One of my goals with the VectorVest Triathlon Competition was to discover powerful, new Strategies. This had been the case in previous competitions we conducted. For example, Marathon was a winner of a "Bear Market Beater" competition we ran in the 2002-2003 period. This strategy still works well and I see it from time-to-time as a top performer in our RealTime Derby. You may read about it in my essay of April 25, 2003.

Another great Strategy, Silber's Singles/BMB, was the First Place Winner of our 2008 Bear Market Beater Competition. It works so well and it's a consistent winner in the RealTime Derby races. David Silber entered a variation of it in the Triathlon Challenge. It's still a "Bear Beater." It was the top performing portfolio in the Triathlon that did not use market timing, being long only. Moreover, it was one of only nine portfolios that showed a gain in all three Stages of the Competition. It had an overall gain of 178.99%. You may read about it in my essay of May 2, 2008.

A kissing cousin to Silber's Singles/BMB is "Blyar's Bottom Feeders/BMB," which placed second in the 2008 competition. This strategy also works well to this very day and appears regularly as a RealTime Derby Winner. I wrote about it on April 25, 2008.

If you watched last week's "Strategy of the Week" presentation, you know that the presenter, Ray Clark, (who no longer works for us), said he wouldn't use any of the top 20 Triathlon performers going forward because none of them performed that well in back-tests over the 06/01/11 to 10/31/11 time period. Frankly, I was shocked by the results Ray presented, even though I knew the market was gosh awful during the test period. So what did work well?

Todd Shaffer, our Manager of Research, would know. Alas, he did not, but he would find out. Indeed he did. He came up with a portfolio that gained 68.09% over the five-month time period cited above. Hey, that's not bad. How did he do it? Watch tonight's "Strategy of the Week" and he'll show us. It's called Shaffer's Solution.

P.S. I was just kidding about Ray Clark. He's still a valuable employee and we love him.

ENTER THE SHAFFER'S SOLUTION COMPETITION.
Watch Todd's presentation tonight and see if you can do better. We're looking for powerful strategies that can prevail in troubled markets, so we're going to have another competition.

The goal of this competition is to outperform Todd Shaffer's 68.09% gain by as much as you can, starting with a hypothetical $100,000 BackTester portfolio. Separate cash awards will be made to the top three winners and a $50 VectorVest Savings Certificate will be awarded to all entrants who do not win a cash award. The cash awards are as follows:

First Place Winner......$1,000.00
Second Place Winner.....$500.00
Third Place Winner......$250.00

Here are the ground rules:
BACKTESTER SETTINGS: Initial Investment, $100,000.00. Commission, $9.95 per trade. Don't use margin. Do not account for interest. Execute buys/sells at next day's open.

MARKET TIMING: You may use either No Timing List, Confirmed Calls, The Primary Wave, DEW or Green Light Buyer as defined by VectorVest.

AUTOMATION RULES:
DIRECTION. If you elected not to use a Timing List, you may elect to Buy Long or Sell Short throughout the test. If you elected to use a Timing List, you must choose to Buy Long on every Up signal and Go into Cash or Sell Short on every Dn signal.

SEARCH. You may elect to use any search shown in UniSearch as long as it is "Derby Ready," i.e., Stock Price - (Actual) >= 1.00, Stock AvgVol - (50 day moving average) >= 100000, Stock Exchange <> I, xI, P. You may create and use your own searches as long as they are "Derby Ready." Simply save them in UniSearch and they will be available for use in BackTest.

STOP. You may elect to use any of the Stop Criteria shown in BackTest.

MORE SETTINGS. You must select, "Try to maintain 10 positions," "Try to open all 10 positions immediately," "Close any position when entering this situation," "Invest average portfolio value" and "Odd Lots."

TEST PERIOD: 05/31/2011 - 10/31/2011.

NAME/DESCRIPTION: Please put your User Name at the beginning of the name of your BackTest Portfolio.

All entries to the competition must be emailed to solution@vectorvest.com by midnight, December 31, 2011. All participants will be permitted to enter one and only one candidate into the competition.

Once all of the submissions have been verified, the three winners will be announced. Depending upon the quality of the entries, we may decide to enter the top performers into an Automated Portfolio Manager competition. Have fun, win money, Enter the Shaffer's Solution Competition.

Investors are taking money out of stocks at the fastest pace since the Lehman Brothers bankruptcy in September 2008 and they're buying bonds at high prices. This is what investors do when they are fearful.

