Wednesday, September 11, 2013

WORLD Model...9.11.13

On the anniversary of 911 I'm introducing the WORLD model, which will become henceforth an integral part of the T11 suite: ALPHA, X Sectors, DF (Default) and WORLD.  Our goal was to provide a variety of portfolios featuring the performance characteristics of disparate securities, assets and derivatives and in this regard the current lineup of portfolios provides a solid foundation. 

I have also developed a T6 version of the WORLD which I'm calling Small World and which will be detailed next week.  In the meantime, we'll look at some of the factors to consider when deciding which model offers the best short and long term prospects and how actively you want to trade in order to enforce the money management stops in order to avoid drawdown and enhance returns.

The actual model components have been revised to delete any currency related ETFs and the arguments for doing so are several.....which be be discussed in upcoming posts.

Here are the model ETFs and a few critical metrics that will be used to further examine the volatility profile of the model and (its the same old story) the need to enforce the P6 and TrendX stops.
We're missing a few countries here but the extremely thin daily volume and wide spreads of many of the country ETFs make them unsuitable for the retail trader to even consider as investment vehicles.
As with the ALPHA model the short term returns of the WORLD often exceed the SPY and reinforce the need for money management stop enforcement since the total returns over the 2 year lookback are skewed in favor of SPY.

This volatility can be see in the "Price Volatility" metrics in the ETF list...virtually every component has a higher volatility than SPY.  We just need to formulate a plan to take advantage of that volatility when its in our favor and avoid getting hit with drawdowns when volatility is trending against the SPY.