies. Note: This is based only on max drawdown. There are other risk metrics to consider as well (e.g. Sharpe ratios, volatility, etc.).
Also note: the strategies undergo periodic modifications. An ETF may be delisted by its provider and need to be replaced. A blend of funds may no longer provide the hedge they used to. I may see an opportunity to adjust the parameters to improve returns or lessen the risk of the strategy. The performance figures and commentary below reflect the most recent modifications.
As of January 02, 2024, from lowest risk to highest...
STRATEGIES RANKED BY MAX DRAWDOWN |
MaxDD for the time frame 2008-2023 (Knuckles 2011-2023) |
1. Bond Bulls |
-7.8% |
2. American Muscle |
-19.0% |
3. Lean Muscle (an offshoot of American Muscle) |
-19.6% |
4. Global Trader |
-19.7% |
5. Zen Knuckle (an offshoot of White Knuckle) |
-21.2% |
6. The 12% Solution |
-21.4% |
7. Five Stocks |
-39.3% |
8. The White Knuckle |
-41.5% |
In sum, don't fill up your portfolio with something like The White Knuckle - and nothing else. Yes, some of these models are capable of spectacular returns. But if you're new to investing, begin now to embrace the following time-tested truth: pigs get fat, hogs get slaughtered.
Pair the riskiest strategies with safer bets, and you'll sleep better at night and avoid the slaughterhouse.
Pair the riskiest strategies with safer bets, and you'll sleep better at night and avoid the slaughterhouse.
For a more detailed discussion of risk among the strategies, and how combining strategies can help
mitigate that risk while boosting returns, read the white paper
Conservative vs. Aggressive Portfolios.
mitigate that risk while boosting returns, read the white paper
Conservative vs. Aggressive Portfolios.
Finally, if you're new to the strategies and/or new to trading, don't feel like you have to max out your portfolio on day one. You can put strategies to work in increments (i.e. leg in) or in smaller proportions than you might have had in mind. You can always increase those proportions down the road, once you've gotten a feel for the ups and downs of the market in general, and the strategies in particular.
Best of luck.
David
P.S. The max drawdowns cited in this article and everywhere on the website are historical points of reference. They are the maximum drawdowns the strategies have experienced over the time frames cited. They are not floors, they are not safety nets. In fact, the actual largest drawdown for each and every one of the strategies is lurking out there in the future. Keep that in mind when planning.
Best of luck.
David
P.S. The max drawdowns cited in this article and everywhere on the website are historical points of reference. They are the maximum drawdowns the strategies have experienced over the time frames cited. They are not floors, they are not safety nets. In fact, the actual largest drawdown for each and every one of the strategies is lurking out there in the future. Keep that in mind when planning.