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Author: nukejohn Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 71952  
Subject: My Investment Philosophy Date: 7/17/2004 5:13 PM
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Okay folks,

I thought before we begin my NJTA experiment, I would share with you a little about me and my investment philosophy. First off, I should tell you that I don't think that the system I developed (NJTA, for NukeJohn Technical Analysis) is the greatest thing since sliced bread. I'm sure there are many other systems out there that are much better, but it is a relatively straightforward system and one that takes the emotions out of buying and selling stocks (if it is possible to do that). The system keeps you from making some of the mistakes I have made in the past (like trying to catch the falling knife). It is a structured approach to investing that only allows you to buy at certain points...and it forces you to sell at certain points. Sometimes those points are small losses, sometimes they are small gains...and occasionally they are very large gains (I like these the best)...but in no case do you have large losses...because my maximum stop loss point is 14% from my original purchase price and it is usually 8%, 10%, or 12%.

The maximum initial investment I would ever make on a single stock is 10% of my portfolio(and that would be very rare)...so with a 12% stop loss...the maximum I could ever lose of my portfolio on any single transaction is typically 1.2%. I am a big fan of the classic Jesse Livermore books (see me reading list in my profile)...and I now like Livermore's philosophy to "test the waters" first...so on a typical transaction, my first buy point is usually about 3% of my portfolio. If the stock confirms my belief and rises (in the case of long positions)...then I would add to my holdings. I am not opposed to more additions even if a stock has passed 10% of my portfolio value...but I raise my trailing stops along the way to keep a winning position from ever turning into a losing position. When you can catch a stock like TASR for example (see chart below) and keep adding to your position as the stock continues to rise...that is when you can make a killing.

http://finance.yahoo.com/q/ta?s=TASR&t=2y&l=off&z=l&q=l&p=e50&a=m26-12-9,v,r14&c=

Take a look at the above chart for TASR for a few minutes. Using NJTA...we would have bought TASR around May 13, 2003 at an adjusted price of approximately $1.50...and we would have added more along the way at various points on the climb up...and we would have gotten out in April of 2004 in the high 30's (probably around 38). We would have made many times our money on our investment or more than a "twentybagger" in Peter Lynch terminology. It doesn't take but 1 or 2 TASR-type investments to greatly skew the returns in your favor.

Because I come from a Physics background...I tend to believe that a body in motion tends to remain in motion until acted upon by an outside force. That means that stocks going up (especially on higher trading volume)...tend to keep going up...and that stocks falling...tend to keep falling. But when they change direction and we own them...we have to have a sell strategy built in to the system to protect us. I am not a market timer...so I believe that in general it is best to long the best stocks and short the weakest stocks at the same time. In other words, if the market is strong and rising...I still want to have short positions in a few stocks (hopefully stocks that are performing poorly). If the market is weak and falling (like it was in from April 2000 to Nov 2001), I would want to have more short positions than long positions, but I would still have some long positions. Typically, I don't want to have more than 15 total positions. My ratios of long to short positions will always vary depending upon the trend of the general markets. I would never want to be more than 80% long...and I would never want to be more than 70% short. I know some of you here don't "believe" in shorting (or buying puts for that matter)...but believe me...if you want to compete with the professionals you have to be willing to play both sides of the market. Take for example the catastrophic occurrance of 9/11. It was tragic for loss of life above eevrything else, but for a moment I want to look at what happened to the markets. If you were 100% long at that point....your portfolio would have been decimated...but if you were 70% long and 30% short...and you had stops set on all your positions (then your long positions would have been stopped out (when the markets reopened), but your shorts would have saved your portfolio. No one knows ahead of time when something "spooks" the markets (accounting scandals like Enron and Worldcom come to mind), but if you have some short positions, then you are "protected" somewhat. It's not easy to be long the best performing stocks and short the worst performing stocks at the same time, but if you can come close to this goal...you'll always be a successful investor.

