Archive for February, 2012

Mobile app review: StockTouch

Monday, February 27th, 2012

StockTouch is an app for the iPhone and iPad that provides an easily readable heatmap of the one hundred top stocks (ranked by market cap) in each of nine of the most popular asset classes. This is a nifty tool that shows you in an instant what is happening within each sector and how well the sectors are moving relative to each other.

If you watch CNBC, you’ll know what a heat map is. If you don’t, it’s a graphical display of what’s hot and what’s not: stocks trending up are displayed in increasingly brighter shades of green and those trending in the opposite direction are shown in increasingly brighter shades of red with color brightness defined by the magnitude of the gain or loss.

StockTouch is intuitive and users should have no problem implementing it. But if you can’t figure it out after a few minutes, there’s an online tutorial that can help.

Current features
Handy features include the following:

– Many display choices–by market cap, trade volume, percent price change, alphabetically (handy if you’ve forgotten the stock symbol or conversely, the company’s name), or price change versus the S&P 500.

– Charting time frames from 1 day to 5 years.

– Clickable headline views on any selected stock.

– A stock symbol search feature.

– An optional running ticker of the Dow Industrials, S&P 500, and Nasdaq.

– A “Favorite Stock” feature (touch the star button) that will cause selected stocks to stand out in macro views.

Desired additions
This application is in its infancy and the developer is promising to add more features. “Wants” that many current users hope will be incorporated into future releases include the following:

– An Android version that the company claims is coming soon.

– The addition of lower-cap stocks, ETFs, and commodities.

– A direct connection to online trading platforms.

– The ability to swipe to adjacent stocks in single view mode.

– More charting tools & indicators such as candlesticks, MACD, and RSI.

– The option of creating stock watchlists.

– Price alerts sent via email or text.

The bottom line
Users give this app a thumbs-up based on its graphic design and intuitive nature, but many feel that more bells and whistles are needed. I think the $4.99 nominal fee is well worth the price, and as more of the above changes are incorporated, it will become an even better value. If you’re an active trader and want to see at a glance how stocks, sectors, and markets are trending, then this is the app for you!

Disclosure: I was given the app to review and have no other affiliation with the company.

Themes: mobile applications, stock software, Apple applications, iPhone apps, software reviews

Trade of the Day: Herbalife (HLF)

Wednesday, February 22nd, 2012

Herbalife (HLF) makes weight management and nutritional products and supplies them through its own network of personal distributors worldwide. Today the company reported record fourth quarter sales along with record earnings and free cash flow. FY12 revenues are expected to expand by 9-10% to $3.77B – $3.83B–that’s B for billion, folks. The company is enjoying strong growth especially in the Asia and Central/South America regions with emerging market growth outpacing established markets’. The company boasts an exceptionally high 80% return on equity (ROE) and its P/E of 20 puts it inline with its industry peers. It pays a 1% dividend (which could stand to be raised). One possible negative is that the CEO has been selling a lot of shares in the past couple of months.

The weekly chart of the stock (shown below) is compelling because it finally broke out of its 10 month rangebound pattern to hit a new all-time high of $66. Judging just from the technicals, the stock has room to run to well over $100.

Surviving Market Crashes Part 4: The global debt crisis

Tuesday, February 7th, 2012

In the previous articles* on surviving market crashes we demonstrated how a market timing modification to Modern Portfolio Theory (MPT) provided asset allocation recommendations that resulted in the investor avoiding most of the losses during these market crashes. Not only that, but in the case of the dot-com bust, the model actually produced a significant positive return.

What is Modified Modern Portfolio Theory (MMPT)?
MMPT is the application of an optimized market timing strategy to MPT which not only produces superior returns but also does so at much lower risk than MPT. The reader is invited to read these articles* to become familiar with the basics of the approach which we call Modified Modern Portfolio Theory (MMPT).

In this article we will be considering the time of global instability arising from the debt crisis in the Eurozone in which we will show that the MMPT constructed portfolio would have significantly outperformed the classic MPT model portfolio.

Global Debt/Recession Fears
The movement of the market is heavily influenced by the uncertainty in the economic environment, and it is this uncertainty that is measured by the volatility index (VIX). Following a spike in volatility in March of 2011 resulting from the tsunami and nuclear plant meltdown in Japan, the volatility settled back down to stable levels below 20. But it began to rise again as both the domestic and Eurodebt crisis came to the forefront on the heels of sovereign debt downgrades heralded by some of the major ratings agencies.

It wasn’t until the end of July that the volatility began climbing to bearish levels (over 25). July 22nd was the last time the S&P 500 (SPX) hit a relative high of 1346 before the VIX took off, sending the S&P plunging 17% in a few short weeks. Following Standard & Poors downgrade of the US’s credit rating, the SPX hit a low of 1120 on August 8th as the VIX concommitantly hit a high of 48. After two months of extreme choppiness, the VIX hit another relative high on October 4th as the S&P put in an intraday low of 1075, representing an overall loss of 20% from its July high. (See charts below.)

To compare how a modified portfolio would have done compared with a classic one, the reader should understand the underlying methodology. Both portfolios are made up of the same nine asset classes comprised of domestic and international stocks and bonds along with real estate (in the form of REITs). The model portfolios presented here are designed to return a 10% compounded annual return, the same that was used in the previous articles. The analysis rebalances the portfolios monthly as new total return asset class performance data is made available. The portfolio allocation tool used to conduct these studies for both the classic MPT model and the market timing MPT approach is the SMC Analyzer.

The allocations
During this turbulent time period, an MPT portfolio with a 10% required annual compounded return would have been heavily invested in the stocks of large and small companies both domestic and international (see Table 1). But the MMPT equivalent model (see Table 2) was already light in the large and small stock asset class having benefited from the recent experience of the dot-com bubble and subprime mortgage collapse. Despite some optimism for the alternative international stock and real-estate investment trust asset classes the allocations there were comparatively light, instead heavily favoring medium-term government bonds and the safety of Treasury Bills (or an insured money market equivalent).

Table 1. Classic MPT Historical Allocations During the Subject Period for a Target 10% Compounded Annual Return

Table 2. MMPT Historical Allocations During the Subject Period for a Target 10% Compounded Annual Return

Comparing models
During the months of this mostly fear-driven event, the MMPT portfolio lost at a rate of only 4.7% compounded annually (green line) while the classic MPT portfolio lost money at an annual rate of -40.4% (magenta line). Further, the MMPT portfolio was less volatile. It experienced a standard deviation of only 3.9% while the classic MPT investor experienced a standard deviation of 6.2%.

Figure 1. Comparison of results
(green = MMPT)
(magenta = MPT)

We have shown that an MMPT investor during the global debt crisis was able to hold onto almost all of his money while most other investors were getting hammered. The reason is that a considered and properly applied market timing approach injects an element of flexibility and responsiveness to a portfolio while still benefiting from historical experience. This is of tremendous value especially in today’s uncertain markets.

Every day the news concerning the uncertainty of the global economy is increasing volatility across most of the traditional asset classes, and it’s for this reason that market timing approaches should be given their proper due. I believe we have shown once again with this case study that the MMPT approach combines the best of Modern Portfolio Theory with the desirability of a viable market timing strategy

For further information on how you can save your portfolio from the ravages of market crashes please visit our website.

*Previous articles on Surviving Market Crashes:
Part I: “Surviving Market Crashes”, August 23, 2011
Part II: “Surviving Market Crashes, Part 2: The dot-com bust”, September 29, 2011
Part III: “Surviving Market Crashes, Part 3: The subprime mortgage crisis”, November 19, 2011