To see my earlier results click the following links:

Q3 2012 | Q2 2012 | Q1 2012
Q4 2011 | Q3 2011 | Q2 2011 | Q1 2011

I started the inMessment Game on Investopedia in December of 2010. The game now has a grand total of 12 players including me. We are just finishing up the second year of the game. Join the game and learn to invest with no risk!

Here is what you will see in this post:

• inMessment Game Numbers for Q4 2012
• Comparison To Benchmark
• The Good, The Bad, and The Ugly
• Portfolio Changes in Q4 2012
• Full inMessment Game Portfolio at end of Q4 2012
• inMessment Game Trade History for Q4 2012

inMessment Numbers as of December 31, 2012

The fourth quarter of 2012 was a pretty good quarter. The inMessment Game Portfolio is up almost 3% in Q4.

• Q3 Starting Account Value: $26,606.12
• Q3 Ending Account Value: $27,371.73 (Up $765.61 (2.9%) from Q2 2012)
• Q3 Ranking in the inMessment Game: 2nd
• Annual Return: 5.37%
• Number of Securities In Portfolio: 7
• Trades this Quarter: 0
• Available Cash: $488.90 (1.8% of portfolio)

Comparison to Benchmark – The S&P 500 Index

The benchmark I have chosen to compare my results to is the S&P 500 Index. This is a broad index of 500 of the top US companies. Many investors and firms use this index as a general benchmark.

The Blue line is my inMessment Game portfolio. The Red line is the S&P 500 Index. The S&P is down 1% in Q4 2012. My portfolio up almost 3%. This was a great quarter compared to the benchmark!

Here is the one-year comparison chart since Jan-2012. The S&P and my inMessment Game portfolio are fairly close together through 2011. I tried Stop Loss orders in Q1 and Q2 2012. This really hurt me in Q2. Now we are trying to come back with more stable investing.

Here is a new chart, showing the benchmark comparison since the start of the portfolio in December 31, 2010. This is the real test of the investing. It will be will be interesting to see where we are at one year from now.

The Good

Six of the seven holdings in my portfolio are in the Good list for Q4. They all returned better than the S&P 500. EEM was up over 7% for Q4. This is great since the emerging markets have been down some over the last year or two. IJH and MOAT both did well gaining about 3% each. BOND squeaked out only a 0.2% gain for the quarter but it’s dividends ($41.75 for Q4) put it in the Good bucket. With the dividends BOND had a Q4 return of 1.74%.

The Bad

I put SKYY into the Bad list for Q4. I only do this because it is the only one of the seven holdings that had a negative return for Q4. It still did better than the benchmark S&P500.

The Ugly

I put nothing in the Ugly list for Q4. This is the first quarter I have not had an ugly issue. Yeah!

Changes To The Portfolio

I made no changes to the portfolio this quarter. This seems to be a good trend. I am still thinking about adding a commodity or precious metal holding. I would have to reduce other holdings and incur the tradings costs to do this. At this point I have no changes planned.

Full inMessment Game Portfolio

Here is the full portfolio as of December 31, 2012.
I have categorized the investments in the following way:
Core: Long-term stable investments that will not change often.
Sub-Core: Still long-term but may trade more often.

inMessment Game Trade History for Q3 2012

No trades made in Q4.

Join the inMessment Game

Now that you have read through my results why don’t you join the game yourself? It is completely free and the best way I have found to learn about investing.
Click Here to Join the inMessment Game!

As the economy has struggled, investing in gold and silver has become a very lucrative opportunity. In general, precious metal prices go up when the stock market goes down, and vice versa. Right now, with the weak economy, both silver and gold are showing very high prices.

Silver is the place to start with your precious metal investments. It is more accessible because the prices are lower. However, there is less investment-grade silver available than there is gold, meaning that scarcity will keep prices firm. It is a very useful commodity with a variety of industrial applications. It is the most electrically conductive, reflective, and thermally conductive metal on the planet and has no known substitutes. This variety of uses will keep demand for silver high over time.

