Top 3 Sector Portfolio Market Update

Friday 9/29/23 Market Close

We focus on Sector etf and Stock Investing Strategies using an algorithmic trading model that analyzes Relative Strength, Momentum, MACD and On Balance Volume indicators to select Stocks and ETFs. The portfolio can go long or short depending on market conditions. A small select group of 2x Index ETFs are also key parts of our portfolio mix.

Follow the Top 3 Sector Portfolio up 41% in 2023 versus the SP500 +12%, beating

the SP500 gain by 32%.

Our Aggressive Growth Portfolio is up 43% in 2023, This portfolio features a mix of stocks and Sector ETFs.

And our new Top 3 Sector/Stock/Dividend Stock Plus portfolio which we started

in January 2023, is up an impressive 54% YTD, Beating the SP500 YTD gain by 42%.

TOP 3 SECTOR MISSION

Highest Total Return thru Sector ETFs and Stocks showing strong momentum and relative strength, in industries that disrupt, innovate and improve the way the world works.

Top 3 Sector Site Map

Today's Action

• Market Dashboard Stock indices, Adv/Decline, Volume, VIX, TICK, Commodities

• Market Update

• Stocks In The News Today – Earnings, Upgrades/Downgrades

• SP 500 & Nasdaq Current Charts

• Stocks We Are Watching Now

• Top 3 Sector Portfolio Outlook

• Top 3 Sector, Top 3 Plus & Aggressive Growth Portfolio Performance 2023 YTD Buy/Sell Stops

• Today's Sector ETFs - Best and Worst

• Today's Stocks - Best and Worst

• 2023 YTD Best Sector ETF Performance

• 2023 YTD Best Stock Performance

• Stocks With Highest Above Average Daily Volume Today

• Best Dividend ETFs for 2023

In Our Archives:

• The 10 Day/ 21 Day Moving Average Market Timing Signal

• How the "Sell 1/3" Program Works

• Why Dividends Should Always Be Invested

• Warren Buffett's $1 M Bet the SP500 Index Fund Would Beat A Hedge Fund

• The "Seven Percent Rule" To Cut Losses

• CNBC's Josh Brown's Chart - How Many Years To Double/Triple Your Investment?

• The Power Of Reinvested Dividends - How a SP500's Gain of 491% From 2009 Becomes +675% If You Reinvest Dividends

• The Secret To How The Top 3 Sector Portfolio Outperforms the SP500

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STOCK MARKET SNAPSHOT

Friday 9/29/23 Market Close

Dow fell 158 points, or .5%, SP500 -.2%, Nasdaq +.1%, Russell -.5%

Adv/Decline is 1200/1500, VIX moved up 1% to 17.52, 10 yr bond yield hit 4.57%.

Stock Indices Performance 2023 Year To Date

• Nasdaq QQQ: +34.5%

• S&P 500: +12%

• Dow Jones + 1%

• Russell 2000: + 1.3%

• SP500 Eq Weight + .3% (Avg Stock up .7% for 2023)

Stock Market Update Friday 9/29/23 Market Close

Dow down 150 points, SP500 & Nasdaq Had Worst Month of 2023

Industry Watch

Strong: Consumer Discretionary, Real Estate, Information Technology, Utilities

Weak: Energy, Health Care, Financials, Communication Services, Industrials

Moving the Market

-- Mixed market at the index level and under the surface -- Treasury yields creeping higher -- Relative strength in the mega caps

Dow -158.84 at 33507.46, Nasdaq +18.05 at 13219.33, S&P -11.65 at 4288.05

Stocks were showing some strength in the early going, building on the rebound that started Wednesday afternoon.

The S&P 500, Nasdaq, and Dow Jones Industrial Average were up 0.8%, 1.4%%, and 0.7%, respectively, at their highs of the morning. The major indices rolled over, though, and closed near their worst levels of the session.

The Nasdaq eked out a small gain, thanks to relative strength in the mega caps, while the other major indices closed in the red. Market breadth was also mixed. Decliners led advancers by a 4-to-3 margin at the NYSE and advancers led decliners by an 11-to-10 margin at the Nasdaq. But both ratios went negative at the close.

Seven of the S&P 500 sectors closed with losses. Energy (-2.0%) was the worst performer by a wide margin while the consumer discretionary sector (+0.5%) led the pack.

A drop in market rates was a positive development and helped drive the initial upside moves. Yields climbed off their lows of the day, though, which coincided with stocks deteriorating.

The 10-yr note yield settled two basis points lower than yesterday at 4.57%, but it hit 4.52% earlier. The 2-yr note yield fell four basis points to 5.04% after falling to 5.02%.

This morning's pleasing economic data acted as another tailwind for stocks in the early going. The Personal Income/Outlays report for August showed a moderation in the yr/yr core PCE rate to 3.9% from 4.3% in July, though the headline PCE rate accelerated to 3.5% from 3.4%.

