Thursday, October 27, 2016

What 2016 Best Performing ETF's Have In Common

The best performing single ETF'S this year have been KOL (+108%), GDXJ (+107%), EWZ (+83%), and GDX (+72%). These 4 ETF's all had one thing in common at the beginning of the year; they were all down 4-years in a row.


"The time to buy is when blood is running in the streets".---Baron Rothschild

It feels much better to buy assets while they're rising, but it's usually smarter to buy after they've been fallen for a while."-- Howard Marks

According to the Ivy Portfolio, the median country returns from 1903 to 2007 is 10.65% (all years), and 14.9% after three down years in a row.



Recent data by Dimson, Marsh, Staunton database, showed median country returns of 8.74% (all years) and 15.94% after three down years in a row, both suggest that you will double the median return of all years if you own a country ETF that is down three years in a row.  It's a very rare occasion that only happens 3% of the time.

Now you know to be on the look out for single ETF'S that are down 3-years in a row or more.


Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

Wednesday, October 26, 2016

Why Hedge Funds Need Down Years

There's a lot of talk nowadays of the underperformance of hedge fund managers, over the last two weeks we have had non-stop articles, blogs about how badly these guys are doing. They're plenty of reasons one can come up to justify the underperformance of this group versus the SP500. There's one reason that is never mentioned in the blog posts that bash the hedge fund industry.

Reasons for underperforming the SP500;

  • Too much money under management.
  • As a group maybe they are not that talented.
  • Main interest is collecting the 2% management fee than trying to swing for the fences to collect the 20% performance fee, in other words, they are afraid of career risk. 
  • We have way too many hedge funds and not enough stocks. 
  • Hedge funds are not long only products so comparing them to a long only 100% invested product is not a fair comparison, a 60/40 portfolio might be a better comparison.
  • Fees are probably too high; the performance fee is a huge hurdle over the long term.
  • Again, maybe as a group, they are not that talented.
The one thing that rarely if ever makes it in the bashing of hedge funds blog posts is the fact that the SP500 has had one down year since 2005. Outperformance for most managers comes in the way of avoiding a market drawdown that lasts a few months to a year not just two weeks like the ones we have seen lately.

From the book Ivy Portfolio; from 1985 to June 2008 Harvard and Yale average an annualized return of 15.95% vs. an annualized return of 11.98% for the SP500. In those 24 years, U.S. stocks closed positive 20 out of 24 years. Harvard and Yale only managed to outperform U.S. stocks eight times during the 20 up years; they trailed the other 12-years. The difference in outperformance for the two endowments came during the down years; that was when all the other "stuff" paid off, whether that was cash, commodities, timber, puts, shorts, etc.

  • 1988 U.S. stocks were down -6.98%, Harvard-Yale +2.75%. 
  • 2001 U.S. stocks down -14.83%, Harvard-Yale +3.25%.
  • 2002 U.S stocks down -17.99%, Harvard-Yale +0.10%.
  • As of June 30, 2008, U.S. stocks -13.12%, Harvard-Yale +6.55%.
Below is the equity line chart of an actual hedge fund that started in 2005 vs. the SP500, a $100k dollar investment turned into $298,000 net of fees (2 and 25) versus $212.353 for the SP500.


When you start analyzing the returns, you will realize that SP500 only had one down year since 2005, and the fund only outperforms the SP500 6 out of the ten positive years.



You can pretty much credit the cumulative outperformance of FUND A to 2008 when the SP500 was down -37% and they were up +2.03%, you take 2008 out, and the tables turn, and the SP500 has a better cumulative return; $293K for FUND A versus $337k for the SP500.


I'm sure a lot of funds have this dilemma, hedge funds/active managers  need down years.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tuesday, October 25, 2016

Watchlist 10/25


These are the stocks of interest today on the long side if and only if they go through yesterdays' high. Keep in mind that most of these stocks report their earnings next week. The big standout from yesterday's watchlist was ACIA, +7%.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Monday, October 24, 2016

Watchlist 10/24


These are the stocks of interest today on the long side if and only if they go through Friday's high.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Sunday, October 23, 2016

Weekly Digest, More Of The Same


The indices continue to run in place, 4-months of sideways action. Breadth is deteriorating somewhat, if you look at the amount of stocks below their respective 50-day moving averages it might raise some eyebrows because the average is low, but most stocks are not down a lot, the averages just caught up with them due to the sideways action. Visa is an example of a stock that is trading near highs, but yet it is barely above its 50-day moving average.



Some of the biggest companies will be reporting this week; AAPL, AMZN, TSLA, GOOGL, CMG, AMGN, XOM. So far earnings reports have not affected the indices in either direction.


Currently, we have three SP500 sectors above their 50-day ma (XLK, XLE, XLF) and six below.

Energy names continue to dominate the top 20 strongest industry in the last rolling 65-days  (Sectors in green where in the previous week's top 20).