Gold is a valuable investment because it is the only type of money over 5,000 years that has never failed. Other money systems can be quite shaky, as is becoming clear with the Euro. There is also a limited amount of investment grade gold available. This scarcity improves the true value of gold. With paper money, more can be printed, devaluing the currency. Many currencies have been ruined by governments who follow this practice. Gold is also a private and anonymous investment that is very portable.

There are many services that will buy your gold or silver from you, if you’d like to sell it. They may pay a discount, essentially charging you a bit for the convenience of using their store or service. Some services, like Garfield Refining, will pay you in cash or in bullion, whichever you prefer. This can be a great way of turning scrap metal into a much better investment.

However, when buying gold or silver, there are some pitfalls to avoid. You should always buy gold or silver at its value if possible. Many dealers will try to sell you gold at a marked-up price, that is, for more money than the gold is worth. They may try to tell you it’s an old US coin and can’t be confiscated if the government recalls gold. However, that is a myth. In 1933, Roosevelt exempted rare and unusual coins from his gold recall, but that doesn’t mean the government will do that again. In addition, old US gold coins are not particularly rare or unusual, as they are sold all the time. Finally, since gold is no longer the basis of US money, a gold recall by the government would be very unlikely.

The gold and silver market is cyclical, as are all markets. There are times to buy, and there are times to sell and move your wealth into other asset classes. Right now, as the world economy struggles and the United States engages in unprecedented deficit spending, it’s time to buy. If and when the economies recover, you will be in a great position to transition into other holdings. In case of emergency, however, you will be well protected with your precious metal holdings.

Garfield Refining is a Philadelphia based precious metal refinery offering nation-wide service. This 120 year old refinery buys precious metals scrap and refines gold, silver, platinum, and palladium and services both B2B and B2C markets. Follow Garfield Refining on twitter for up to date gold prices

To see my earlier results click the following links:

Q2 2012 | Q1 2012 | Q4 2011 | Q3 2011 | Q2 2011 | Q1 2011

I started the inMessment Game on Investopedia in December of 2010. The game now has a grand total of 12 players including me. We are not yet through the second year. NOW is a great time to join the game and learn to invest with no risk!

Here is what you will see in this post:

• inMessment Game Numbers for Q3 2012
• Comparison To Benchmark
• The Good, The Bad, and The Ugly
• Portfolio Changes in Q3 2012
• Full inMessment Game Portfolio at end of Q3 2012
• inMessment Game Trade History for Q3 2012

inMessment Numbers as of September 28, 2012

The third quarter of 2012 was a pretty good quarter. The inMessment Game Portfolio is up 5% in Q3.

• Q3 Starting Account Value: $25,307.81
• Q3 Ending Account Value: $26,606.12 (Up $1,298.31 (5%) from Q2 2012)
• Q3 Ranking in the inMessment Game: 2nd
• Annual Return: 3.51% (APY since the begining of the game)
• Number of Securities In Portfolio: 7
• Trades this Quarter: 1
• Available Cash: $348.00

Comparison to Benchmark – The S&P 500 Index

The benchmark I have chosen to compare my results to is the S&P 500 Index. This is a broad index of 500 of the top US companies. Many investors and firms use this index as a general benchmark.

The Blue line is my inMessment Game portfolio. The Red line is the S&P 500 Index. The S&P is up almost 6% in Q3 2012. My portfolio up about 5%. I am lagging my benchmark but much better than Q2!!

Here is the comparison chart since Jan-2011. The S&P and my inMessment Game portfolio are fairly close together through 2011. So far in 2012 the S&P has well out performed my portfolio. The Stop Loss orders hurt me in Q1 and Q2. Hopefully I am on the path back to better investing in Q3.

The Good

Over half of my portfolio ended up Good in Q3. I list the holdings that came in close to or above the S&P 500. Both RSP and EEM were under but close to the return of the S&P 500 for the quarter. SKYY did very well, coming in almost 1% above my benchmark. MOAT soared in Q3 coming in almost 2% higher than the S&P 500.

