One of the most interesting presentations to be made at our Tampa Two-Day
Investment Seminar will be that of "Finding the Best Strategies." What this means, in truth, is how do we find the strategies we use in the Model Portfolio?

Although I'll go through the details in this essay, you may read my essays of November 22, 2002 and March 18, 2005 for additional information. A demonstration of this technique is also given on CD No. 4 of the current Seminar CD Set. Here's how it's done:

Step 1. Assuming we are going long at the onset of an upwave, we simply go back and select long strategies from the list of "Strategy of the Week" illustrations. For example, on Friday, October 21, 2005 we said, "We are in cash and prepared to go long with one of the following strategies if the market moves up sharply on Monday.

1. Top VST-Vector Stocks_____________10/21/05.
2. Rising VST Stocks_________________09/30/05.
3. Best Stocks Under $20.00__________09/09/05.
4. FWS - Favorites___________________07/29/05.
5. FWS - Sparklers___________________07/15/05.
6. Best New Highs/BMB________________06/03/05.

Step 2. Sure enough, the market went up on Monday, October 24th. As I recall, the Futures were up nicely, so we began to think we would go long. By 10:00 AM, the market was doing well, so we ran each strategy shown above and got on Yahoo!Finance to see how the stocks from each strategy were doing.

Step 3. We simply selected the strategy that had the most stocks going up the fastest. Once we made this selection, we entered the market, around 10:30 AM. Well, that was simple enough, but how did we select those six strategies in the first place?

Basically, we begin the selection process by using Quick Test. For an upwave, we would run each long strategy as of a low point defined by the Price of the VectorVest Composite. Then we would use Quick Test to check the strategy's performance to the succeeding high point. As mentioned in my March 18, 2005 essay, this takes some time to do manually, so we use QuickSim, which is in the Simulator, to get the job done in just a few minutes.

As far as selecting strategies for "Strategy of the Week" illustrations, we try to illustrate the best long strategies during an upwave and the best short strategies during a downwave. So all you have to do is refer to the "Strategy of the Week" illustrations when Finding The Best Strategies.

P.S. You may now see a demonstration of this week's "Strategy of the Week" on the VectorVest University.

OK, so I love to watch football on TV. During the college season, I'll start the week-end by watching the games starting at noon on Saturday. After dinner, I'll watch one or two more games if the wife has not made other plans for the evening. On Sunday, my favorite day for watching football, I'll watch the two NFL afternoon games and the evening game on ESPN. I'll also watch all the highlights the law allows. Sad to say, but my addiction to Monday Night Football has faded. So the question arises, "How do I find time to run all those tests I've been writing about over the last few weeks?"

As you may recall, I began writing about the performance of high VST stocks in my November 18th essay when I suggested that you play "The Birthday Game." The following week, I reported that a series of 2,176 tests of various sized portfolios of high VST stocks showed profits 95% of the time. Then I reported on a series of 15,160 tests in which we varied both the size of the portfolios of high VST stocks and the holding periods. These tests showed that the best results were obtained with portfolios of 15 stocks having holding periods of 52 weeks. Last week, I reported on a series of 1,375 tests in which we rebalanced portfolios of 10, 15, and 20 stocks every 52 weeks. The results were excellent. The 15 stock portfolios showed an average annual rate of return of 30.8% with winning trades of 58.67% and winning runs of 96.88%. In all, we had conducted 18,711 tests. How can I watch football and still run all these tests?

I used the Simulator, of course. But even with the Simulator, it would have taken hours and hours to set up all those tests. I did it in a matter of a few minutes. I had the Variator.

The Variator is a new tool which plugs into the Simulator and allows one to define variations of the backtests they wish to conduct. For example, in the first series of 2,176 tests cited above, I used QuickSim which is part of the Simulator to perform QuickTests on portfolios having 5, 10, 15 and 20 of the top stocks as ranked by VST. Then I used the QuickVariator to define the start date and end date of the QuickTests. The first test of each series was specified to begin on June 2, 1995 and end on the current date. Each new test of a given series was specified to start a week after the prior test and end on the current date. Then I merely clicked on the "Run" button and went back to watching football.

This example doesn't even begin to illustrate what can be done with the Variator. In addition to start and end dates, you can independently vary buy criteria, sell criteria, sorts, money management schemes and timing lists. I've been testing many of these variables with the Variator to develop a practical strategy using high VST stocks which gives me more comfort and profits than a simple buy and hold strategy. A taste of such a strategy is given in this week's "Strategy of the Week."

