Delaware AAII Investing SIG April 2020 Report

Well, here we are in April.  Since the group has not met since February due to the pandemic, we have nothing more to report in terms of the meetings.  In fact, the does not have plans to meet online for now.  So this will be the last report until we restart the group at some point in the future when it is appropriate to gather 15-20 people together and the local library allows us to meet in their facility.

AAII DElaware SIG imageThis “next normal” is quite a step-change and we are all still trying to figure out how long we will need to isolate and when we might be able to start opening back up physically and economically.

For this month, I took advantage of the fact that we had closed all of our existing positions to do a small research project on our data.  I looked at the expectancy of our portfolio as well as looking at what a small change in our rules would mean for the expectancy of the portfolio.  The monthly report gives all of the detail, but here is a summary:

  • Our expectancy is basically our average winning trade that made money weighted by the likelihood that we’ll win, and then subtract our average losing trade again weighted by the likelihood that we’ll lose.  The difference between these is the expected average (long-term) amount of money we will make on our trades using this method.
  • For our trades over the past two years, we had 5 trades that made money and 16 that did not and we got stopped out with our limited loss.  The result was that with our methodology, we expect to lose $265 on our average trade.  Unfortunately, that sounds more like the type of winning you do at a gambling game long-term.
  • Our sell rules say that the day after the stock closes below our stop-loss value, we sell at the market open price the next day.  I did an experiment where I tweaked that rule to say, “If the stock closes below the stop-loss value and the next two weekly closes are still below that value, then sell at the market open price 10 days out from that first below-close day.  The result was that we still will lose money on the average trade, but it decreases from $265 to just $64.
  • The expectancy exercise is meant to illustrate how one can do some back-testing of rules to see if your expectancy can improve.


Posted in Finance.