The Bad

The bad list has two holdings that were still up for the quarter but they came in well below the S&P 500. LJH was only 1% under but I hoped for better performance in an up quarter. BOND was under by over 2%. I probably could have listed this in the Good since I probably should not compare it to the S&P 500. But for now it will sit here.

The Ugly

I ended up with only one holding in the Ugly list. Thank God! VNQ my REIT fund ended down almost 1% for Q3. This is disappointing and somewhat surprising to me. It seems as though the housing market is improving and so I thought the REIT should be doing well. This could certainly be a faulty assumption. Business REITs may have little correlation to housing – I do not really know at this point.

Changes To The Portfolio

The only change I made to the portfolio this quarter was to add SKYY back in as my Technology sector holding. I am not planning to make any changes in the near term. I am thinking about how to add a commodity holding but I am not sure how I will do this or when at this point.

Full inMessment Game Portfolio

Here is the full portfolio as of September 28, 2012.
I have categorized the investments in the following way:
Core: Long-term stable investments that will not change often.
Sub-Core: Still long-term but may trade more often.

inMessment Game Trade History for Q3 2012

Below is the trade history for my inMessment Game in Q3 2012. Only one trade! Maybe I learned a little in Q1 and Q2?

Join the inMessment Game

Now that you have read through my results why don’t you join the game yourself? It is completely free and the best way I have found to learn about investing.
Click Here to Join the inMessment Game!

To see earlier results click the following links:

Q1 2012 | Q4 2011 | Q3 2011 | Q2 2011 | Q1 2011

I started the inMessment Game on Investopedia in December of 2010. The game now has a grand total of 14 players including me. We are just half way in the second year. NOW is a great time to join the game and learn to invest with no risk!

Here is what you will see in this post:

• inMessment Game Numbers for Q2 2012
• Comparison To Benchmark
• The Good, The Bad, and The Ugly
• Portfolio Changes in Q2 2012
• Full inMessment Game Portfolio at end of Q2 2012
• inMessment Game Trade History for Q2 2012

inMessment Numbers as of June 29, 2012

The second quarter of 2012 was a rough quarter. The inMessment Game Portfolio is down 7% in Q2.

• Q2 Starting Account Value: $27,226.73
• Q2 Ending Account Value: $25,307.81 (Down $1,918.92 (7%) from Q1 2012)
• Q2 Ranking in the inMessment Game: 3rd
• Annual Return: 0.79% (APY)
• Number of Securities In Portfolio: 6
• Trades this Quarter: 29
• Available Cash: $2,967.94

Comparison to Benchmark – The S&P 500 Index

The benchmark I have chosen to compare my results to is the S&P 500 Index. This is a broad index of 500 of the top US companies. Many investors and firms use this index as a general benchmark.

The Blue line is my inMessment Game portfolio. The Red line is the S&P 500 Index. The S&P is down 3% in Q2 2012. My portfolio is down 7%. Ouch!!

Here is the comparison chart since Jan-2011. The S&P and my inMessment Game portfolio are fairly close together through 2011. So far in 2012 the S&P has well out performed my portfolio. The Stop Loss orders are hurting me at this point.

The Good

One holding is a shining star this quarter in my portfolio: Vanguard REIT ETF (VNQ). It has an overall return of 5.54% as of June 29. I like having a REIT fund in my portfolio for diversification. It seems to have less correlation to the equity market, which simply means that it will sometimes go up when the market is down and vice versa.

I have also listed by bond fund here since it is up for Q2, PIMCO ETF Trust (BOND). Bonds are not exciting but I hope to see the value of holding this over time.

The Bad

My bad list has has everything else left in my portfolio at the end of Q2. They are all down for the quarter. IJH and RSP are down less than 1% so I guess they are not too bad but I can’t call them good. EEM is down nearly 4% and MOAT is down over 4%.

