I have a problem with the Quentinvest website. If you look you will see all sorts of amazing performance figures that have been obliterated by the bear market. So what to do? I am changing the figures in a way which may seem misleading but is the best I can do in the circumstances. Instead of quoting share price gains to latest prices I am quoting them to all-time highs. This will be made clear next to the figures.
Part of the justification is that if I just updated to the present day this would not reflect my bearish stance on the stock market since 6 December 2021 (Time to Circle the Wagons), stated then and repeated frequently thereafter.
Since then I have been writing about shares without recommending them. I used not to do this but now I do. So how am I going to calculate performance tables in the future. I have had an idea, a lightbulb moment. Remember Bo Derek, what male from my generation could forget her, who was a perfect ten.
I have set criteria for shares so they too could be perfect tens. Let me explain how this works. I have three key technical indicators – rising moving averages after a golden cross, a broken downtrend line and a rising Coppock line. I also look for pattern breakouts, especially on 3m candlestick charts and double bottoms using Eustace Storey volume figures but for the moment I am going to focus on the first three indicators.
Scoring indices, ETFs and individual shares to make nine
An individual share can score 9/9 if my three indicators are bullish for a major index including the shares, an ETF including the shares (to capture the sector performance) and for the share itself. So 9/9, which no US shares are scoring presently when many score 0/9, means all the technical indicators are as positive as they could be so how do we get to a perfect ten.
We get to 10 by adding in fundamentals. Remember that I don’t even look at shares unless they are 3G (great story, great chart, great growth) so if I am writing about a share at all 3G is a given. Note that a score below 10 doesn’t mean a share is not 3G, it just means we may not want to buy or even hold the share at the moment.
So how do we use fundamentals to take a share which is already 3G and scoring 9/9 on the technical indicators to ten.
Something new, something magic, a huge earnings beat – something fundamental – turns nine into ten
We need something special, something new like Netflix creating its own programmes or Amazon announcing that its cloud business, Amazon Web Services, was both hugely profitable and growing very fast.
In April 2015 Amazon revealed to an astonished world its hugely successful AWS business with sales of $1.57bn and operating profits of $265m, which was more profitable than analysts expected. It was also growing fast. Sales were up 78pc from a year earlier. So this gives us our one on the fundamentals, something new, something exciting.
Shortly afterwards the Coppock indicator turned higher, marked in blue on the chart and we already had a broken trend line and as a bonus a pattern breakout to a new all-time high. The chart looked spectacular and relevant ETFs and the US indices looked good as well. Amazon scored a perfect 10. In the spring of 2015 Amazon became a Bo. Over the next five and a half years Amazon shares rose 10-fold!
Take another example. Netflix launched House of Cards, a massive something new, in February 2013 when the shares already scored 9/9 so became a perfect ten (a Bo!). At the time the shares were trading around $16. Over the net nine years they went on to climb to a peak $700, spending much of that time with the perfect 10/10 score.
We would not have captured all of that gain but buying these shares when they scored 10/10 in February 2013 was a spectacularly profitable thing to do, providing great moneymaking opportunities. It is here too that we can use the charts, especially a rising Coppock indicator, to give us comfort to retain our position.
The Coppock for Netflix began falling in March 2021 but my other indicators didn’t turn negative until January 2022 when the shares traded as high as $580. As subscribers will remember I turned negative on the whole stock market in November 2021, based on yet another key indicator I look at, the balance of shares, indices, ETFs and cryptocurrencies in my benchmarks list looking positive v those looking negative.
Netflix presently scores 4/10 because it has all its technical indicators including Coppock heading higher and an interesting something new in ad supported streaming. What is missing is a positive performance by a relevant ETFv and by the major US indices.
An investment strategy based on perfect tens
Here is my simple idea. We only buy shares that score 10 and when they stop scoring ten we watch carefully for sell signals. This way we make huge profits and we lock in huge profits; at least that’s the theory. So how does this relate to my performance tables for Quentinvest. Very simple. In the share tables we score the performance for perfect 10s, all of them and that’s it.
ETFs are different because their maximum score is 6/6 so that is how I will chart their performance. As always this idea is going into beta testing. We will have to see how it works but it forces us to be disciplined and patient and those are great attributes for successful investors.