As for myself, I'm 48 years old with a BS degree in Physics and an MBA with a Marketing emphasis and I work in the nuclear industry. My background is in nuclear safeguards and as a result of 9/11 I am involved in Homeland Security applications, specifically working with various government agencies to prevent a Radiological Dispersion Device (dirty bomb) or a small tactical Nuclear Device (like a Russian suitcase nuclear device) from ever entering our country. It is challenging work and something I take very seriously. I have been an investor for over 25 years...and I did quite well in the 90's as I'm sure most of you did who were invested in high tech like me. I have experimented with virtually every investment technique that I know of, from LTBH using FA only...to pure TA. I have been a value investor, a momentum investor, a day trader, a swing trader, an options trader, and I've experimented with Mechanical investing, CANSLIM, Rule Makers, Rule Breakers, using Gorilla Game techniques, etc. etc. The only thing I haven't done is play around with commodoties..and I have never traded futures. I was very unhappy with the performance of my portfolio in 2000 and 2001...and I was determined to develop a methodology that prevented that from happening ever again. So I embarked on a mission...and I read over 100 investing books...I experimented with a lot of different theories on investing. I prefer not to discuss my past successes or market returns, but I am doing this as a live experiment so you can jusge for yourselves with real data. There are a lot of "Charlatons" out there that could post they got an "average annual rate of return of 80% from 1999-2004"...and unless you saw the realtime results for yourselves...you should never ever believe them. That's why we're doing a realtime experiment.

What we are about to embark on is what I now believe to be the best approach to investing that I have seen...because it works in both bull or bear markets and it takes the emotions out of investing. Trust me...this is the biggest hurdle to overcome. The NJTA system forces you to practice good money management techniques. It also spots stocks that are being accumlulated or distributed...before the "behind the scenes news" hits the public.

Okay guys...get ready for some fun over the next few months. I'll do my best to post at least daily (sometimes several times a day), but due to travel, firewall, and other situations....I may miss a day or two.

Best Regards,

NukeJohn
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Author: dumaflotchie Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20519 of 71952
Subject: Re: My Investment Philosophy Date: 7/17/2004 6:05 PM
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What we are about to embark on is what I now believe to be the best approach to investing that I have seen...because it works in both bull or bear markets and it takes the emotions out of investing.

There is no doubt that in any trending market, your system will work just fine. Its weakness IMO, is a choppy market (or sidewise market) as that will have you buying and selling like crazy but really getting nowhere fast.

Just curious why you would not use the 200 d MA rather than the 50 d MA as espoused by Weisntein and others?

In your example on TASER, this would have kept you in and still in? It results in a little less trading but wonder if results would be that much different in the universe of stocks with the advantage of a little less effort?

As to taking the emotion out of investing....as they say....in this case....its a "no brainer"!

Many thanks for adding a little spice around here.



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Author: nukejohn Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20520 of 71952
Subject: Re: My Investment Philosophy Date: 7/17/2004 11:19 PM
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There is no doubt that in any trending market, your system will work just fine. Its weakness IMO, is a choppy market (or sidewise market) as that will have you buying and selling like crazy but really getting nowhere fast.

Don't forget we start with stocks we have some reason to believe are going to be going up (our long watch list)....or going down (our short watch list). Because I didn't get much feedback as to short candidates I decided to just go with one list. The shorts will still stick out if they are extremely overvalued and start dropping on high volume.

As I said before, my system is what I developed based on my study of TA, which included a detailed study of moving averages. I decided to use the 50 dEMA for my system based on numerous factors. I experimented with the 200 d Moving average as well. I agree you can do this with a 200 d EMA or a 30 week MA(which is what Weinstein advocated) or 100 day EMA or whatever, but 50 d EMA will find trends a lot quicker than a 200 d MA. Of course that means you will be stopped out for losses more frequently...but your gains will be larger percentages.

With regards to Taser, my system would have gotten you out around 38 and back in around 32, so NJTA would have definitely been better for TASR than using a 200 dEMA that kept you in the whole time.

NJ



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Author: Carpian Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20527 of 71952
Subject: Re: My Investment Philosophy Date: 7/18/2004 4:57 PM
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Its weakness IMO, is a choppy market (or sidewise market) as that will have you buying and selling like crazy but really getting nowhere fast.

