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Sam Kirtley
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Sam Kirtley has been involved in investment and trading in the financial markets for a number of years and has experience in stock investment and analysis as well as options trading. In 2009 SK Options Trading was formed to cater to clients looking to utilize options to maximize the performance... More
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  • Results versus Rhetoric: A Key Consideration 1 comment
    Jan 5, 2011 7:04 PM

    The ability to produce successful results and successful rhetoric are two very sought after and useful skills, but despite their stark differences the two are often confused. In this article we outline what we believe are the differences between the two and what you should do to ensure that you never confuse rhetoric for results, a skill that we believe is paramount to success in the financial markets.

     

    Consider a modern financial institution where there will be employees hired for their skills in rhetoric and those employed to produce results. Those specialising in rhetoric have been chosen for their abilities in smooth talking clients into deals, sounding well informed and educated in financial markets but with no real focus on the results their well crafted speeches or reports would have produced if followed. Those specialising in results have been selected for their ability to make money and produce results with all their focus on their bottom line rather than how eloquently they explain their trades.

     

    There is a huge difference in these two sets of people, and confusing them can be very costly. Consider reading a report by Person A, someone who is well educated in finance and puts forward a well formatted and detailed argument for their point of view on the market. They make many good points for their view, complete with in depth research, dazzling charts and pages of expert analysis. Another report by Person B is simply a one pager listing their open positions and some brief notes regarding any associated stops, limit orders and what they are trying to achieve with their trading. Sadly many investors will make the mistake of judging that Person A will be more successful in predicting which way the market will go, and therefore they position their portfolio in line with the view presented in the report from Person A. That investor has just confused rhetoric and results. They have followed the better sounding advice in pursuit of profitable trades; they have chosen the report with the better rhetoric mistakenly thinking that this will produce better results.

     

    Instead of choosing the suggestions of the better sounding report, the investor should be looking at how the picks of these people have performance in the past. Whilst not perfect, a complete track record is a much better tool for judging the abilities of Person A and Person B rather than how elegantly they have structured their reasoning for their opinions of the market.

     

    This problem is particularly prevalent in the financial newsletter industry, where subscribers pay a fee in return for receiving the market commentary and trading/investment recommendations of the writer. In order to avoid falling simply for a good sales pitch regardless of performance, to ensure that you do not confuse rhetoric with results, here are some questions we think all investors and traders should ask the newsletter provider before handing over your hard earned dollars. Since we run a service which falls into this industry, our premium options trading service SK OptionTrader, we have provided our answers to these questions below too.

     

    Please could you provide your full trading record?

    This should be a complete and detailed record of every recommendation the service has ever provided for its subscribers, winners and losers, with buy and sell dates and prices. Do not settle for a list of “Our Recent Trades”, “Top Ten Trades of 2010” or “Some Examples of Trades we have recommended”. You want the full record of every trade. The full trading record of SK OptionTrader can be found on our website, and it is updated whenever we close another trade.

     

    What is your annualised return on investment?

      This is the most fundamental statistic a service can provide. You are signing up as you are hoping the service will help you make money, so if you had invested in accordance with their recommendations what return would you have got on each $1 per year. The annualised return on investment of SK OptionTrader is published on the front page of our website and is currently 86.98% without reinvestment of profits.

     

    Do you run a model portfolio? If so how does it work?

    Any service that simply offers “picks” is not worth a lot of money in our opinion. What to buy or sell is only part of the equation, you need to know roughly how much should be placed into each trade. If the service does not run a model portfolio with suggested weightings to each trade, then they cannot produce a figure for their annualised return on investment and you cannot make a decision on the quality of their investing or trading skills. SK OptionTrader runs a model portfolio with clear weightings for each trade and the remainder in cash.

     

    Do you give clear and specific buy and sell signals? If a newsletter wishes to claim the credit for making a good recommendation then they should have stated clearly when to buy and at what price, then when to sell and at what price. Only then can they be congratulated for any profit subscribers could have made on the recommendation. A casual mentioning of a stock and noting that it may have good fundamentals is not a buy signal and the author should not be overly congratulated if it rises. A comment regarding how a certain commodity looks overbought is not a sell signal and the author cannot claim to have called a top if it falls. At SK OptionTrader we give clear and detailed buy and sell signals on specific options, having briefly outlined out reasoning for such a trade in an emailed update prior to the signal.

     

    If a service you are thinking of subscribing to cannot provide answers to these questions, then we would suggest you save your hard earned money for another opportunity.

     

    Of course this all presumes that you are looking for a service to assist you in making a profit in your investment and trading. If you are simply looking for something to inform you about what’s going on in the markets, and give you some good points to make during a conversation at the next dinner party, then by all means pay for the newsletter which offers the best rhetoric, regardless of how poor their actual performance may be.

     

    However if you are looking for a service that focuses on results, banking profitable trades and providing clear and detailed trading recommendations then you may wish to take a look at our premium options trading service SK OptionTrader. We focus on results, not rhetoric, and as our track record shows our results are there for all to see and compare with others.

     

    Our annualised return on investment is 86.98% and we are averaging a profit of 43.78% per trade, that includes the two losing trades on our record along with 59 winners, or a 96.72% success rate

     

    We are open with everything we do, so if you have any questions on our services then please contact us byclicking here.

      

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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  • ednuss33
    , contributor
    Comments (7) | Send Message
     
    For the past four years, I have been tracking a number of newsletter stock recommendations. My method includes buying a constant dollar amount of each unique stock recommended, and at the same time, buying an equal dollar amount of the S&P 500 equal weighted ETF RSP.

     

    The buys or sells recommended are made at the next market opening price, and all dividends are held as cash. The associated RSP shares are sold along with the stock sales.

     

    The streams of buys and sells are analyzed quarterly to determine the internal rate of return for both the newsletter and the corresponding RSP's. The data is then used to calculate the Newsletter/RSP IRR Ratio.

     

    The following table shows the results for the four year period through Dec 31, 2012
    Newsletter,Final IRR%, Final NL/RSP Ratio, Max Qtly NL/RSP Ratio, an Min Qtly NL/RSP Ratio.

     

    BC 7.8% 0.940 1.250 0.513
    FD 16.1% 1.175 1.514 0.971
    FT 8.4% 0.622 1.118 0.571
    PL 3.4% 0.548 0.950 0.466
    RB 17.4% 1.234 3.494 1.234
    RM 11.2% 0.806 1.171 0.441
    RR 6.8% 0.986 1.701 0.917
    SS 1.3% 0.342 0.858 -2.450
    TP 1.8% 0.265 0.575 0.265
    TW 5.1% 0.607 0.918 0.464

     

    RB stands out as the only newsletter to handily beat the RSP for every quarter, and the final IRR % is excellent. FD also has a very good IRR %, and beats the RSP almost every quarter. RM has a respectable final IRR %, but has more volatility.

     

    My conclusion is that the RSP is a good standard for evaluating newsletters, and that long term internal rate of return is the best measure of comparison between newsletters.
    21 Jan 2013, 02:41 PM Reply Like
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