The Ugly

I have three former holdings in the Ugly list but first I have to say that my trading in Q2 was seriously UGLY! I had a total of 29 trades in Q2. This ended up costing me $349.71 in fees for the quarter. That is a loss of about 1.3% for the quarter just in fees. For Q3 will do far less trading.

May was a very hard month in the market. This contributed to my high trading because I was implementing a new stop-loss plan. The problem is, my stop-loss orders hit and then I looked at the market and it looked down to me. So I bought back in. Then in some cases it went down again and I hit another stop-loss.

The thee securities listed below had these problems. I ended up with nearly 10% losses in SKYY and ACWX and a 4% loss in IJR. (Thank God! Q3 is looking better.)

Changes To The Portfolio

I have seen over the last three quarters that high trade volume has cost me. In Q3 I will go back to a balanced portfolio and try not to look at the ups and downs so much. I need to simplify the process.

Full inMessment Game Portfolio

Here is the full portfolio as of June 29, 2012.
I have categorized the investments in the following way:
Core: Long-term stable investments that will not change often.
Sub-Core: Still long-term but may trade more often.
Opportunity: Long or short-term trading opportunities.

inMessment Game Trade History for Q2 2012

Below is the trade history for my inMessment Game in Q2 2012. Too many trades and $350 in commissions really hurt my portfolio this quarter.

Join the inMessment Game

Now that you have read through my results why don’t you join the game yourself? It is completely free and the best way I have found to learn about investing.
Click Here to Join the inMessment Game!

I didn’t win anything but I enjoyed playing along. I think I learned a few things along the way.

Yahoo set up the trading process very strangely in my opinion. They only executed trades at the open and close of each market day.

The FAQ states it this way: “Players can place trades at anytime; however, trades are only executed either at Market Open (generally 9:30 am ET on trading days) OR Market Close (generally 4:00 pm ET on trading days), whichever is the next event at the time of placing a trade.”

This seriously cuts down on day-trading. One would have to place trades based on where they think the market will be at the end that day or the open of the next.

For me this was not a major issue because I took a very passive approach to the game. I bought four ETFs early in the game and just let them ride. I was basically relying on the flow of the Market to produce any win for me. Because of my day job and my busy family life I knew I would not have time to trade.

I ended up down about 3% for the 12 weeks. Amazingly this put me in the top 35% of the competition!

Obviously a game like this is not real life but I can see some real lessons. This experience helps to solidify my belief that passive, index-based investing is safer and therefore more profitable for most investors. Trying to pick the next hot stock can be very risky.

Risk can pay off as you can see by the #1 ranking. 348% return is pretty good!!

Interestingly you only have to make a 3% gain to make it into the top 10%.

50% of the participants were down over 6% in 12 weeks. The S&P 500 was only down about 4% in that same time. Those in the 80% bucket were down nearly 15% which is more than 1% per week. Ouch!

I was pleasantly surprised to see that I did slightly better than the S&P 500 Index. The chart below shows my Yahoo-FF portfolio in blue and the S&P 500 in red.

Here is the allocation I used for the game:

• 31% in iShares S&P MidCap 400 Index ETF (IJH)
• 31% in iShares S&P SmallCap 600 Index ETF (IJR)
• 31% in iShares Dow Jones US Real Estate ETF (IYR)
• 6% in iShares Silver Trust ETF (SLV)
• 1% in Cash

The MidCap and SmallCap ETFs were each down around 5%. The Silver ETF was down over 11%. I was glad I only had a small portion in SLV.

The winner for me was IYR the Real Estate ETF. It was up 2% for the 12 weeks. This fund is what helped me have a decent showing in the game. (This also makes me wonder if Real Estate is making a turnaround finally??)

So I see that diversification can help a lot even in a short 12 week run. The risks go way up when all eggs are in one basket. In a longer term portfolio I would also add some international exposure. For this 12 week run I stuck with US funds because of all the Euro chaos this year.