Good point. But I think the volume requirement (over 40% above ADV) as well as the RSI and MACD requirements help screen those stocks that are likely beginning a significant move from those that are just piddling around. In sideways markets, there can still be individual stocks making moves, though it's not as conducive an environment as a trending market. But the indicator requirements should eliminate the "like crazy" from the buying and selling. We'll have a good opportunity to see, anyway.

Thanks much, nukejohn, for your willingness and work to show this method!

As an aside, I'm mainly a lurker here (and elsewhere, for that matter) so whatever the regulars go for is fine by me, but I wonder if this experiment won't generate enough volume of posts to merit it's own board?

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Author: OfficerPup Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20528 of 71952
Subject: Re: My Investment Philosophy Date: 7/18/2004 5:28 PM
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Coming out of lurk mode...

Appropriate to a partially TA system, I have a question of a technical nature:

What software or web site do you use to view the various indicators for each stock on the "long" list? When you first introduced your approach two years ago you appeared to be using Yahoo. I've found that plugging in tickers one at a time and then waiting for the chart to come in (confession: I'm still on dial-up) is extremely time consuming. Is there a site that will display the results for, say, ten stocks at a time?

Thanks,

Pup

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Author: nukejohn Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20531 of 71952
Subject: Re: My Investment Philosophy Date: 7/18/2004 8:35 PM
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As an aside, I'm mainly a lurker here (and elsewhere, for that matter) so whatever the regulars go for is fine by me, but I wonder if this experiment won't generate enough volume of posts to merit it's own board?

I was thinking the same thing about asking TMF to start a new board for this experiment (or for NJTA in general), primarily because the NPI board has such a consistent group of posters and there will likely be quite a few NJTA posts that would clutter up this board. I'm sure the NPI regulars would not like that. Also, others from around the TMF community who want to follow the results of my experiment would be able to follow on a separate board without having to sort through a variety of posts on the NPI board.

I'll contact TMF Bogey and check into that first thing tomorrow morning.

NukeJohn


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Author: dumaflotchie Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20532 of 71952
Subject: Re: My Investment Philosophy Date: 7/18/2004 10:14 PM
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Nuke:

I would favor keeping it here. If you feel this board may have sensitivities otherwise, maybe a quick poll would resolve it.

Just my 2 cents.

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Author: karljo Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20534 of 71952
Subject: Re: My Investment Philosophy Date: 7/19/2004 1:34 AM
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Pup,

Try Stockcharts. I have set up a gallery of 8 charts with RSI at this url
http://tinyurl.com/5lmgx

I am also trying to get the details of the online charting software that a friend of mine uses.

Personally I use an Australian based system called Sharechart, which is probably available via the web. The data feed for the US costs about US$300 p.a. but there are probably plenty of good alternatives you can source in the US. Client based software probably lets you customise a lot more and once you have the data downloaded you would be able to flick form chart to chart quicker than you could on dial up. With broad band response times may be quick enough. You may also want to look into Stockcharts premium service.

John

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Author: comptche Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20535 of 71952
Subject: Re: My Investment Philosophy Date: 7/19/2004 3:29 AM
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Hi Pup,

You CAN use Yahoo... Here is a series of the first 16 on nukejohn's list.
I don't know how many you can put on the list. I have often put on many more than this. Just type in the ticker, space, then the next ticker and press GO... I have dial-up too and live way out in the forest far away from the telephone transfer station... If I can get it, you sure can...
Just go get a drink or a snack while it downloads, or tidy up your desk... It really doesn't take too long...

http://tinyurl.com/3nlc5

Anne

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Author: OfficerPup Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20538 of 71952
Subject: Re: My Investment Philosophy Date: 7/19/2004 11:08 AM
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Thanks, Karljo and Comptche

I didn't know Yahoo permitted entry of multiple tickers. That alone should solve my problem, which was more that doing tickers one at a time was numblingly repetitive. Computers are supposed to save us from that kind of drudgery.

-Pup

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