In other news, the UAW called on an additional 7,000 workers at Ford (F 12.42, -0.14, -1.1%) and General Motors (GM 32.97, -0.19, -0.6%) to strike at noon ET today, but it did not organize additional strikes at Stellantis (STLA 19.13, -0.14, -0.7%).

There were no reports indicating progress in Washington, suggesting that the government is on track to enter a partial shutdown on Sunday.

The S&P 500 is set to finish the month down 4.6%, and the quarter lower by 2.8%. The Nasdaq Composite is off 6% in September, and down 3.3% for the quarter. Both are on track to post their worst months this year. The Dow is on track for a 2.6% decline this month and a 1.7% fall for the quarter.

“Stocks have declined too much and too fast during this seasonally volatile time of the year driven by a long list of worries,” said Carol Schleif, CIO of the BMO Family Office.

“The market only a few months ago was worry free amid the belief that the Fed could engineer a soft landing, and now the market’s worry closet door is wide open as investors raise questions about the economic outlook.”

Investors also remained concerned about the potential for a government shutdown. House Speaker Kevin McCarthy criticized a a short-term funding bill from the Senate in an interview with CNBC on Thursday." -cnbc.com 9/29/23

STOCKS IN THE NEWS TODAY

Click on stock name for real time quote

Nike — The sneaker behemoth added nearly 10% in premarket trading after a mixed earnings report. The company reported 94 cents per share and $12.94 billion in revenue, while analysts polled by LSEG forecast 75 cents and $12.98 million, respectively. Nike also reiterated mid-single digit full-year revenue growth guidance.

Uranium Energy — The uranium miner added 2% after the company said its fiscal full-year revenue came in at Revenue $164.4 million, dwarfing the $23.2 million seen a year ago. Uranium Energy lost 1 cent per share in the year on a GAAP basis, marking a turn after earning 2 cents per share in the prior year.

Blue Apron — Shares of the meal kit company jumped more than 100% in premarket trading after Blue Apron announced that it had reached a deal to be acquired by Wonder Group for $13 per share. Blue Apron’s stock closed at $5.49 per share on Thursday, with a market cap below $50 million.

Anheuser-Busch InBev — Shares of the beer maker gained 3.9% in premarket trading after Bank of America upgraded the company to buy from neutral and said it is approaching a margins inflection point.

Brinker International — The Chili’s parent climbed 4% after Stifel upgraded the stock to buy from hold. Stifel said Brinker’s strategic playbook appears similar to those of Olive Garden, Popeyes and KFC, which all saw successful turnarounds.

Bumble — The dating application stock climbed 4.1% after an upgrade to buy from Loop Capital Markets. The firm said the stock is “de-risked,” while Bumble’s strong cash balance and free cash flow generation will help protect its balance sheet.

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SP500 and Nasdaq QQQ Indexes

SP500 etf SPY down 8% from the high, bouncing slightly

off the 150 DMA:

Nasdaq 100 QQQ fell 9% at yesterday's intraday low.

up .8% today, but still below 100 DMA:

Top 10 Holdings Nasdaq 100 QQQ at Noon:

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Stock/Sector Charts We Are Watching Today

Stocks selected are based on our 8 proprietary technical indicators we use in

all of our portfolio screening which include relative strength, momentum,

Multiple MACD Buy/Sell timing triggers, and on balance volume.

Chart Key For All Charts:

White line: 10 Day Moving Avg

Green line: 21 Day MA

Orange: 50 DMA

Pink: 100 DMA

Blue: 150 DMA

Red: 200 DMA

Stocks/Sector ETFs We Are Watching Today

Nike strong earnings send it up 10% pre-market, but fading

to +6% now:

Olin- makes ammunition - conflict in Ukraine:

Nordstrom and fellow retailers fell off a cliff from July

to September. JWN tries to rally a bit today, but not a great chart:

Tesla bounces off the 100 DMA (pink line):

Semi's etf SMH - one of best performers from Thursday's

intraday low:

Top 3 Sector Portfolio Update

Friday 9/29/23 12:37 pm

Stocks were mixed at the lunch hour. Dow is down slightly by 20 points, SP500 rising .2%,

Nasdaq +.5% and the Russell small cap index is up .1%. All 3 treading water.

Volume on both NYSE and Nasdaq is higher than Thursday as investors took some profits

prior to the possible Government shutdown on Saturday night. The indices were much

higher at the open, Nasdaq was over 1.2% and SP500 +1% before fading at the lunch hour.

The advance/decline ratio was 3-1 gainers, but now 2-1,10 yr bond yield fell to 4.56% from over 4.62% yesterday, Dollar is flat, Oil down -.6%, but the energy stocks are under pressure on profit-taking after a huge run from June, OIH energy services etf down 2%.

