CW20: Treading Screen
The results of my Custom Screen are in for this week and they are... disappointing haha.
Only 4 names were produced ($DOW $WEC $NRG & $XEL) and, frankly, I don't like any of these setups for this coming week.

All show weak uptrends above EMA/SMA's with no confirmation yet and, most likely, this rise is part of the "chop" expected in Stage 3. Not touching.

Since I don't need to do any DD/FA on these names, I'll use the time to analyze this strategy.

#1: Total output
The total number of leads from this screen has been decreasing recently. This makes sense given the current state of the market (fewer Stage 2 setups). For example, retail stocks ($WMT, $DG, etc.) were part of the output of previous screens showing a weak push for Stage 2 (similar to above) that obviously did not hold.

I've also included $SPY 's weekly closing price on the chart below to see if there was any correlation with screen output (R2 = 0.39).

#2: Potential Return (backtesting)
This is more difficult to accomplish because the screen is only meant to be a starting point (NOT a hands-off algo type strategy). For me to put money at risk, I need to:
  • See a strong setup/entry opportunity
  • Like the company fundamentals
  • Scan for any red flags in the news
  • Assess the sector and macro impacts

But, a wise woman once told me: "Ain't nobody got time for that!"
(Miss the reference? Here ya go!)

Instead, I did a quick check on all outputted tickers and assumed an entry price as the previous week's CLOSE and calculated the average % return using the HIGH of the next week. The assumption of selling at the absolute top is an idealized scenario but can be easily reproduced with your favorite index ETF. Using $SPY for comparison yields:

Across all weeks, the global average return (and stdev) shown above is:
SPY: +1.55% (1.71%)
TreadingStocks: +2.58% (1.18%)

Keep in mind, the TreadingStocks return is the average return of all tickers that the screen produced; this includes so-so setups, companies with bad fundamentals, risky sectors, etc... For a given week, the averages above result from a distribution of the individual ticker performance and this distribution is important to understand and displayed below via a boxplot.

You can see, week 8 in particular had the potential to be feast or famine based on my subjective selections:
Select correct tickers (possible ~20% gain)
Select wrong tickers (possible ~10% loss).... for me, that's a scary bet to make week-to-week

The good news: most other weeks show a more narrow distribution and the vast majority of tickers for a given week had the potential to finish >0%.

Overall, I am pleasantly surprised with the results. Hopefully, with my input, I can help and not hurt these returns over the general market.
Keep Treading!
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I like that when your screen doesn't produce any name you like, you don't force action, and instead spend the extra time analyzing the strategy.
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A New Leader Emerging?
Two stocks that caught my eye.

First is - $DAR incredible one year base and strong relative strength compared to the $SPY $QQQ

We saw $MOS do an absolute monster move, with $DAR in the fertiliser/agri space, is this preparing to break out? Potentially $DAR could do a 50-100% move from these levels once it breaks its base. It could even go much higher than that with a one year base. I'm in.

Second is- $DOW Inc. Another one year base but with a strong candle on earnings volume last week. It's holding up well. This could be a new leader emerging as well. We saw a breakdown on metal stocks last week so there's space for new leaders to emerge. I'm in as well
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Featured earnings for the week of Oct 18
Earnings season (finally) getting into full gear!

So many interesting companies announcing earnings next week. Here are is the Fincredible Featured list. View all here.

Here are some I own / or particularly interested in

$JNJ - very interested to see results in the medical devices segment. Specifically are their signs of closing the gap with $ISRG with their new platform and are elective surgeries coming back

$ISRG - flip side of the $JNJ narrative. I love it when competitors announce close to each other :)

$NFLX - international subscriber numbers

$T - update on discovery spin-off, dividend and 5G capex

$XM - $MNTV is my top 3 holding based on thesis they are making inroads in enterprise market, which $XM dominates. Big enough market for both but want some context.

A few companies like $PG on inflation numbers, but I suspect @awallis will be kinda enough to provide a MacroTalk update on this topic again

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Brad Thibeau's avatar
$117.3m follower assets
Long Term Individual Holdings
I've mentioned before I take a pyramid strategy to my investing. The all-encompassing picture across the whole family looks like this:

70% low cost ETF base split into 5 categories: 20% small-cap value, 20% small-cap growth, 20% large-cap value, 20% large-cap growth, 10% international(5% developed, 5% emerging)

The other 30% splits out into long term winners(28%) and 2% that my wife lets me do whatever I want with, so that's my short term moon shot gambling allocation. Personally, I feel the 2% is more important than the other 98%..because the 2% ensures that I don't touch the 98%..for the most part.

The tricky part about investing is when to know you need to change course. How to identify that you're in a moment that will define the next 10, 20, 30 years of humanity, while also understanding who's on the other side of your transaction. Morgan Housel has talked about how everyone has different timelines. Some people have 30 years, some people have 3 years, some people have 3 months, some people have 3 hours, and what an asset is worth to all of those people are very different. To quote Morgan exactly:
How much should you pay for Google stock today? The answer depends on who "you" are. Do you have a 30-year time horizon? Then the smart price to pay involves a sober analysis of Google's discounted cash flows. Are you looking to cash out within 10 years? Then the price to pay can be figured out by an analysis of the tech industry's potential over the nxt decade and whether Google management can execute. Are you looking to sell within a year? Then pay attention to Google's current product sales cycle and whether we'll have a bear market. Day trading? Then the smart price to pay is "who cares?" because you're just trying to squeeze a few bucks between now and lunchtime.

Why do I mention this? Well, becomes sometimes your 10 year or 30 year outlook needs to be adjusted. There's nothing wrong with that, to be a "long term" investor does not mean to bury your head in the sand. For example, a goal to own Kodak for 30 years in 1990 would have found you completely empty-handed by year 23 as the world around you shifted.

So now, in the current environment, as we turn the page into 2021, I'm taking a look at changing things up a little bit in the long term holdings. I have some beliefs in certain areas, sectors, etc. Overall, as I sit down and put pencil to paper, here are some of the names I'm currently considering:
$GS **
$SQ *
$DIS **
$V *

*Already hold
** Already decided to continue to hold

You'll notice a couple of themes in here. Mainly lead by:
-Consumer, specifically "affordable luxury"
-Growing category leaders
-Quality value (with growth)

My plan is to get this down to between 15-20 names, if not less, buy those, and hold.

Expect more memos as decisions are made!
@amanda I do count retirement funds in that 70% passive category just to make sure I don't take too much or too little risk. I also count the couple private investments and RSUs that vest within 12 months in the individual holdings.

In regards to the breakout, that's a really good question. In my time at $MS I picked up on a 70% passive, 30% active portfolio study that showed outperformance somewhere along the way. I'll have to look for that study again and share it. Instead of using active mutual funds or ETFs for the 30%, I've just adopted the strategy to do it myself. So I was originally doing 70/30 but finding that I would get tempted to either chase things or miss out on opportunities because they didn't align with the goals of that 30%.

A couple of bad trades made me realize I needed a third bucket. 2% is kind of arbitrary, but I wanted that bucket to be big enough to be able to make moves and get returns, but small enough where if the whole thing went to zero it wouldn't rock the entire boat or carry over a significant negative impact onto the following year.

Ironically, the attention I pay to the buckets is probably completely inverse, but that's a good thing :).
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