I have discussed this phenomenon many times in my presentations on "Stock Valuation and Stock Market Cycles," and "How to Master the Market." Investors always strive to put their money where they think it will pay the highest rate of return. They believe that collecting a small but certain Interest Yield, IY, is a better bet than owning stocks with a high but risky Earnings Yield, EY.

Ideally, EY tends to equal IY, but the ratio of EY to IY goes above and below 1.00, depending upon investors' emotions. When investors get greedy, like they did in the late 1990's, they buy stocks at high prices, and EY, defined as 100/(EPS/Price), goes down, often falling to less than IY. When they become fearful, as they are now, they sell stocks at low prices and EY goes well above IY. I explained this in my essay of September 24, 2004 and called the ratio of EY/IY "The Fear Factor."

Exactly six years later, on September 24, 2010, I wrote an essay called, "Stock Valuation," and introduced the concept of Yield Premium, YP. Mathematically, YP = EY - IY. YP is actually a measure of how much investors are willing to pay for stocks in relation to bonds. Investors want more value at lower prices when they are fearful. Therefore, stock value decreases and YP increases as investors become more fearful of stock ownership.

For example, on 09/24/04 the VectorVest Industrial Average, VVIA, was 45.3% above the DJIA, the EY of the S&P 500 was 6.84% and IY of long-term AAA bonds was 5.45%. Therefore, YP = 6.84 - 5.45 = 1.39%. Currently, the VVIA is 11.6% above the DJIA, and YP = 8.03 - 3.36 = 4.67%. As you can see, the ratio of Value to Price decreased as YP increased. Why does this happen?

When investors become fearful of stocks, they really are saying that stocks are worth less. So they sell their stocks, causing prices to fall. But stocks aren't worth less unless EPS has gone down or inflation and interest rates have gone up. Actually, they are worth more because EY goes up when price goes down. Fear and YP are often the culprits which push value and prices down. Remember what Mr. Warren Buffett said, "Be fearful when others are greedy. Be greedy when others are fearful." So be not afraid. Be patient, the market is Giving Birth to Bargains.


PANNING FOR GOLD STOCKS.
You won't believe it, but some weird contra ETF called Factor Shares 2X: Gold Bull/S&P500Bear, FSG, has been going ballistic and is now the number two stock highest ranked by VST. That's crazy man, but the whole gold thing seems crazy to me. I confess, however, I own GLD, RGLD, AUY, NAK and NG. GLD and RGLD have been good, steady performers, but the other guys leave something to be desired. As a matter of fact, the Gold Bugs Index, HUI, which we use in our Midas Touch presentations and the Mining(Gold\Silver) Industry Group really haven't been so hot at all. So what gives with gold stocks?

Mr. Jerry D'Ambrosio, VectorVest Consultant and Instructor, knows what gives, and he will explain the whole thing. Not only that but he will dazzle you with a gold stock strategy that will leave you breathless. So visit the VectorVest University to see how Jerry goes "Panning for Gold Stocks."

We have great news folks. As of today, a new release of VectorVest 7 with expanded MA Crossover search capabilities is being launched. You will be prompted to automatically update VectorVest 7 within the next week. If you would like to get the new version right away, please go to http://www.vectorvest.com/install/vectorvest7 and click the download button.

With the new build, you will be able to run the "The Long-Term Winners" Strategy which was introduced in my essay dated April 21, 2011. You may recall that this Strategy produced a gain of 154.77% in a little over two years with only thirteen trades, 12 winners and one loser. Unfortunately, it was demonstrated in VectorVest 6, which some of our users do not have. (I should also note that whether you are using VV6 or VV7, you must have VectorVest ProTrader installed in your software. If you wish to get a free two-week trial of VectorVest ProTrader, please click here call Product Support at 1-888-658-7638.)

Now that I was able to run these searches in VV7, I was eager to take them for a test drive. The first thing I did was to create the "Long-Term Winners" search in VV7 and checked to see if it returned the same stocks as VV6. I was pleased to see that it did. I then tried to duplicate the results shown above with the VV7 Backtester. Uh oh. I ran into a problem. The Backtester only allows Gain/Loss% setting up to 100/100 and we had used a setting of 200% Gain/20% Loss to get the results shown. The 100%/20% setting didn't work as well, so we will get this problem solved in our next release.

