Continuing with my quarterly review of the idea generator (Q4 2017, Q3, 2017) let’s check-in and see how it’s fairing as we approach the end of Q1, 2018. As of 3/19, we’re up 2.68% year-to-date, outperforming the S&P, while our win-rate is down to 41.48% from the 63% in Q4, 2017.
For those of you who haven’t followed the prior updates, below are the criteria for analyzing the performance of the idea generator.
The overriding principle here is that idea generator performance should be simple to measure and understand, and should put our membership first.
- All signals are generated automatically based on the same algorithm and filter criteria
- All signals are held to the end of the quarter without any regard for stop/loss, or target criteria
- Performance is compared relative to the S&P over the same period of time
- Price data is reconciled at the close of business
- Any bad data in a signal, invalidates the signal (typically less than 1% of signals)
The measurement criteria have some obvious side-effects which can substantially effect performance. First of all, the lack of stop-losses mean a signal that’s down double-digits will become quite a headwind for the tool. Which may or may not balanced against a tailwind for signals that are up significantly. Originally price data was updated at the time the signal was generated intraday, but that might be an edge in terms of performance, so we reconciled with closing pricing instead.
Approaching the end of Q1, 2018:
- Q1, 2018 win-rate: 41.48%
- Number of signals: 133
- Percent Return: 2.68%
- S&P Return over the same period: 1.39%
- Best Signal: BAD on 1/24, +165%
- Worst Signal: INSY, -52.62%
Opportunities for Improvement:
There are some obvious opportunities for improvement here, which I think could potentially make the idea generator more useful, as well as being consistent with our own approach to portfolio management. For instance, incorporating a mechanical stop-loss approach would better reflect the reality of our typical member’s portfolio (e.g. not holding INSY -52.62%). But in order to be consistent with an active management approach, setting targets like we do in our watchlist tool would also be necessary, which would then require additional price maintenance (e.g. intraday vs. closing). All in, this would make the tool more akin to a service like the SWINGTrader tool from investors.com. While interesting, and certainly something to consider I continue to be reluctant to incorporate these type of features into the idea generator itself, as it goes against our overriding principle that the idea generator performance be simple to measure and understand, and to put our membership first. I continue to see the idea generator as a tool to … generate ideas, and act as a starting point for investigation. It’s not a portfolio automation tool, or or a mechanical trading approach to just copy blindly. That said, these are certainly interesting things to consider and if you have an interest in seeing the idea generator tool become more than it is today, members can reach out here , and anyone following the blog can leave a comment on the post.
In terms of next-steps, I may increase the frequency that we evaluate positions generated by the idea generator via updates to the blog – which would give you more points in time to contrast, even if quarterly reviews continue to follow the above outlined approach. This would give you a realistic window into weekly, or monthly performance to better assess trades that wouldn’t normally be held for an entire quarter.
Update 3/30:
Reconciling the end-of quarter with the spotcheck on 3/19 – performance has been about what you’d expect since the sell-off. Win-ratio has decreased to 28.37%, with 141 total signals, and performance for Q1 is now -1.35% relative to the S&P over the same time frame of -1.63%. Worst signal is now ZSAN down 70%, with best being BXC +139.90%.
