In case you’re in a hurry:
- Jumped into stocks without a solid understanding, and yep, faced some hefty early losses.
- My first big hit? Messed up with a margin order on E*TRADE right as the 2008 financial crisis hit.
- Slowly rebuilt my confidence, diving into advanced tools like Bloomberg Terminal and VectorVest.
- Now, I’m all about fundamental analysis and managing risk like a pro.
- I’ve customized VectorVest to fit my personal stock screening needs.
- Technical analysis is my go-to for figuring out when to buy and sell.
- And I swear by backtesting strategies over long periods to make sure they really work.
I’ve been navigating the wild waters of the stock market for quite some time now. And crap, it hasn’t always been smooth sailing. Back in my younger years, I lost a ton of money because I didn’t fully understand the stocks I was betting on. My first big blow came while trading with E*TRADE. I thought I had it all figured out, using their stock screener and trusting what analysts touted as solid picks. Fresh off selling my Camaro for $5,000, I thought the stock market was a smarter move than a savings account. Inspired by Robert Kiyosaki’s “Rich Dad Poor Dad,” I was all in.
Well, reality hit hard. I went on a mission at sea (my Navy days) with no internet access for six months. When I got back, E*TRADE had closed my account, and I owed them $400! Turns out, I’d mistakenly placed a margin order. While I was away, the sub-prime housing market collapsed, investment firms folded, and the Great Recession kicked off. For someone making about $35,000 a year, this was a crushing blow.
Learning from Mistakes
This experience taught me some hard lessons about the importance of understanding what you’re investing in and the risks involved. One key takeaway was to never invest money I couldn’t afford to lose, and always be aware of the mechanics of my trading platform, especially margin trading.
Regaining Confidence and New Tools
It took a while to muster the courage to dive back into the stock market. Moving to New York, I found motivation in a roommate who was a lawyer dabbling in stocks. We had access to a Bloomberg Terminal at work, and my friend Scott showed me the ropes. If you’ve never used a Bloomberg Terminal, it’s like the holy grail for figuring out trading strategies. Its backtesting capabilities are unmatched. Scott even got a Bloomberg rep to train us, reigniting my stock market bug.
Advanced Risk Management
Over the years, I’ve learned to mitigate risk using several techniques. I always use stop-loss orders to cap potential losses, diversify my investments to spread risk, and never risk more than a small percentage of my capital on a single trade. Position sizing and understanding the risk/reward ratio are crucial components of my strategy.
This is my methodology for screening stocks: I screen for high-quality stocks that perform well in certain market conditions where they typically thrive. I don’t simply select stocks based on high volatility but rather a combination of various factors that create a composite score, which correlates with market conditions (Bull, Sideways, Bear). The higher the score for that respective market condition, the higher the probability that the stock will be bullish during those conditions.
Adapting to Market Conditions
Finding these gems today can be tricky without a Bloomberg Terminal, which is ridiculously expensive. Sure, I could use Yahoo Finance or Finviz’s screener, but my secret weapon? VectorVest. Yes, I know, the one from those cheesy infomercials (ugh, a little embarrassed here). But stay with me here.
VectorVest has its standard features like buy recommendations, which can be hit or miss. However, its Market Timing Indicator is surprisingly good. It’s repeatedly signaled when to cash out or safeguard investments, nailing the big COVID-19 dip and the Great Recession. Adapting to market conditions, whether it’s a bull, bear, or sideways market, is essential. During a bull market, I might take on more growth stocks, whereas in a bear market, I might shift towards defensive stocks or increase my cash holdings.
Custom Fields and Algorthims
VectorVest was created by a mathematician, Dr. Bart DiLiddo. If you invest time in learning its advanced features, you can do really well. But if you’re tech-shy, it might not be for you. So brace yourself, we are about to go from 0 to 100.
What I love most is VectorVest’s Custom Field Builder. It’s a bit hidden, but once you find it, it’s like having a Game Genie cheat code. You can create custom columns to sort stocks or use their UniSearch function to find stocks that meet specific criteria based on your custom fields. I developed a field called Bull Growth Value Index (GVI) using a formula to find top-quality stocks in a decent bull market:
(GRT * 0.25) + (EPS * 0.20) + (RV * 0.20) + (EY * 0.10) + (VST * 0.10) + (PE * 0.15)This equation represents a weighted average, a fundamental concept in statistics.
What type of math is this?
Weighted Average: Each component in the equation (GRT, EPS, RV, EY, VST, PE) represents a different variable. Each variable is multiplied by a specific weight (0.25, 0.20, etc.), indicating its relative importance in the overall calculation.
How can you use it in analyzing large sets of data?
Financial Analysis: This particular equation looks like a formula for evaluating stocks. In my case, the variables represent:
- GRT: Growth rate
- EPS: Earnings per share
- RV: Relative valuation
- EY: Earnings yield
- PE: Price-to-earnings ratio
Creating a Composite Score: By assigning weights to different factors, you can create a single score that reflects the overall performance or value of a stock based on multiple criteria. This can simplify decision-making when comparing many stocks.
Risk Assessment: The weights can be adjusted to reflect your risk tolerance. For example, a conservative investor might give higher weights to factors like earnings stability and lower weights to growth potential.
With this formula, I use UniSearch to find stocks scoring 40 or higher, sifting through thousands to find solid picks with good fundamentals. Alternatively, I look at VectorVest’s Midas Touch stocks and rank them by GVI score. But beware, the software can be glitchy, so sticking with UniSearch is safer.
Once I’ve compiled my list of stocks, I import them into TradingView for technical analysis to determine entry and exit points. You can use Vector Vest’s charts, but they are meh and, compared to Trading View, are very basic (No Hull Moving Average, for one). Now I know what you are thinking: why not just use Trading View’s Stock screener? The answer is I do, but I have had better luck with using composite scores and Unisearch from Vector Vest. I maintain different watchlists for various market conditions and custom fields for different scenarios. We’ll delve into these in another article.
Backtesting and Final Thoughts
Now, about backtesting. While VectorVest doesn’t match the Bloomberg Terminal, it’s backtesting is still decently good (as long as it does not crash). You can create a trading strategy where top stocks from UniSearch using custom fields are auto-selected and traded over a set period. This is a great method to make sure your formula is pretty solid. Just be cautious with stop limits and timeframes, it can really skew your results. For a solid test, I usually choose a long period like 2012 to 2018, but be patient—it’s slow and can crash.
So, while VectorVest isn’t my beloved Bloomberg Terminal, it’s not too shabby, an affordable alternative if you get creative with your strategies and learn the software inside and out. It’s definitely paid for itself many times over for me.