While the market popped at the open on the lower inflation data, we are seeing some signs of hesitation as the major stock indices are off their earlier highs.

Yesterday we noted that a short covering rally is usually brief and has trouble maintaining its

gains, and this could be playing out that way, but only time will tell. In the meantime, stay defensive.

The personal consumption expenditures, or PCE, price index — the Fed's preferred gauge of inflation — rose 0.4% in August. That's up from July's 0.2% gain and below the consensus estimate of 0.5%. On an annual basis, the PCE index rose 3.5% after rising 3.3% in July. Wall Street also expected a 3.5% rise.

.

Excluding the more volatile food and energy prices, the core PCE index rose 0.1% and cooled off from July's 0.2%. Core PCE on an annual basis was lower at 3.9% versus 4.3% in July. That brings inflation closer to the Fed's target of 2%.

On Thursday, second-quarter GDP reading of 2.1% was lower than consensus views of 2.3%.

The University of Michigan's consumer sentiment index for September rose to 68.1 against views of 67.7 and after August's 67.7. The yield on the benchmark 10-year Treasury note fell 6 basis points to 4.53%. Crude oil fell nearly 1% to $90.96 a barrel.

Dow Jones Stocks

Shares of Nike (NKE) were up 6% Friday after Q1 results late Thursday. Revenues came in at $12.9 billion, 2% higher than the prior year's quarter. Earnings of 94 cents per share rose by 1 cent. Shares have been in a downtrend since May and have yet to retake the 50-day moving average.

Tech leaders in the Dow also rose. Intel (INTC) is rebounding back above its 50-day line but is below the 37.19 buy point from a breakout earlier this month.

Stocks Moving Today

Carnival (CCL) rose but pared back quickly and fell after third quarter results came out. Earnings of 86 cents per share showed a profitable quarter after a year-ago loss, while sales of $6.85 billion hit an all-time high.

Tesla - Plant shutdowns to prepare for new launches such as the updated Model 3 and Cybertruck plus lower inventory after price cuts have analysts predicting lower deliveries for Tesla (TSLA).

The stock rose 2% ahead of Q3 deliveries data on Monday. Tesla had a record second quarter, when it delivered 466,140 vehicles. Analysts now expect .

Meta Platforms (META) is retaking the 50-day line as well as it forms a cup base with a buy point of 326.20. But the stock has also been trading tightly since early September and presents an earlier entry at 312.87. The relative strength line is at a new high. Meta has had a spectacular 154% gain this year.

Software stocks in the IBD 50 growth list Atlassian (TEAM), Zscaler (ZS) and CrowdStrike (CRWD) also did well in early trading.

ZS stock rebounded from the 50-day line and is the newest addition to

Duolingo (DUOL) soared past a buy zone from a 162.20 buy point.

Among restaurants, Chili's and Maggiano's parent Brinker International (EAT) got an upgrade from analysts at Stifel to buy from hold with a price target of 45, up from 38. Shares rose and approached the 50-day line.

Sectors Up

Cloud +1.8%, Banks +1.7%, Soc Media +1.5%, Retail +1.5%, Internet, Rising Div, Software, Semi’s and Telecom all up 1%

Sectors Down

Oil services OIH -2.3%, Biotech -.6%, Oil -.5%, Gold -.5%

Stocks Up

Nike +6.5%, Micron +4.4%, AAP +3.5%, DataDog +3.%, retailers Nordstrom and Macys +3%, Tesla +1.8%, Casino stocks WYNN and LVS up 2%.

Stocks Down

Energy stocks top the list: SLB -3.5%, HAL -3%, MPC -2%, and industrials Deere -1.5%, CAT -1%, and health care mavens LLY -01.3%, Regeneron -1%, Merck -1%.

Keep an eye on the $TICK numbers as the day wears on. Russell small cap index has now gone into the red, and SP500 barely positive +.2%. That early bounce looks like it’s in jeopardy, so don’t sell that SDS just yet, wait for the stops to hit as we could get some negative news over the weekend.

We were stopped into a 3% position of the Semiconductor etf SMH this morning at the

price of 146.82. We bought SMH for all 3 portfolios. The SMH has been one of the best sector performers off the intraday lows on Thursday just prior to the reversal higher. SMH is now up 4.5% from yesterday’s low.

Most Recent Changes in Our Top 3 Sector Portfolios

We bought Semi etf SMH for all 3 portfolios on 9/29/23.

Current Stock/ETF Recommendations For Week 9/23/23

Index: QID, SDS (hedge small positions only)

Tech/Software/Comm: META, NVDA, MSFT, AAPL, SMH (semi etf)

Consumer Discr: TSLA, IGT

Industrials:

Health Care:

Energy: MPC, SLB, OIH (Oil Svcs), HAL, XLE (Energy etf)

Defense:

Finance: JPM

International: Dividend ETFs: Super Div SDIV (14% dividend), RDVY Rising Div 2.7% div,

Bonds:

Top 3 Sector Portfolios

We track three different types of portfolios, each with their own specific

asset allocations and level of risk.

