Buy-and-Holders, don't waste your time and angst reading this -- unless perhaps you might want to explore an alternative to the futility you currently embrace. Time is precious. It's the most important investment resource we all have. Yet none of us knows how much is available on that credit card.
So here we adopt portfolio management principles that work our capital as time-efficiently as we can. It's hard work, work that requires clear goals, continuing discipline, and willingness to admit to errors with a compulsion to get on with more productive actions.
We're not afraid to admit that there probably are others out there in the market combat zone that are better informed, better resourced, and even more highly motivated than we may be. When they are available to lead us to better, quicker satisfaction of our objectives, we're not too proud to use them.
We see the market-making [MM] community in that light. Fortunately for us, if they want to continue to make their 7-8 figure annual compensations to get to a 3-5 year career retirement, they need to do things that tell us what they believe can really happen. Not just what their firm's sales-types want us to believe.
To do their jobs they have to put firm capital at risk. To stay employed they need to be damned sure they lose very little, if any, of it, only infrequently. Instead, if they can be alert to hedge positions that multiply trade-spread payoffs for the firm enormously, it will be apparent at bonus time. Building those hedges reveals their implied price range expectations. These are forecasts we can read, and compare directly between virtually all stocks and ETFs.
We make those comparisons every day, on over 2500 issues. We keep score on the ones where they seem to have best insights, evidenced by prices reaching sell targets a.s.a.p.
Here is the current set of best champion sluggers from the brutal market "ring":
For those new to this analysis, the sell targets are the top of the price range forecasts; worst-case drawdowns are the average of experiences during commitments to implied forecasts during the last five years -- forecasts having a balance of upside to downside like today's. That balance is expressed in the Range Index, which tells what percentage of the low to high forecast range lies below the Price Now. The win odds are the proportion of those similar prior forecasts that produced profitable experiences in the 3 months subsequent to the forecast, usually by reaching sell targets.
All of these 5 stocks have had at least 25 days during the past 3-5 years of prior instances of Range Indexes like their present market-maker evaluations. At least 9 out of every ten were profitable. Comparisons of current upside prospects with their average worst-case price drawdowns from forecast-(next)day cost had to offer better than 3 times as much promise as threat.
Biogen-Idec (BIIB) is a biotechnology leader of considerable substance and resources. Its current upside outlook is ambitious compared in size to past price accomplishments, but MMs' prior experiences at this level of implied forecasts are extensive and only infrequently (one out of 20) turn out to be costly. Annual rates of gain on smaller upside price targets held some two months have averaged nearly +90%.
Questcor Pharmaceuticals (QCOR), another biotech active investment vehicle, shows an outlook repeated over 100 times in the recent past which has produced profits in 19 of every 20 such ventures. Its current 20%+ upside outlook is strongly supported by 19% average gains in prior experiences. Like BIIB, its ratio of prospective gain to encountered hazards is extremely high among market-mature stocks.
International Game Technology (IGT) is a world leader in design manufacture and marketing of electronic gaming systems and devices. Its stock has recently been backing off from over a year's rather steady rise, and now is at a Range Index level where there is 3 times as much upside as down being forecast and four times as much upside seen as has actually been experienced. Of the 26 prior cases of forecasts this extreme for IGT, there has never been a loss presented by our strategy of a 3-month maximum holding period if the sell target is not reached beforehand. Those gains averaged 18%+ in two-month holding periods for annual rates of 180%. Things that haven't yet had a loss always make me nervous, but IGT is only one of many such.
Direct TV Group (DTV) is a principal provider of direct-to-home (satellite delivered) Television services in USA and Latin America. DTV's competitive strength among this set of investment candidates lies in its smallest past drawdown experiences (less than -3%), and its relatively quick (less than 6 weeks) average time to reach sell targets. The resulting past annual rate of gain is in low triple digits, attractive enough for most active investors.
Armstrong World Industries (AWI) is the Quality leading producer of building materials for room ceilings and non-fabric floor coverings. In business for over 120 years, they are extremely well established and competitive in the industry. Their stock is a special situation of sorts, since its price is depressed unusually by a secondary offering just this week, with part of the sale prompted by legal actions directed at a trust set up to provide for materials-induced health problems of years past. The stock's Range Index of 5 indicates very little downside expected by MMs, and the quality of the company encourages belief in its substantial upside. The present situation should be regarded, as it is by the MMs, as a temporary, passing condition, offering an unusual opportunity for gain.