What should one expect when trading and or investing?
Well, I guess we expect to be right and make money. That makes the most sense to me, but we all know there is a lot more to it than that. We know that some times we will buy a stock and it will go straight up. Other times it might chop around a bit and then go up. And of course we all know there are times when it won't work out the way we had it planned and the stock will go down. Hopefully that won't happen very often, but we know it is an unavoidable aspect of trading.
The most disgruntled investors / traders I encounter are not the least successful. Typically, the folks that are least satisfied with their trading results are actually doing well and making solid gains. So, why then are they less than tickled pink? Simple, their expectations are out of line with what they are actually doing.
Imagine a day trader that trades index ETFs and wants to make 5% gains. Since the indices hardly ever make 5% moves in one day, this trader is going to chronically be unhappy with his results because he isn't achieving what he is after. The fact he makes consistent 0.75% gains gets lost and while he knows he is making money, he ain't happy. Don't get me wrong here, high expectations are a constant driving force for many successful people, but in this example, 5% gains trading ETFs with a one day time horizon unreasonable. Expecting 0.5% gains and realizing 0.75% gains, now that is a happy day trader. (Note: I do not like or endorse the practice of day trading.)
What should our Expectations be regarding PRS Stock Selections?
I am glad you asked.
The chart below shows the performance profile of PRS Stock selection from several days before they reached our entry criteria to 100 days after. This chart was compiled using data from June 2004 through January 2007, which was a generally positive market period. Using data starting in January 2000 would likely yield a slightly different profile. This Performance Profile is based on the performance of 1087 stocks that reached our entry criteria from June 2, 2004 through March 1, 2007.
Because of the nature of our entry criteria, stocks tend to move lower during the two weeks leading up to reaching our entry criteria. Then, on average, over the first one to two weeks, the stocks don't move very much. At ten trading days (2-weeks) the average gain is only 1%. So, from an expectation stand point, if you are looking for a system that finds stocks that instantly soar higher, you are unlikely to find the fulfillment you are looking for.
The Thin Line on the chart is important. It is attached to the left scale and it tells us what percentage of stocks have remained active. At ten days, 96% of stocks reaching our entry criteria remained active. At 99 days, 52% of stocks having met our entry criteria remained active.
This chart is telling us that over the past two and a half years, if a stock reached our entry criteria, and remained an active position for 99 trading day period, about 20 weeks or 5 months, then on average that stock would be up around 25%. This does not mean that every stock that remains an Open Active Position will be up 25% as this is an average.
The point of this exercise is to give you an idea of what to expect from the PRS Report. Our goal is to find strong stocks at attractive entry points and then let them run until the stock is no longer performing. Generally speaking, stocks weaken before they are removed from the Open Active Position table, but we must allow plenty of wiggle as stocks oscillate higher.
|