The Top 3 Sector Portfolio is an all-Sector ETF portfolio. It is a medium to

low risk mix of ETFs that totally avoids the issue of single stock risk. Current asset allocation is Index 20%, Sectors 23%, Dividend Income 16% and 41% cash. We recommend this portfolio for investors seeking strong returns, but with less risk

higher cash balance, and more diversity.

Our Aggressive Growth Portfolio utilizes a mix of stocks and Sector ETFs

to boost performance. It is a higher risk portfolio than the Top 3 Sector,

and generally out-performs it by 5% to 7%. Our current asset allocation:

Index 15%, Stocks 33%, Sector ETFs 13%, Dividend Income 17%, Cash 22%.

Our most speculative portfolio is the Top 3 Sector, Stock and Dividend Plus

Portfolio. As the title implies, it is heavily weighted to Stocks and Sector ETFs

Stocks are 47%, Index/Sector etfs at 32%, Dividend Income at 12% and Cash 8%.

This portfolio uses a proprietary algorithm that selects the 3-5 best stocks/etfs

based on RSI, Momentum, Relative Volume and performance, constantly updating the top holdings. It is designed for experienced traders, and features a very active management style. It is a high risk/high reward strategy.

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Top 3 Sector Portfolio

Performance 2023 YTD

The Top 3 Sector Portfolio is up 41% in 2023, versus the SP500's gain of 12%.

This portfolio is beating the SP500 index by 29%.

Current asset allocation:

Index 12%, Sectors/ETFs 23%, Dividend ETFs 9%, Cash 59%

Best Holdings in Top 3 Sector Portfolio 2023 YTD

#1 QLD 2x QQQ +66%

#2 OIH Oil Svcs +22%

Buy Stops

Buy 3% SMH Semi's @ 146.82 Triggered on 9/290/23 @ 146.82

Buy 3% ITB Builders @ 80.72

Sell Stops:

Sell QID @ 13.60

Sell 1/4 OIH Energy Svcs @ 342.62

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Aggressive Growth Portfolio

Performance 2023 YTD

The Aggressive Growth Portfolio which features a mix of ETFs and Stocks

is up 43% in 2023 versus the SP500's +12%.

This portfolio is beating the SP500 by 31% in 2023.

Current Asset Allocation:

Index 15%, Stocks 30%, Sectors/ETFs 16%, Dividend ETFs 11%, Cash 28%.

Best Holdings in Aggressive Growth Portfolio 2023 YTD

#1 QLD 2x QQQ +65%

#2 META +71%

#3 Oil Svcs OIH +21%

Buy Stops

Buy 3% SMH Semi's @ 146.82 Triggered on 9/290/23 @ 146.82

Sell Stops

Sell SDS @ 36.09

Sell 1/2 QID @ 13.60

Sell 1/4 OIH Energy Svcs @ 342.62

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Top 3 Sector/Stock/Dividend Plus Portfolio

Performance 2023 YTD

The Top 3 Plus portfolio is up 54% so far this year, the SP500 is up 12%

Best performers: Nvidia +199%, Meta 71%, Tesla +75%, QLD +71%

This portfolio is beating the SP500 by 42% YTD in 2023

Current Asset Allocation:

Index/Sectors 33%, Stocks 38%, Dividend ETFs 6%, Cash 23%.

Buy Stops

Buy 3% SMH Semi's @ 146.82 Triggered on 9/290/23 @ 146.82

Buy 3% AMD @ 105.77

Sell Stops

Sell 1/2 SDS @ 36.09

Sell QID @ 13.60

Sell 1/4 OIH Energy Svcs @ 342.62

TODAY'S BEST & WORST SECTOR/INDEX ETFs

TODAY'S BEST/WORST STOCKS

*These select stocks are chosen for their representation of key Sectors, and large

trading volume. We are aware that not all stocks are covered. These bellwether stocks show where the big money is flowing in, and even more importantly, where the money is flowing out of.

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Stocks With Biggest Change In Average Daily Volume Today

Here's a list of stocks with higher than average daily volume (AADV).

Better than just overall volume, this indicator shows the percent of change above or below the average daily volume in that particular stock making it easier to see what's being bought and sold in high volume. The last column shows the 'pace' of trading, up or down.