I enjoyed playing Yahoo! Fantasy Finance. I look forward to when they have it again.

If you played Yahoo! Fantasy Finance leave a comment and let me know what you thought. If you are willing, let me know how you ranked and what you learned along the way.

If you want to play a long-term game, check out my inMessment Game.

Back in February I posted on trying to keep momentum with stop loss orders. A stop loss is a type of sell order that only sells if the price drops below a level you choose.

I had set fairly loose stop loss orders on all the holdings in my account. When the market went down for 12 days in a row, they all hit their limits on May 17th and 18th.

My portfolio value went from a high near $27,400 at the end of April to it’s current low of $24,725. I went from ranking #1 to ranking #9 in the inMessment Game.

In the game stop loss orders have a higher commission. They are $14.99 per trade. Since all 7 of my holding sold the commissions cost me $104.93. That hurts!

I have kept track of the securities since the stop losses hit and, so far, it has been a good thing. The market has continued down. Even factoring in the commissions for the sales, and for the buys when I get back in, the stops have saved me $125 in additional losses.

The problem now is when to get back in. If I get back in too soon, I will lose more. If I wait too long, I will miss the rebound.

At this point I am looking at waiting till at least Tuesday, May 22. The only reason for that date is that is three working days after the stops hit on the 17th. In my real IRA account with Fidelity, sell orders take three days to clear. Fidelity will still let me buy again right away after a sell but I cannot sell again until the original sell clears.

So, while the inMessment game does not have this same three day restriction, I like to keep my actions as close to what I would do with real money as I can. Waiting till Tuesday is a good discipline for me. My hope is the market will not rebound on Monday.

The Stockcastic Indicators say that the market is now oversold. This typically indicates a good time to buy. Several of the old holdings are not below their 200 day moving average. These indicators make me want to get back in sooner rather than later.

1-Year Chart for RSP: Green line show the 200-day moving average. The graph at the bottom shows the Stockcastic Indicators.

But those are more short term indicators. I do not know where the long term trend is going at this point. If Greece drops out of the EURO, what will that do to the markets? These are things that make me want to hold in cash longer.

I will decide later this week.

Since my entire portfolio liquidated I have also taken the time to reevaluate my holdings and work on the asset allocation. I will likely replace my iShares REIT IYR holding with Vanguards REIT VNQ. The Vanguard REIT has a good track record and has a lower expense ratio.

I am also thinking about adding a bond position to my portfolio. I have stayed away from bonds because I was younger and wanted to take the supposed extra risk with stocks make higher returns. Two things have changed my mind in this:

1. I turned 40 this January
2. PIMCO released their Total Return bond fund as an ETF

I have had the PIMCO Total Return mutual fund in my 401(k) for many years and it has always performed well. Now I can add that as an ETF in my inMessment Game Portfolio. And they got a great ticker for the ETF, BOND.

Let me know what you think. Do you think now is the time to get in the market or should you be in cash?

Back in the days of knights and jousting and such, kings would build a moat around their castle to make it hard for enemies to get in. The moat gave then a competitive advantage against raiders and would-be wall climbers. The wider the moat, the harder is was to get into the castle.

In the investing world when you talk about moats, you talk about Morningstar’s Economic Moat analysis. I think this is one of Morningstar’s most intriguing analysis points.

Morningstar classifies stocks by moat size. The size of the moat “refers to how likely a company is to keep competitors at bay for an extended period.” If a company has a wide moat it is less likely to be adversely affected by competitors in the marketplace.

In April of 2007 Morningstar started an index based on their Economic Moat research. The index is named, Morningstar Wide Moat Focus 20 Total Return Index. It is composed of 20 equal-weighted companies across several economic sectors and each have a Wide Moat according to Morningstar research.

Since its inception the Wide Moat Focus index has widely outperformed the S&P 500 Index. The Chart below show the ticker for the Wide Moat Focus index (WMWFT) compared to SPY which tracks the S&P 500 Index (as of May 4, 2012).