Not to be deterred, I ran a wide variety of tests and concluded that the original "Long-Term Winners" Strategy is too restrictive. This shortcoming was made apparent by a great new feature in VV7 which allows us to find the crossovers in a window lasting from one to five days. Wow, running a simple 10x65 Day Price MA Crossover search with no other conditions on 12/31/10 returned 39 stocks whereas the original "Long-Term Winners" Strategy found only one stock.

Quick Test showed that the stocks returned by the simple search with a one-day window produced 19 winners and 20 losers from 12/31/10 through yesterday's close. Running the simple search with a five-day window returned 99 stocks with 61 winners and 38 losers. With this many hits, all I had to do was to fine tune the search a little bit and find an effective sort. You'll never guess what that is, but I think you'll like it. I named the search "Long-Term Winners II" and I'm pleased by the results it produces.

Finally, I want to thank our developers for their great work and for Casting a Bigger Net with VV7.

LONG-TERM WINNERS II.
Join Mr. Brian D'Amico at the VectorVest University to learn all about this great new search in this week's "Strategy of the Week" presentation: "Long-Term Winners II."

It was love at first sight. Mr. Lee Gregory, a very fine southern gentleman, received his trial subscription of VectorVest ProGraphics v.4 in the fall of 1996. He was so delighted with the product that he called us and asked if we would come to Atlanta and show it to his friends. Of course, we said yes. So our very first Investment Seminar was held in Atlanta, Georgia 15 years ago.

Mr. Gregory did all the work...he made the hotel arrangements and got about 80 people to sign up for the one-day event. I went to Atlanta and we had a ball. Shortly afterward, Mr. Gregory called again and asked if we would do a two-day seminar. Again we said yes and, once again, Mr. Gregory did all the work. He even arranged for a cameraman to videotape the presentations. Over 100 people signed up and the event was a smashing success. We sold thousands of Atlanta Seminar videos and we began giving seminars all over the country. We owe Mr. Gregory a debt of gratitude for getting us into the business of educating our customers.

Now we are looking forward to another two-day seminar in Atlanta. We have given many of them in the past, but this one is going to be special. We'll be using the VectorVest 7 platform to make the presentations and we're going to record them. Make sure you come to this seminar because we're going to have a great blend of basic material and new stuff. I'll be giving presentations on the VectorVest System, Market Timing and Putting It All Together. Steve Chappell, Brian D'Amico and Todd Shaffer will also be giving great talks such as, Buying Low and Selling High, Becoming a Green Light Buyer and Winning Big with the VectorVest Derby. You may see the complete agenda simply by clicking on the following link: Atlanta Two-Day Investment Seminar.

As usual, all of the VectorVest Products and Services will be on sale at special low prices. You can bring a friend, who is not a relative, to the seminar FREE, and please join us at our cocktail reception on Friday evening. I can't wait to see my old friends at The Atlanta Seminar.

THE VECTORVEST TRIATHLON.
I got a call from Mr. David Silber, creator of the "Silber's Singles/BMB" strategy, (see my essay of 05/02/08), and winner of our 2008 Bear Market Beaters Contest, this Monday. He asked me to run his strategy from October 17, 2007 to the current time, 03/25/11, with no market timing. He was long all the time. The results were phenomenal. The 10-stock portfolio gained 1,713.53% and turned $100,000 into $1,813,529 in 29.5 months! We talked about the pros, (high profits), and cons, (lots of trades), of his strategy for a while and concluded that it would be perfect to run with an auto-trader.

Well, we don't have an auto-trader just yet, but we've put together the foundation for such a tool. The Backtester in VV 7 was designed to conduct back-tests in a fast, friendly manner so that you can easily see what works and what doesn't work. Once you have obtained a strategy that you like, you can use the Automated Portfolio Manager, (probably our best kept secret), to test it in real-time. When we get it, the auto-trader will work with the Automated Portfolio Manager to buy and sell stocks according to your strategy and instructions.

So, how does all this tie into my conversation with Mr. David Silber? He has a strategy he loves, but it requires a lot of time and attention to manage. We don't have an auto-trader yet, so the next best thing to do is get a great strategy that doesn't take a lot of time and attention to manage. Mr. Todd Shaffer, Manager of Research, has the assignment of finding great strategies and he has the tools to do the job. So visit the VectorVest University to see how Mr. Shaffer uses his tools to put candidate strategies through a series of rigorous tests that he calls the "The VectorVest Triathlon."