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How I did it

…All the graphs used that You can look at are in logarithmic base. In other words, if You pick up any portion at y-axes and take it as an unit, then equal portion of y-axes corresponds to equal profitability. I will discuss another time at another place, but it is important to understand the graphs. Many times somebody shows You graph that looks very pretty, but if You seriously analyze the data involved, You can find deep problems up there. Data and perception manipulation are phenomenon itself, I will return also to this idea another time. However, the purpose of this series of articles is correctly to show You, what is really possible to achieve, if You remain disciplined.

The second drop down was also difficult, time consuming and there were no lights to count to. That time, everybody was trying to sell-off all Fannie Mae and Freddie Mac stocks. It became new fashion wave. Despite huge problems of market, I did believe that the real estates will stay on place and not evaporate. It might take very long time to recover. I was already advised by own experience, that it is necessary to review all information available with respect but keeping own point of view. When massive market pressure to sell-off these stocks arose, I simply held it as long as necessary and softly supported on downside expanding existing positions. Market proved my theory true and later on these stocks were growing in necessary extent so that not only clearing the loses, but generating profits. But already I did not want to count on financial sector solely and was actively searching for additional stocks.

Ideas were as usually simple and easy to implement. My best experience showed me, that any prediction is only prediction and always might happen something unpredictable what changes the game. Virtual funds at Marketocracy are subject to obvious rules for mutual funds as defined by SEC. So You can not invest any portion of fund to some stock. You have to follow obvious rules, fund managers know it, anybody else can simply read for example at SEC or open an account at Marketocracy, where all the rules are available. What is important, if the value of some stock grows, You can not extend the position as You wish, but only in conformance to obvious rules.

This is dramatically other story, when the stock price falls. If You hold for example 8% of fund in one stock and this drops down 75%, You actually hold only roughly 2% of fund in these securities(illustrative, not exact numbers). Now if You extend existing position, You need not to break SEC rules for mutual fund and simply extend position to for example 5%. Then You carefully and patiently wait until market gets to the former positions, but actually You have not 8% but roughly 20% of fund in this stock.

This simple idea is exactly what I have developed up to concrete numbers. The numbers here are only for illustrative purposes and in general I am not going to reveal my obvious thresholds of legibility. These are subject to specific know-how.

Now You know, how I was going to carry out buy side, just it is not clever enough what I wanted to buy. The idea was, that as the production will develop, marketing and business will need obvious advertising channels again. Thus it was possible, that these traditional and new developing advertising channels will grow dramatically. I have studied many available resources on this theme. The point of view was and still is changing. However, there are some predictions what we can count on at this field. Paradoxically, the televisions were already the worst advertising channel. Internet already was one of the best. The radios were relatively down, but were equipped by huge growth potential. After some evaluations and information collecting I realized, that the best one at that time was Citadel Broadcasting. This company was in financial fears. As I could analyze from data available and public information, it was probable that nor this company will fall at all, nor will offer unusual investment dynamics. The last point, that made me believe in this company was management systematically working on broadening own networks of radio stations. However, the success was not 100% sure. As Citadel Broadcasting was falling in value of stock I was systematically buying and extending positions.

I expected, that this company will firstly slowly grow and later on will offer next exponential rally for DMF fund. But reality was other. One day company Cumulus Media(CMLS) merged Citadel Broadcasting under publicly acceptable conditions. Great moment! You suddenly need not to wait many years but the goal steps up right to Your arms.

This merger You can recognize instead of long-time lasting rally or slow growth as a skip-up at following graph.

DMF2008-2015Paradoxically all what happened all the time before this single moment is somehow pressured to a “line”.

It is time to discuss more how to evolve the fund after this less frequent moment.

And this is exactly what we will discuss next time…

(To be continued)

 

Many years ago a small local stock-trading platform become visible to me. It was important idea for me and I knew immediately that it is something of value. Simple reason why it is really important is, that You can “freely” test several trading strategies without loosing real money. You can back-test as long, as necessary. On the other hand despite this stage, once You have to decide if You want to train only, or to make a deal.

Repeatedly that local small platform was facing several technical issues and as the experience grow, it was already unusable for next purposes. So I started to search for yet another platform, that would be more stable and would allow me such conditions as at the market itself. It is rather important to have opportunity to show the results to the others as well. Furthermore expected platform would allow only realistic “moves”. There is no problem to put together a platform that simulates market irrespective really sold and bought securities. But tell me, what would it be available for?

Little bit searching I found several platforms, but most of all my eyes fall to www.marketocracy.com. There were not only features that I was looking for, but much more standard features that fund manager would look for including necessary reporting and realistic trade simulation. Furthermore there was promise for the most advanced fund managers to be involved to real trading later on.

This happened roughly at October 2008. I was looking for the first stocks to be involved to my back-testing at new platform and put together simple list of stocks to use and some basic strategy. It was very well based firstly on financial sector. My idea was easy – whatever happens, one of the first sectors that will survive will be financial sector. The second part of strategy was and still is, in the meantime of market obstacles to involve occasionally other segments. This idea proved true later on. However, the stocks, that I have chosen for the beginning were very unhappily chosen as I experienced not too far away in time since then. There were many banks stocks including Lehman brothers and others that were later not “too big to fall” by political decision. That was time of obsession for Fannie Mae and Freddie Mac and because of luck of small experience I fall to this trap as well as many other people around the world.

At November 14 2008 I have established my first virtual fund – DMF (Drastich´s mutual fund). My goal was simple. I wanted to become absolutely the best fund manager.  First months did not look so. In fact, very soon I was facing to radical market fall that we all remember very well. In no way it seemed to be realistic to win with my strategy.

DMF2008-2011

For next nearly two years I was facing only deep loses. Some stocks evaporated at all. I know, You say, that it is virtual platform, so it is enough to put together yet another portfolio and start again. It was absolutely clever, that this would solve nothing. The point is, that everybody does also bad decisions. What is of value is to face also own bad decisions and survive. Simply to use the status as it is and find a constructive way out. Now I am talking much more on psychology than on experiencing new possibilities. So I did keep this very poorly looking fund and was looking for usable other sector and concrete stocks to use as a supplement. And I successfully found such a complementary stocks several times.

Now I was really patient knowing that if I use some other stock that will evaporate, all over virtual fund will be in state that I would not be able to recover again. The idea was, that still before financial sector survives, firstly survives automotive industry. But automotive industry was damaged at all and facing still more troubles than financial sector itself.

But there was an important company, that was producing parts for automotive industry as a whole. they were facing huge problems and it was also possible, that this company will not survive. It was Visteon corporation. Financially they were at knees. They had facilities and production program for nearly all over automotive industry that still survived. What is most important – they changed management and new management did radically series of steps that were necessary and they succeeded.

I released as much cash as possible and bought Visteon stock. What happened, You can see at the graph before July 2010, when I released Visteon again. From today´s point of view, it was big error too, nowadays Visteon is sold somewhere around $100. I was learning and payed for this “school”.

Yet another wave of market obstacles came again and I was facing to the same decision to look for additional segment and stock to use, again successfully. And which one it was? Read next time…

(to be continued)