The indices continue to trade sideways, the bulls nor the bears are making any headway, and the breadth charts as of now are making it seem a lot worse than what it is.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Friday, October 21, 2016

How To Turn 1k Into 1 Million


If you show the above chart to an audience of a thousand people and ask them if they would be willing to invest in blue the equity curve, 99% will probably say yes. What's not to like; 18% annual return, $1k investment in 1974 would be worth $1 million today vs. $104k for the SP500. However, only a handful of people have the fortitude to invest and stick with that equity curve, and one is Bill Dunn himself.

On the road from $1k to a $1-million the average drawdown of the program was -37%, the largest drawdown was -63% and the high before that drawdown wasn't eclipsed until ten years later. In a time when not keeping up with SP500 for the last 90-days equals career risk, I can't even imagine not performing for ten years let alone having such a huge drawdown. The returns are great, but the pain of getting from point A to point B is too much for many to fathom. When you have huge gains in your account and then have a significant drawdown you no longer see the account as being up X-amount from the initial investment, you now see it has it being down X-amount from the high. In other words, once you've gone from one thousand dollars to eight hundred thousand and back to 250k you are not saying--I'm still up 249k, you are thinking is--that you are down 500k, and that's not easy to stomach. While many want the big gains and the glory not many are willing to go through the pain to get there, like anything else in life.

It can be done.

  • If this program were a small piece of someone's portfolio, it would be easier to hold, and in hindsight a great addition. Diversification is essential; it gives you staying power especially if all your assets are not correlated. This is an impossible hold if your entire net worth is in it.
  • This program would probably work better for investors if real-time access weren't available, that way they would be unaware of the drawdowns. Case in point, Fidelity recently did a study of their best performing accounts and here is what they found; "an internal performance review of Fidelity accounts to determine which type of investors received the best returns between 2003 and 2013. The customer account audit revealed that the best investors were either dead or inactive—the people who switched jobs and “forgot” about an old 401(k) leaving the current options in place, or the people who died and the assets were frozen while the estate handled the assets.  Ain't that something.

William Dunn is a legend.



Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Thursday, October 20, 2016

Watchlist 10/20


Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Wednesday, October 19, 2016

Neutrality

We have seen some decent deterioration underneath the surface, but to my surprise, I continue to find a lot of set ups.  Whether or not these set-ups will work out is a different story, whether or not they will have any follow through is another story as well.

The major indices minus the NDX are trading below their respective 10,20, and 50-day moving averages.  On the flip side, the liquid growth names FANG had a decent day yesterday suggesting that things are not that bad. Bottom line, the Bears are weak, and the bulls are weak.

BVX, FMSA, MOMO, AREX, WB, WLL, CTRL, ETSY, GUSH, MX, WPX, LN, NVRO, XLE, VMW, FSLR, COLL, AOSL, PXD, CHK, BRFS, TREE, NR, COTV, PAYC, COT, are the stocks of interest today if and only if they go through yesterday's high plus .10-cents, that should narrow the list.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.


Monday, October 17, 2016

Energy In Focus

I'm surprised by the amount of set-ups that I found tonight considering the choppiness of the last two weeks. I'm not sure what to make of it, but the market will let me know soon enough.

I'm going to play extra attention to the energy sector because like I mentioned yesterday on my weekly digest, XLE is one of only two S&P sectors that is above its 50-day moving average, plus the energy sector is also dominating the top 20 industry list this week. The XLE and XOP (oil&gas exploration) are both down five days in a row and testing their respective 50-day moving average. The 50-day may or may not act as support; my interest will be if and only if it can get through today's high.



APA, PXD, NOV, NR, WLL, WPX, DK, AR, are the individual energy names of interest on the long side if and only if they get through today's high. One can also make life easier by focusing on the actual ETF'S; XLE, XOP, ERX, GUSH.

TNA, BVX, AREX, HWAY, ETSY, CTRL, MX, SINA, DTLK, BZH, NVRO, LN, PAYC, VMW, are the rest of the stock of interest on the long side if and only if they get through yesterday's high.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Sunday, October 16, 2016

Weekly Digest Below The Fifty

"The top  stocks in the SP500 are equal in weight of the bottom 250." -Carter Worth

On 7/8/2016 the SP500 closed at 2,129.72 and on Friday it closed at 2,133.29. On 7/8/16 Eight of the nine S&P sectors were above their respective 50-day moving average, today only two are above.



XLK and XLE are the only two S&P sectors above their 50-day, if you believe in relative strength then those are the two sectors to focus on.  The weakest of the bunch have been XLP, XLV, and XLU, these are the ones to look at if you believe in mean reversion.

Click to enlarge

On a quarterly basis, AGG and TIP are stronger than SPY and DIA.  The SP500, DJ-30, QQQ, IWM, Nasdaq Composite, MDY, are all a shade below their respective 50-day moving average.