Notable Stocks With High Volume

Nike +6% on 755% aboved avg daily volume

Skyworks +.7% on 288%

Workday +1.7% on 225%

Micron +4% on 185%

Under Armour +4% on 189%

Sectors With Biggest Change In Average Daily Volume Today

Notable Sectors With High Volume

Utilitites -.01% on 290% AADV

Europe +.6% on 204%

Hi Yld Bonds +.2% on 197%

Artif Intell AIEQ +.2% on 174%

Transports +.6% on 172%

QLD +1% on 165%

**The Zanger Volume Ratio indicator has proven to be an extremely powerful indicator to show true money flow. The creator of the indicator, Daniel Zanger, has used it to establish a new trading world record, turning $10,775 into $18,000,000 in 20 months, and winning over 85 stock portfolio performance contests. It is exclusively available on E-signal paid real time quote service and nowhere else. We use E-signal for all of our real time quotes and charts.

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Best Sectors 2023 YTD

Here are the top performing Sector ETFs for 2023:

#1 Bitcoin +129%

#2 QLD + 71%

#3 Uranium + 51%

#4 SMH Semi's + 43%

#5 Software + 34%

#6 Builders + 30%

#7 Internet + 31%

Worst: Solar -29%, Banks -18%, Utilities -15%

SP500 +12% QQQ +35%

Best Stocks 2023 YTD

Here are the top performing Stocks for 2023:

#1 NVDA +200%

#2 META +154%

#3 TSLA +105%

#4 PANW + 71%

#5 AMD + 60%

#6 BKING + 54%

#7 ADBE + 52%

#8 AMZN + 52%

Worst: M -44%, MRNA - 44%, PFE -37%, Raytheon -28% (defense stocks collapsing)

*These select stocks are chosen for their representation of key Sectors, and large

trading volume. We are aware that not all stocks are covered. These bellwether stocks show where the big money is flowing in, and even more importantly, where the money is flowing out of.

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Best Dividend ETFs So Far In 2023

Best Dividend ETFs - Performance for 2023

#1 Emerg Mkt Dividend +5% 6.3% dividend

#2 Rising Dividend RDVY +4.2% 2.3% div

#3 European Stocks IEUR +4.2% 3% div

In Our Archives

Example of How Our Proprietary Sell Signal Model Works - Emerging Markets ETF - "SELL A THIRD" -

The Smart Way To Force You To Take Profits

How many times have you bought a stock or ETF and watched it rocket higher,

with big gains, only to watch it reverse and roll over, gaining speed

on the downside run, until one day you chart it, and you realize that most

of your hard earned gains have vanished?

If you are like us, you’ve experienced that painful reality all too often. The thing

about stocks, as they say, “most take the stairs up, but the express elevator down.”

One of the most effective tools we use to do that is an analysis program we call “Sell A Third.”

It’s pretty simple. Once a stock has run up anywhere from 40% to 60%, we plot sell stops based on key moving averages, cross overs, and support levels in thirds.

If a stock has peaked and is rolling over, we set the first third sell stop just below the level where the 10 day moving avg crosses down through the 21 Day moving average.

On chart below, you will see the 10 DMA as a white line and 21 DMA as a green line.

This chart is based on an actual buy of Emerg Mkts etf IEMG we made in our private accounts beginning on 3/30/20, just after the Covid low at 39.43. The ETF proceeded to rise 87%, without much of a pull back until it peaked (like everything else) on 2/8/21 at 69.27.

It then fell 39% from there to the low in October at 42.15.

The staggered sell stops allowed us to sell 1/3 with a 75% gain. A second sell at 63.77 for a 68% profit (as the 21 DMA crossed the 50 DMA (orange line), and the last 1/3 at 60.61 which was a 61% gain.

If we had held the stock and not sold, it would have fallen to 42.16 in October, giving us a very sad +13% gain. We also use the MACD and Momentum mkt timing tools to establish sell stops

We can apply this template to any stock or ETF and it is one of the techniques we use to post our sell stops on the Top 3 Sector Portfolio site. Investors often fall ‘in love’ with a stock and refuse to take profits no matter what. This forces you to take profits, and in hindsight, it’s usually a good thing.

"SELL A THIRD" Profit Taking Algorithm - Emerg Mkts etf IEMG

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SP500 WEEKLY CHART WITH PIVOT HIGHS AND PIVOT LOWS

Let's look at a few Weekly charts to get an idea of the overall trend we are currently in for three major indices - SP500, QQQ and the 20 year Bond etf TLT:

NASDAQ WEEKLY CHART WITH PIVOT HIGHS AND LOWS

20 YEAR BOND ETF - TLT FELL 45% LAST 2 YRS

Examples Of Sector ETF Holdings

Top 10 holdings:

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The 10 Day Mov Avg/21 Day Buy/Sell Model -

A Valuable Market Timing Tool

One of the best leading indicators we use to evaluate stocks and ETFs is based on the

10 Day Moving Average/21 Day Moving Average crossover model.

Much like our MACD crossover indicator, a Buy trigger occurs when the 10 Day MA (white line in chart ) crosses above the 21 DMA (green line), and a Sell trigger when the 10 Day crosses under the 21 day average.