Just this year I started looking for an ETF that followed this index. All I could find was the ELEMENTS Morningstar Wide Moat Focus ETN by Deutsche Bank (WMW). I have hesitated to invest in this because I am just learning about an ETN (Exchange Traded Note). (An ETN is basically a promissory note from a Bank that is intended to provide the same return as its target index.)

Finally! Market Vectors® Morningstar Wide Moat Research ETF (MOAT)

On April 25, 2012 Van Eck added a new ETF based on Morningstar’s Wide Moat Focus Index. The ticker symbol for this ETF is MOAT. It is starting with a decent expense ration of 0.49.

On May 2, I invested nearly $5,000 in MOAT in my inMessment Game Portfolio. That is nearly 20% of the portfolio. I do like the Morningstar Wide Moat concept but there are no guarantees it will continue to outperform like it has so far. I am hopeful it will do well for me long term.

Join the inMessment Game and you can watch along with me.

To see earlier results from 2011, click the following links:

Q1 2011 | Q2 2011 | Q3 2011 | Q4 2011

I started the inMessment Game on Investopedia in December of 2010. The game now has a grand total of 11 players including me. As we start the second year, NOW is a great time to join the game!

Here is what you will see in this post:

• inMessment Game Numbers for Q1 2012
• Comparison To Benchmark
• The Good
• The Bad
• The Ugly
• Portfolio Changes in Q1 2012
• Full inMessment Game Portfolio at end of Q1 2012
• inMessment Game Trade History for Q1 2012

inMessment Numbers as of March 30, 2012

The first quarter of 2012 was a great quarter. The inMessment Game Portfolio is up more than 10% in Q1. This is when investing is really fun!

• Q1 Starting Account Value: $24,579.13
• Q1 Ending Account Value: $27,226.73 (Up $2,647.6 (10.7%) from Q4 2011)
• Annual Return: 6.73% (APY)
• Number of Securities In Portfolio: 5
• Trades this Quarter: 19
• Available Cash: $4,392.53

Comparison to Benchmark – The S&P 500 Index

The benchmark I have chosen to compare my results to is the S&P 500 Index. This is a broad index of 500 of the top US companies. Many investors and firms use this index as a general benchmark.

The Blue line is my inMessment Game portfolio. The Red line is the S&P 500 Index. The S&P is up 12% in Q1 2012.

Here is the comparison chart since Jan-2011. The S&P and my inMessment Game portfolio are fairly close together. From time to time the inMessment Game portfolio is doing slightly better than the S&P Index. At the end of Q4 the S&P is having a great run and pulling away from my portfolio.

The Good

Two of my holdings did as well or better than the S&P 500 in Q1. These I consider good for the quarter. Nike ended up over 23%. As part of my new simplified strategy I sold Nike in January. BlackRock is the only single stock I still hold. It is up over 13% so far.

The Bad

My bad list has only one stock this quarter. I list VMWare, Inc., not because it performed badly but because my trading of it was bad. In late December I had a 2% stop-loss hit on VMW so my position was sold. I still liked the stock and bought again in late January. Between the stop and the buy the price increased by nearly $7 a share. Then I saw VMW go up over $97 in February. I made a guess that it was near a top and I sold again. VMW has continued up steadily since then. What I should have done was to wait and let the stop-loss work again.

Lessons I am considering:
1) Set stop-loss orders more loosely to let stocks ride longer
2) Don’t sell if the stock is a solid choice. Let the stop-loss do the work.

The Ugly

I have two holdings in the Ugly list, EEM and SCZ. The Emerging Markets and EAFE small-cap stocks have not done as well recently. These both hit stop-loss limits on March 6 and sold. I lost nearly 10% on each of these. As part of my simplification this year, I have not bought back into these at this point.

Changes To The Portfolio

In Q4 2011 decided to simplify my portfolio and to start using stop loss orders. The biggest change from Q4 is the fact that I only have 5 holdings. I have cut my holdings in half.