The Variator will be demonstrated and released at our Two-Day Seminar in Tampa. It would be worth your time to come and see it. The Variator, along with all of our other products and services, will be on sale at very favorable prices. In addition, we will be demonstrating a high VST strategy which has shown an average annual rate of return of 49.27% over a ten year period with a 98.77% success rate. Thanks to The Variator.

Last week I said I was determined to find "The Best High VST Strategy." The bad news is that this takes a tremendous amount of work. The good news is that I've gotten off to a reasonably good start.

I also said last week that I would start this work by "seeing what happens when we rebalance the various sized portfolios as a function of holding period." This sounded like an onerous task, until I realized that our previous work, reported last week, had already shown how to save a lot of time. You may recall that we got the best results with portfolios of 15 stocks using holding periods of 52 weeks. Why not start there?

To broaden our study, we ran tests using portfolios having 10, 15 and 20 of the top VST stocks in which we rebalanced every 52 weeks. By "rebalancing" I mean that we bought a new portfolio of stocks at the beginning of each holding period and sold it at the end of the holding period. The first test of each series began on June 2, 1995 with additional tests starting on each subsequent week. In all, we ran about 1,375 tests.

Once again, the 15 stock portfolios performed better than the 10 and 20 stock portfolios. The average gain for each 15 stock portfolio was 173.02% with an average annual rate of return of 30.8%, winning trades of 58.67% and winning runs of 96.88%. The results with the 10 and 20 stock portfolios were also quite good, but not as good as those reported above. For example, the average annualized gains for the 10 stock and 20 stock portfolios were 24.6% and 26.6%, respectively.

These results make it awful easy to say, "What the heck, I'll just buy the top 15 high VST-Vector stocks, hold them for a year and be done with it." Ah, but life is never that easy. There is a 3.12% chance of losing money and a fifty percent chance you'll get a result that is less than the average 30.8% ARR. There's also a 68% chance of achieving an ARR between 11.9% and 49.7%. So how would one improve their chances of getting a winning portfolio?

A cursory analysis of the data suggests that your chances of making higher returns improve when you begin investing at the end of a major downturn, 03/21/03, for example, and resist going into the market after a major upturn, 03/10/00, for example. In other words, it still pays to try to buy low and sell high even with a solid strategy such as that illustrated here. This week's Strategy of the Week makes this point.

Easy as it may sound, I don't know if I could handle a strategy of rebalancing every 52 weeks. I'm just too much of a control freak. So I have begun to work on various management techniques to satisfy my overwhelming urge to dump losers and stick with the winners. It hasn't been easy so far, but I've got the Simulator and a great new tool to help me see if I can beat the Rebalancing Results.

After writing last week's essay, I felt that there was still a lot more I'd like to know about the performance of high VST stocks. Sure, the 2,176 tests I wrote about last week confirmed my faith in the efficacy of the VectorVest system of analyzing and ranking stocks, but they didn't tell me all I wanted to know. For example, they showed me that a typical portfolio of top VST stocks continued to appreciate in value as the holding period increased, but it did not tell me which holding period gave the best results. So we had more work to do.

We conducted a series of tests in which we looked at holding periods of 4 weeks, 8 weeks, 13 weeks, 26 weeks, 52 weeks, 104 weeks, 156 weeks and 208 weeks for portfolios containing the top 5, 10, 15 and 20 VST stocks. In all, we ran 15,160 tests. The results were very interesting. In every case, the percentage of winning runs and the average annual rate of return were favorable. The distribution of results was a smooth, bell shaped pattern, biased to the side of the longer holding period. The poorest results were shown by the five stock portfolios with four week holding periods. They gave an average annual rate of return of 12.16% with 51.83% winning trades and 55.08% winning runs. The best results were shown by the 15 stock portfolios with 52 week holding periods. They produced an average annual rate of return of 19.91% with 60.12% winning trades and 78.90% winning runs. Not bad. Not bad at all. (A lot of money managers would kill for results like these.)

Given this information, my next task is to learn how to apply it in developing a practical investment strategy. I'll do this by seeing what happens when we rebalance the various sized portfolios as a function of holding period. As described in my essay of July 10, 1998, I did a bit of this work many years ago. It wasn't an elaborate study, but it still took a lot of time and effort. Yes, I ran a top 20 VST stock portfolio test with a 52 week holding period last week just for the fun of it. I started on June 02, 1995 and rebalanced once a year. I got the wonderful result of a 421% gain in 10.5 years. Is this the best we can do? I don't think so, and I'm going to find out. If you don't think that running 15,160 tests like we did last week wasn't a lot of work, this next stage of testing will take far more effort. But I don't care. I'm determined to find The Best High VST Strategy.