We've tested many different moving average formulas, and have found this one to be one of the best buy/sell indicator, especially when the MACD is in synch with the trigger points. It also delivers a precise date on which the crossover occurs, unlike many stochastic charts used in technical analysis. The MACD remains the #1 best timing system, often signalling

well before the 10 day/21 Day MA, but when they are in synch, it is a good confirming factor.

We use this as a template on any new proposed purchase of a security.

Here's the 10 DMA/21 DMA model used on the SPY: Currently: Sell mode

Here's same indicator for QQQ:

Buffet's One Million $ Bet The SP500 Index Fund Would Beat A High Fee Hedge Fund Over 10 Years

Warren Buffet has been critical of high paid money managers that charge large

fees to their hedge fund customers. To prove his point, In 2008 he offered a $1M bet to any hedge that a SP500 Index Fund, like the Vanguard Index 500 would beat the

hedge fund's return over the next 10 years. Basically pitting Passive v.s. Active investing.

He only received one offer, from Hedge Fund Protege Partners. They each put up

$500,000 and placed their bets on January 1, 2008. The ultimate proceeds would go to charity. The hedge fund charged the usual 2% of the initial investment, and 20% of profits.

The SP500 fund fees were .04% per year.

After 9 years, Buffet's SP500 investment had appreciated 85%, but the hedge fund

trailed it badly, with a paltry +22% return.

Buffet's SP500 dollar gain was $854,000, the hedge fund was just $220,000.

Buffet's charity "Girls of Omaha" received the $1 million wager, plus ALL the

profits, giving them a $2.2 M donation. His point being that paying these

managers high fees and expecting outsized performance is pure folly.

But it wasn't just the fees that created the under-performance, their choice

of stocks contributed much more to the poor return.

Ted Seides, manager of Protege Partners left the firm in 2016, and is now quite

outspoken about the problem of hedge funds using long/short strategies, which is the basis of most hedge fund practices. Buffet changed even his mind!

$1 Million Dollar Bet - 9 Year Return - Buffet V.S. Hedge Fund

Link to Buffet's Big Bet Article

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The Seven Percent Rule

The “Seven Percent Rule” is a trading method used to cut losses early.​

Most successful investors say minimizing losses is even more important

than picking a winning stock in terms of wealth creation.

Investor’s Business Daily cites this technique as crucial to good money

management.

It’s pretty simple: If a particular holding drops 7%, it’s time to sell.

For us, a loss of -3% to -4% would probably get us stopped out prior.

But let’s see how this works:

Let’s say you have a $10,000 investment in a hot tech stock.

But overnight, negative news sends it down 7%, here’s what happens:

$10,000 x -7% loss = $9,300 left

In order to get back to even, you would only need a +7.5% gain:

$9300 x 7.5% = $700 + $9,300 = $10,000 (back to original)

But if you let that loss increase to -15%, the dynamics change:

$10,000 x -15% = $8,500

$8500 x 18% = 1,500 + 8500 = 10,000

(You would now need an 18% rise to get back to $10,000)

And a -35% loss pretty much guarantees you’ll never get whole

as you would need a +54% move to get even

$10,000 x -35% = $6,500

$6,500 x 54% = 3,500 + 6,500 = $10,000 (takes 54% move to get to $10K)

…At -50% loss, you would have to make 100% to break even:

$10,000 x -50% = $5,000

$5,000 x 100% = 5,000 + 5,000 = $10,000

And just how many stocks go up 100%?

For some investors, this mathematical reality is a given.

But for many others, the idea that if you lose 35%, all you have

to do is make 35% to break even is more commonplace than

you would think.

So don’t forget the “Seven Percent Rule" and remember to cut

your losses short quickly, and let your leaders run.​

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CNBC Fast Money's Josh Brown:

The Power of Compounded Interest

How many years will it take to double your money? Rule of 72:

Take the number 72 and divide it by the annual rate of return, which gives you how many years It will take to double your money:

% Return # of Years To Double Your Money

5% return (72/5) = 14 yrs

7% return = 10.3 years

9% return = 8 yrs

11% return = 6.5 yrs

13% return = 5.5 yrs

15% return = 4.8 yrs

17% return = 4.2 yrs

25% return = 3 yrs

35% return = 2 yrs

So by increasing your return from 7% a year to 11%, the 'years till double'

falls from 10.3 years to 6.5 years.

With a 14% yearly average return, you would double your money in 5 years, and

a 35% return doubles it in only 2 years.

Note: The "Rule of 72" only works up to a 99% return. Any return

above 100% will result in an error reading. Also rates above 25%

give less accurate estimates of how many years it takes to double.

Historic Rate of Return for Stocks (SP500)

Annualized 50 year average (1971 – 2021) 11% return per year

Last 30 years 10.7%

Last 10 years 14%

So just by being in the SPY etf for the last 10 years, you would have doubled your money every 5 years at a 14% return. No other alternative asset class can beat the consistency of that return.