I have also had some difficulty with a high number of trades this quarter. 19 total trades. 6 of these trades were stop-loss orders that hit. I am setting the stop-loos orders more loosely to allow a little more duration on holdings.

The other contributing factor in the high number of trades was decisions to sell when positions went higher. I have been looking at stochastic momentum indicators. Thinking some positions might be at a top I sold. I don’t want this to be a habit. I need to be patient with winning positions.

The high number of trades has cost me. The commissions for the 19 trades was $219.81. That is nearly 1% of the portfolio value. I would have been closer to my benchmark with fewer trades.

Below you can see the full portfolio and the trade history for Q1 2012.

Full inMessment Game Portfolio

Here is the full portfolio as of March 30, 2012.
I have categorized the investments in the following way:
Core: Long-term stable investments that will not change often.
Sub-Core: Still long-term but may trade more often.
Opportunity: Long or short-term trading opportunities.

inMessment Game Trade History for Q1 2012

Below is the trade history for my inMessment Game in Q1 2012. Too many trades and $219 in commissions hurt my portfolio this quarter.

Join the inMessment Game

Now that you have read through my results why don’t you join the game yourself? It is completely free and the best way I have found to learn about investing.
Click Here to Join the inMessment Game!

The Nikkei 225 index covers the Japanese market. The Hang Seng covers the Hong Kong market. The SSE Composite covers the Shanghai market. The Straits Times covers the Singapore market.

What Is The Nikkei 225?

The Nikkei 225 is the most widely quoted index of the Japanese stock market. The Nikkei website states, “The Nikkei Stock Average is the average price of 225 stocks traded on the first section of the Tokyo Stock Exchange, but it is different from a simple average in that the divisor is adjusted to maintain continuity and reduce the effect of external factors not directly related to the market.”

The Nikkei began in 1950. It is interesting that the Nikkei website says, “The average peaked at 38,915.87 points on December 29, 1989.” This is 10 years prior to the dot-com bubble in the US. It appears that the Nikkei has been on a downward trend since 1989.

What Is The Hang Seng?

The Hang Seng website states, “The Hang Seng index is one of the earliest stock market indexes in Hong Kong. Publicly launched on 24 November 1969, the HSI has become the most widely quoted indicator of the performance of the Hong Kong stock market.”

The Hang Seng is a market capitalization weighted index that covers 90% of the Hong Kong market.

What Is The SSE Composite?

The SSE Composite Index website states, “Constituents for SSE Composite Index are all listed stocks (A shares and B shares) at Shanghai Stock Exchange.The Base Day for SSE Composite Index is December 19, 1990. The Base period is the total market capitalization of all stocks of that day. The Base Value is 100. The index was launched on July 15, 1991.”

The SSE Composite Index covers most of the market for companies located in mainland China.

What Is The Straits Times?

The FTSE websites states, “FTSE has partnered with Singapore Press Holdings (SPH) and the Singapore Exchange (SGX) to jointly calculate the Singapore stock market’s main benchmark, the Straits Times (ST) Index, also known as the STI, and to create a comprehensive series of stock indices for the Singapore market.”

The website goes on to say the Straits Times Index is “The top 30 companies of the SGX Mainboard universe, ranked by full market capitalisation, that pass the relevant investability screens.”

Basically, the Straits Times Index takes a sampling of 30 of the top companies by market cap in the Singapore stock market. It represents Singapore in much the same way The Dow represents the US market.

In the 3rd Quarter of 2011, worry about the European debt crisis hit the market hard. From July 22 to August 8, 2011 the US market dropped 15%, that is just 11 business days. Through September the market was volatile but did not hold any gains. It bottomed out on October 3, 2011.

For 2011 my strategy was basically buy and hold. At the end of the 2nd Quarter of 2011 my portfolio was up over 13% for the year. At the end of the 3rd Quarter my portfolio was down -12% for the year. This was very painful to watch.

