The Story and Inner workings of the Next Level Share Selection Program.
I will describe how the Share Selection Program came about and, without giving the confidential information, I will explain how stocks get selected and traded.
The first 13 years of my investment approach was mainly based on the teachings of Warren Buffet and Benjamin Graham. Value investing was my main approach and shares were all picked on the basis of their valuations. At the end of 2007/8, I realized that certain shares just defy the laws of valuations. Some stocks were so overpriced by 2008 and continued to shoot into the stratosphere and then there were some that were seriously undervalued and continued to do so. Even with the collapse of the market at the end of 2008, and comparing it to the 2000 bubble, shares did not behave in correlation to their valuations. It was just baffling. It continues to happen all the time. (Does Tesla ring a bell?)
Being a quantitative analyst, I focused on why shares behave in this manner and it led me to the Trending Shares theory. It implies that share prices behave in trend-like patterns (bullish or bearish) as maximum and minimum trading levels are determined. It allows you to project the relative future of the share price, but shares do break these patterns and it happens more often than you think.
In 2015 my focus shifted even more on technical analysis and using indicators to assist with the probability of a trend break or if the share price would stay inside its trend. I have used and tested a LOT of indicators, and have developed my own, and combinations of them, to determine a possible breakout or not.
Over the next few years, I analyzed 20+ shares that have had amazing bull runs in the past. The ideal time to be invested in them was to buy them just before the bull trend started and selling just before it ended. So these were the two areas I focused on. I wanted to know what they all had in common at this stage of their future/past bull trend. This was really interesting in identifying shares with the right attributes to be invested in.
In 2017 I created an indicator that was groundbreaking, but I only realized it in 2019, when used over much longer timeframes. This was to be the holy grail of all indicators and one of the key features of my Next Level Share Selection Program. It takes so many factors into consideration and basically defines if the share is in an investable Bull or Bear trend. It is always right, but the duration and rate of change are determined by other factors. This is where I combined the theories by Warren Buffet, Benjamin Graham, and my Trending Shares theory. I also use some fundamental and other indicators I created to determine the growth potential of each share.
The Next Level Share Selection Program was implemented on a real portfolio in June 2019 until Jan 2020 and gained 55% in 6 months where the JSE lost about 2% over this period. Several other pseudo portfolios have been created since to allow backtesting and improve on the metrics used, all having exceptional results. A 3 month (Good "long", Bad "Benchmark" and Ugly "short") pseudo portfolio challenge was created from 12 Feb to 15 May 2020 to prove how good this program works and it showed in the results by outperforming either way. See the results here
Shares are now pre-selected using a screening program, inspired by Uncle Warren and Benjamin to select the best potential candidates to outperform the market. They are selected on a couple of criteria, mainly valuation, market Cap, performance, and lastly volatility, but the latter is of lesser importance but does project larger returns. The reverse screening criteria are used for selecting possible short positions.
Share data like PE, Dividends, share price, trend line data, and several indicator values are entered into the program, some on a daily basis and some on a weekly basis. The program firstly determines if this share is in a bull or bear trend and then calculates the growth rate with all the information, trend direction, and indicators supplied. This gives an indication over time of the performance of this share and projects a future price for each share, but this does not mean it is a good time to enter a trade.
The program then calculates with historical trend lines, the upper and lower trading ranges for each share. These limit values are influenced by several indicators that factor in the probability of this support or resistance line being broken or not. If a share price nears these support or resistance levels, several indicators give a momentum index that would influence a break, short-test, or a test of this level. The program uses these indicators to update where the most probable upper and lower trading limits are. It then uses the current share price to determine the position it holds within the trading range and creates a risk-reward ratio. The risk-reward ratio ultimately determines how profitable a trade will be and if it should be bought or sold.
Each portfolio now has a risk and asset management monitor. A risk profile can be chosen for each portfolio from 1-8. Where 1 would be a super conservative investor with very few trades over a one year period and a 50% typical investment. A 4 rating would be similar to a Hedge Fund with long and short positions in the market and regular trading with a 200% gearing. A 6 would be an aggressive portfolio with gearing of up to 300% as its ultimate exposure and an 8 would be a super-aggressive approach with 400% exposure.
To enter into a new trading position the risk management monitor calculates the overall risk /reward of the portfolio and will only identify shares that will improve the risk/reward as possible trades. Similarly, it will identify current holdings that have the worst risk/reward ratio and suggest orders to lower the risk on a continuous basis. Entry and exit prices are determined mainly by the risk/reward value but are also influenced by the overall market momentum, which would identify short term corrections and then suggest deeper buying levels and lower selling levels.
The risk management monitor will normally keep the portfolio at 50-75% of its maximum exposure rating, and leaving funds available for exceptional trades. When it gets to the higher end of its exposure, it will amplify possible entry prices as to improve risk/reward even further.
To avoid over-exposure in any one share, the risk monitor limits exposure to 20% of the maximum exposure for each portfolio type. There are many other logical features that also have an influence on pricing, returns, and exposures.
To conclude, the Next Level Share Selection Program has been developed to enter an investment in the right stock, at the right time, for the optimal duration and giving you the highest return you could possibly achieve.
With the Risk and Asset Management Monitor, it keeps your investments in the zone to create the Perfect Portfolio!