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GOAL OF ALL MONEY MANAGERS: BEAT THE BENCHMARK - THE SECRET TO THE TOP 3 SECTOR PORTFOLIO OUTPERFORMANCE

Most portfolio manager performance is measured against their appropriate benchmark (i.e. small cap funds v.s. Russell 2000 index, or large cap v.s. SP500).

But the main index that most compare themselves to is the annual return of the SP500.

Beating the SP500 is the Holy Grail of equity managers, and unfortunately, 85% of managers have not beaten it in the last 30 years.

Our central mission, and our commitment to our followers is to beat the SP500 every year.

One of the key secrets to overperforming is our strategic use of 2x index ETFs which we restrict to only QLD (2x QQQ), UWM (2x Russell 2000) and SSO (2x SP500).

For inverse 2x ETFs we use QID (2x Short QQQ), TWM (2x Short Russ), and

SDS (2x Sh SP500).

Since history has shown that the stock market goes up about 87% of the time, we use inverse ETFs rarely, and usually for a very short time span, as stocks tend to take the stairs up and the express elevator down.

Shorting stocks can be very rewarding, and also devastating if it goes against you, and certainly doesn’t give you a lot of time to make up your mind whether to cover or stay short. Gains can evaporate in a flash as investors rush to cover their bets.

The 2x ETF performance is quite spectacular, with QLD up 360% from the 3/23/20 Pandemic low, versus the Nasdaq Composite’s +124%.

QLD has been the #1 gainer for the Top 3 Sector Portfolio and a big performer in the Aggressive Growth portfolio in the last 2 years as well. As of 9/15/23, the QLD is up

81% for 2023.

Another key element of our strategy is that we look for Sector ETFs that are highly concentrated in the Top 10 stocks, like the Energy Svcs etf OIH where 70% of the entire ETF are in the top 10 stocks or Software IGV with 59% in the top 10 stocks. Compare that to most mutual funds that can hold hundreds of stocks, each weighted about evenly, seriously compromising performance.

Multiple studies have shown that concentrating capital in a few top tier stocks of each sector can significantly improve returns as opposed to an equal weighting of 30 or 50 stocks in a mutual fund.

Another secret to our success, is allocating more money to the top 3 positions in the portfolio - which puts resources in the best performing sectors, greatly improving our returns.

Currently the Top 3 ETFs get 36% of the portfolio. This is an important aspect of our 'Top 3' strategy.​ Many managers believe that proper asset allocation is the single most important factor in being a successful trader.

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Top 3 Sector Portfolio Strategy -

How It Gives You An Edge

​

Our investment strategy is unique. In the Top 3 Sector Portfolio, we invest in ETFs, both long and short, with an emphasis on Sectors, as they always outperform indexes.

We also use 2x ETFs, focusing on 6 key indexes only (SSO, QLD, UWM, TWM, QID, SDS) as warranted by market conditions. The easiest way to beat the SP500

is to use the SSO which delivers 2x the return. Pretty simple!

We do not short sectors.

We concentrate more resources in the Top 3 performing ETFs, which is a major

contributor to our strong outperformance against other portfolio strategies.

In addition to the Top 3 Sector ETF Portfolio, we also feature the Aggressive Growth

portfolio for experienced investors that utilizes the same criteria for selection of stocks and ETFs as the Top 3 Sector ETF Portfolio.

Our newest portfolio, the Top 3 Sector Stock/ETF/Dividend portfolio is the highest risk/highest reward model, and for experienced investors only investing in highly volatile stocks such at Tesla, Nvidia and Meta.

WHAT DOES "TOP 3 SECTOR" MEAN?

The term 'Top 3 Sector Portfolio' comes from a pattern we call the

"Top 3 Effect," where the top 3 sectors that emerge first from a pivot low, tend to outperform for longer time frames in the future.

After a flush out low, the best ETFs will continue to outperform 3, 6 and 12 months later.

WE PUT MORE CASH INTO THE TOP 3 STOCKS- CONCENTRATION IS KEY TO OUR SUCCESS

Another secret to our success, is allocating more capital to the Top 3 ETFs - which concentrates resources in the best performing assets, greatly improving our returns.

We also look for sector ETFs that are highly concentrated in the Top 10 stocks,

like like the Defense etf ITA, where 74% of the entire ETF is 10 stocks. Compare that

to most mutual funds that can hold hundreds of stocks, each weighted about evenly,

seriously compromising long term performance.

Currently the Top 3 ETFs get 35% of the portfolio. This is an important aspect of our 'Top 3' strategy.​ Many managers believe that correct asset allocation is the single most important factor in being a successful trader.

The top 3-6 ETFs will vary a bit, but the first ones off that flush-out low, tend to be the ones still on top 6 months later, 12 months later, 2 years, etc.