(NOTE: With a buy and hold strategy, watching is part of the problem. Sometimes it is best not to watch. Just make good choices in your investments and asset allocation and then let it ride.)

Thank God the market bounced back at the end of 2011. At the end of the 4th Quarter I was basically back to even with my portfolio. Now with the bull market at the start of 2012 I am back up to the high point I had in 2011.

Even though I can see signs that buy and hold works I have to think there is a way to avoid at least some of the down turn that happened in July to October of 2011.

My New 2012 Strategy

For 2012 I have added two major changes to my to my inMessment Game Portfolio strategy.

1. Set Stops to try to keep profits
2. Use Stochastic Oscillator to help determine when to buy into the market

Stop-Loss Orders

A stop-loss order is a sell order placed on your holding that will only sell if the price goes down to a certain level. You set the price level at which you are willing to risk.

In a bull market stop-loss orders can be a good way to keep the gains that are made. As the stock goes up and up you can move the stop-loss up. Then when the price turns around, the hope is that your stop sells the stock near the top of the trend.

The problem I am seeing with stop-loss orders is that they typically sell my holding at a point that could be a good point to buy into the holding. With tighter stop-losses and shorter time frames this is especially true.

Where do you Set Stop-Loss Orders?

How tightly to set your stop-loss order is not an easy decision. I have seen recommendations everywhere from 0.25% to 8% of the current or purchase price. There are several things to consider:

• How much are you willing to lose if the price goes down? If the stop loss sells, you will lose the amount you risk. I have experienced this a few times. If the prices goes back up after your stop hits, you miss the bounce. If the price continues down after your stop, then you are spared further loss.
• How long do you plan to hold the position? The shorter terms should probably use closer stops.
• What is the normal volatility of the stock? If the stock goes up and down 2% on a regular basis then you have to set the stop outside that range.
• What direction do you think the market is going? If you think it is heading up you can give yourself more room in the stop to stay in the holding longer. If you think it may go down soon, a tighter stop loss may be better.

For now, I am planning to set stops near 2% of the price as long as I think the market is going up. My goal is to hold the position as long as the price is going up. 2% will be my starting place with each holding. From there I will ask myself the questions from above and adjust as needed.

After a Stop, Stochastics Help me know When to Buy Back In

I plan for most of my holding to be market index ETFs. With that in mind, if a stop loss hits I want to get back into the ETF when the conditions are more favorable. Like I said earlier, my stops sometimes seem to hit at a point when it may be good to buy back into the position.

I have recently learned about the trading indicator called the “Stochastic Oscillator.” Investopedia defines the Stochastic Oscillator as, “A technical momentum indicator that compares a security’s closing price to its price range over a given time period”

The chart below shows a one-year history for SPY (SPDR S&P 500 ETF). This is from Yahoo’s Basic Tech. Analysis page. One of the Indicators you can choose is “Slow Stoch” or “Fast Stoch”. These will show the Stochastic Oscillator with different settings.

Below I show the Slow Stoch based on the one-year daily price chart for SPY.

The Stochastic Oscillator tries to show when a stock is oversold or overbought. When the indicator rises above 80 (see my red circles above) then the stock is considered overbought. When it falls below 20 (see my green circles above) it is considered oversold.

The Stochastic Oscillator is a mathematical formula based on the closing prices for a certain number of periods. In the one-year chart above it is based on the daily closing prices. You can also base the oscillator on hourly closing prices or just minutes if you want. It depends on the trading time frame you are working in.

For my new 2012 strategy, I will use a slow stoch based on hourly closing prices to find the next best time to buy into a position. I will not buy unless the hourly slow stoch is close to 20. I will also review the daily slow stoch to keep a longer term perspective.

Join The inMessment Game

Come and join the inMessment Game with me. You can learn along with me and others. You can set your own stop-loss orders and see how they work. Best of all, it is with play money so there is no real risk. The reward is a good education in how the stock market works.