One implication is that while the indices are falling or low scoring, as now, we can’t buy anything; that would have saved me some money in 2022. If we go to the extreme and only hold shares that score 10 we stopped holding any shares back in 2021 and how cool would that have been. I would have banked a fortune.
Focus on charts
It also puts the fundamentals in their place because they score 1/10. This is not quite true because only 3G shares make it to the short list so my perfect tens are the cream of the creme de la creme, very special indeed. In effect what I am saying is that if a share has amazing fundamentals, something exciting happening and an amazing chart in a world of amazing charts I will buy them. Don’t need many of those to make serious money.
Here is where this focused strategy goes stratospheric from my point of view. I don’t buy shares, I only place spread bets and I place them with five times leverage. Then, if and when they go up to create spare equity, additional buying power, I either add to my holdings in shares I already have or add new 10-scoring shares to my portfolio.
This is like an accumulator bet on the horses. When it works in bull markets it creates wealth at an incredible speed. I think if I focus on shares scoring 10 this could be perfect for my spread betting strategy.
I drive my strategy flat out so spare equity is always invested, margin calls are a way of life and if the stock market turns south I am out. If I am driving really flat out, foot to the floor, as I was in the latter stages of 2021 I keep switching funds from under performers to the strongest performers. Dealing costs are low and tax is not an issue so this is doable.
This means that my personal portfolio behaves like QQQ3 but even more so, five times leveraged instead of three and regular rebalancing. If I described it as jumping from chart breakout to chart breakout that would be an exaggeration but not wholly misleading as a description. It is about as dynamic a form of portfolio management as you can get, which is why I advocate starting small and building positions out of profits.
Treat it like a game, where, instead of moving chess pieces you are moving share holdings.
If you hair is turning white just thinking about this you don’t have to do what I do. I am a gambler, not just with shares. I thrive on risk. You can just buy shares which are 10s and hold them in a portfolio until the whole stock market turns negative. You should do amazingly well. Remember that when it comes to selling I am very hopeful that we will get early warning signals from my Coppock indicators. The Coppock indicator for the Nasdaq 100 turned down in May 2021 ahead of my other indicators turning bearish around the turn of the year so ahead of the 2022 collapse.
Chinese shares and the Covid surge
Covid is reportedly running crazy in China as the country adopts what looks like a switch from ferocious lockdowns to letting Covid rip and waiting for vaccines and herd immunity to deal with the pandemic. The economy will do better, eventually at the expense of a noticeable reduction in the population. I guess they think they have enough people that they can lose a few old-timers.
Letting Covid rip is not going to encourage people to rush to crowded places like physical shops so my guess is that this new strategy is going to give a big boost to e-commerce and work and play from home stocks and sure enough those are the ones doing well, names like BiliBili (BILI), Pinduoduo (PDD), Vipshop (VIPS), Tencent (700 and traded in Hong Kong) and Alibaba (BABA) . I will be looking at the last two and one or two others in the next QV alert because they already score 6/6 on their individual charts with ETF backing from KWEB and another exciting ETF which I have found.
They are not 10/10s so higher risk than my ideal spread bet but I am in there having a go. Two Chinese shares that do not benefit from the Covid surge and suffer from a weak US stock market are Futu Holdings (FUTU) and UP Financial Holdings (TIGR) so I have come out of those two. I don’t like hanging on to loss making investments so I am always rebuilding any portfolio I haver around the strongest performers..
Emailed questions welcome
Any strategy put together with the benefit of 20:20 hindsight always makes investing look easier than it is in real time. Particularly tricky is getting the selling right. The Rothschild answer was to sell too early, the Warren Buffett answer to never sell at all. My answer is to use all my indicators and a good dose of common sense to figure out when to be in stocks and when to be out. They all have advantages and disadvantages. As a spread better I have realised that never sell is not an option for me so I have to try to figure out when to sell and for me that is a chart issue.
What I do believe is that if I get the buying right that will give me plenty of leeway to fudge the selling and still make handsome profits.
The other thing I realise is that my approach to investing is not kindergarten easy so if there is anything you don’t understand by all means ask me and I will try to explain.