As you can see below, the top 20 industries based on relative strength of the last 65-days is being dominated by the energy sector.


Some big heavyweights will be reporting this week; AMD, BAC, IBM, INTC, JNJ, MCD, MSFT, NFLX.


Over the last two weeks individual swing set-ups have dried up and have stopped working, most individual stock set ups stopped working right around the same time that ACIA announced their secondary offering.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Thursday, October 6, 2016

How Do You Know When It's The Right Time To Sell

If you bought a stock for a trade (technical reasons) and it goes against you and you find yourself doing any of the things below, then you've been had.

  • Visiting Yahoo Finance searching for news on the stock.
  • Typing the $SYMBOL on the StockTwits or Twitter search bar.
  • Reading the latest 10Q, 8k, etc.
  • Checking seeking alpha.
  • Adjusting the trendlines that were already drawn.
  • Figuring out your cost basis if you buy additional shares.
  • Zooming out to the weekly and monthly chart.
  • Daydreaming about that one stock that you held after it when through your stop and made you whole a few weeks later, could it be Deja Vu all over again.
  • You suddenly have an interest in value investing, and you convince yourself that the stock is too cheap to sell at a loss, but if it gets back to breakeven you'll get rid of it because then it will be fully valued.
  • You decide to write a covered call so you can bring in some income while you wait for the street to finally realize the value that you see in the company. 

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tuesday, October 4, 2016

How To Make Money Like George Soros

We all have a habit of putting all these "legendary investors" on a pedestal without actually knowing the details of how they do things. George Soros is one trader who people view as a God in the business, someone to look up to and try to emulate. His fund generated 30% annual returns, he is also known for making $1-billion dollars on a single trade, a trade in which they were risking $10-billion. These things sound awesome, what we don't know is the details, one which is that some of Soros trades almost bankrupted the fund, and how by October 1987 the fund was up 60% year to date and a week later the fund was down 10% year to date.

"To add insult to injury, after two days of gains on Thursday, October 22, US indexes declined and Soros tried to book gains. Once again the Quantum Fund’s mammoth futures position worked against it. Noting that there was a large seller in the market, traders across Wall Street intensified their selling of US futures. Once again the Quantum Fund was stuck. By the end of the week, the Quantum Fund was sitting on losses of 10%, not 10% on the week, 10% year-to-date. In five trading days, the fund had been gone from being up 60% on the year to being down by 10%, a loss of $840 million."

You need to know all the details before you try to emulate someone else. 

Read the whole story here.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Running In Place

The SP500 continues to run in place, underneath the surface, we still have a decent amount of good set-ups.  Most of these set-up could use a boost from the market to get them going.

LABU, WB, BIIB, VMW, GOOGL, MSFT, LC, CONN, KPTI, TRUP, HMSY, SYNC, DTLK, are the stock on my list that I have an interest in owning only and only if they go through yesterday's high plus .10-cents.

My opinion and outlook are subject to change as new information comes in.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Saturday, October 1, 2016

How To Own All The Great Companies

  • What exactly is a great company?
  • When does a great company stop being a great company?
  • Can you tell beforehand when a great company will cease to be one?
  • Will you have the conviction to hold on to a "great company" through significant drawdowns?
For some, a good company is one which its stock goes up while you own it, and a horrible company when it goes down. Great companies come and go; each cycle has its fair share of Wall Street darlings that widowed a lot of portfolios years after. In the late 90's when I started in the business, we had Dell Computers, Cisco, Nortel, Lucent, AOL, Eastman Kodak, just to name a few. Before then we had Tandy, Polaroid, the Nifty Fifty.  

Your definition of a great company might not always translate to a great stock. Your timing in owning that great company might be off.  We can probably agree that AMAZON has been a great company for a long time, and it still is, its stock, on the other hand, has had its moments of greatness and its moments of being an absolute disaster.

Since inception AMAZON is up about 39,000%, unbelievable, however, at one point, it had a 90% drawdown, and throughout its lifetime it has had multiple 50% drawdowns.  A dead person probably wouldn't be able to stomach these wild swings. And, more than likely-- at the very moment that you can no longer withstand the pain-- that will be the time that you convince yourself that the company is no longer a "great company," and you sell. What the stock does when you are holding on to it will more than likely be the determining factor in you putting it in the "great company" status. 

Chart courtesy of @MichaelBatnick

Apple is another great example, a $100k dollar investment in 1980 would've been worth $457,974 by 1992, then $224k in 1993 and $100,486 by 1997. All along one could've argued that Apple was a great company all those years.


Owning the indices; SP500, QQQ, IWM, allows you to participate in most if not all of the great companies that come public. You won't get the full participation on the way up, but you certainly won't live through gut wrenching drawdowns that are impossible to live through.

My opinion and outlook are subject to change as new information comes in.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

The information in this blog post represents my opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.