Greetings, fellow Pro-fundity team members -
9-1-00 Page

This Week's Guidepost

A Status Report

1. In last week’s Guidepost we explained our strategy in naming the “Weekly-100” Possibles instead of Rollers. This results primarily from our “Fundamentals” slant on the “Technical” approach to Rolling Stocks. That is, we first select as our target population of stocks those with good fundamentals. It is from this base we choose favorable technical patterns as potential rollers. The ten Picks posted each week on the Pro-fundity Page are the result of that “Fundamental/Technical” screen.

2. Good rollers do not roll forever in a fixed channel. These most often occur during “trading” patterns, those in the absence of a meaningful trend. However, these patterns are usually on the move, from “trading” to “bull” or “bear” trends, or to another “trading” channel. In any event, they are always in the process of change. Last week’s Guidepost focused on reasons for these changes. Because of our “fundamental” approach to the study of rolling stocks, we have found a bias for change to the up-side. That is, many of our picks breakout to move higher. In observing the market adage to “let profits run,” we’ve taken advantage of up-side breakouts not normally seen observing traditional rolling stock procedures. This has increased our average return markedly as shown in the table below. The resulting “up-side bias” is evident in the status report table. Considering only a “buy & hold” return, that is, disregarding any advantage to the rolling patterns of the selected tickers, the percent return is shown in the last column. We have gone back to the first week in which we had a negative B&H return. That is, considering only the stock price on the Friday of the page and the price on Friday 9/1/00, the resulting % change is shown in the next to last column. The attendant %APR is included in the last column to account for the time frame for each of the week’s picks.

   

3. To understand the significance of this table, the S&P-500 statistics are included for the same time frame. Although the S&P is currently up only 3.5% for the year, due to first quarter troubles, the 17 weeks of the status report showed a more respectable 6.2% (corresponding to an 18.8% APR). The average APR for the Pro-fundity picks for this time frame was four times the S&P return.

4. Notice that our first negative week for the picks occurred on May 5th. From the standpoint of rollers, this means the average rolling stock is now retreating to its support position. Buy and hold returns do not provide much insight to the performance of rolling stocks. We showed this status report to emphasize the value of the “up-side” bias to help play both sides of the rolling stock patterns. Both sides: rollers can provide good returns, but we should take advantage of breakout patterns when they change. In coming Guideposts we will discuss and illustrate several techniques to move the increases shown in the table to our bottom line. That is, a stock may increase in price over time, but unless we buy and sell appropriately, all we can do is smile. Stay tuned.
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