We have observed this effect over the course of nearly 25 years of trading, giving more credence to the power of the "Top 3 Sector Strategy."

This momentum strategy has been documented by two recent research studies, where stocks that outperformed by a wide margin over a 5 month and 12 month period also delivered a much greater gain longer term. The MTUM Momentum ETF follows a similar strategy.

Here are 3 links to the research done on 3, 6 and 12 month momentum studies:

​https://alphaarchitect.com/2016/10/14/how-to-measure-momentum/

​https://seekingalpha.com/article/4240540-optimal-lookback-period-for-momentum-strategies

https://www.anderson.ucla.edu/faculty-and-research/anderson-review/momentum

SHORT OR LONG - WE TAKE ADVANTAGE OF THE TREND

​

The beauty of this strategy is that we make money in both Bull and Bear markets, as we can switch to short ETFs when a positive trend is ending, whereas nearly all mutual funds are long only - giving them a definite disadvantage when markets decline.

We restrict our inverse ETF exposure to Index ETFs only. They are:

SDS - 2x Short SP500, QID - 2x Short QQQ, TWM - 2x Short Russell 2000.

That's it. We do not short sectors.

We always warn our followers that inverse ETFs are for experienced traders only. And there is always the 1X versions of above etfs:

SH - 1x Sh SP500,

RWM - 1x Sh Russ 2000

PSQ - 1x Sh Nasdaq if you want a bit less risk.

Most important, given the fact that markets go up 87% of the time, going short

is by its very nature a short term trade.

Our trades could last 3 weeks, or 7 days depending on the depth of a correction. It is imperative to set mandatory sell stops when you make the initial purchase of an inverse etf.

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SECTORS OUTPERFORM

Since Sectors always outperform indexes, we have a larger portfolio allocation to this area (54%).

For instance, in the dismal year of 2022, the Energy sector etf XLE went up 65%,

while the SP500 fell -19.5%, and Nasdaq dropped -33%. The Defense stock index ITA rose 13%.

Yes, sectors always outperform indexes. When you note that 85% of all managed funds have not beaten the SP500 index in the last 30 years, it's even more impressive.

In normal market conditions, we allocate as follows in the Top 3 Sector portfolio

which utiltizes Sector ETFs only (as opposed to the Aggressive Growth portfolio which is a mix of stocks and ETFs):

2 Index ETFs (QLD and SSO)

5 Sector ETFs (This may vary between 4-6 due to mkt conditions)

2 Dividend Stock ETFs (RDVY and SDIV (14% dividend)

2 International ETFs (Currently none, but when appropriate we use IEMG & EZU)

As of 3/19/23 our portfolio allocation for the Top 3 Sector Portfolio is:

Index: 7%

Sector: 16%

Dividend Stock: 32% ​

International: 0%

Cash: 45%

Note that March of 2023 has seen the Fed raise interest rates by 4.5% in the past

12 months (fastests in history), there is currently a banking liquidity wave sweeping world financial institutions (Silicon Valley Bank, 1st Republic), falling earnings, and a looming economic recession, all of which contributed to our current extremely defensive allocation of 45% cash

This portfolio strategy is aggressive, and is recommended for experienced investors, especially since we employ the 2x ETFs, as well as Inverse ETFs. ​

THE POWER OF DIVIDENDS​

Dividend Yield ETFs are critical to outperforming the benchmarks. Investors today are desperate for yield. Reinvesting dividends is the key to optimizing compounded interest, as it reinvests in shares.

The power of re-invested dividends for total return is simply amazing. ​

In the last 14 years, from April 16, 2009 to August 25, 2023, t

the SP500 is up 491%. Annualized gain: 13% per year.

Pretty good return of 491% for 14 years.

But add in dividends reinvested, and that SP500 return rises to +675% ,

which is which is 184% in additional return.

Annualized gain: 15.25% per year.

Over the course of last 75 years, 40% of the capital gain in SP500 was

from dividends.

At a 15% annual return, you double your money in only 5 years.

And that’s why you should always reinvest dividends.​

Currently we have the Rising Revenue/Rising Dividend etf RDVY

for our dividend yield exposure. It has a 2.7% dividend and is up 28%

in the past year and a half.

Dividends are Federally taxed at only 15%, (for those with combined married incomes less than $400,000/year). Interest income would be taxed at 26% to 28% plus State tax in the same tax bracket.

Dividends should ALWAYS be reinvested. Always.

You can calculate SP500 returns from any year at this site:

https://dqydj.com/sp-500-return-calculator/

Why Dividends Must ALWAYS be reinvested:

SPY from March 2009 to 8/25/23 +491%. Nice.

But reinvested dividends: +675%. Nicer.

NUALOLO VALLEY, KAUAI

For Real Time Updates and charts - FOLLOW US AT:

http://stocktwits.com/Lach14

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