This does not look very appealing, does it?
What if there were some kind of system that:

1) performs good in any kind of market
2) limits the losses in any kind of market
3) doesn’t take much time to follow up

Do you think it exists? I was sure that some kind of system exists. I therefore used a lot of time backtesting several strategies.
So far, this looks very promising, doesn’t it?

Below you will see first a chart of the model versus the SP500 index. In the second chart, you will see the maximal drawdown (the % loss from the peak), and in the third chart, you can see how much money was invested in the market:

The max. drawdown is only -11.96%, compared to -56.78% for the SP500!
The Average annual return is 9.62%, and the total return is 265.47%, against only 23.61% of the SP500 over the same period!
The correlation with the SP500 is only 0.06, which means that the portfolio is basically not correlated with general markets at all!

The best of all (for passive investors), is that one only needs to look at the portfolio once in 4 weeks to rebalance!

The returns are including dividends and an assumed 0.5% transaction cost.

The nice thing is that the portfolio rose when markets fell (sharply). That was because I implemented an hedge of 70% of total Equity in SH (Proshares Short SP500) when current year consensus EPS estimates are trending down. The EPS trend is defined as the simple moving averages of the 5 vs. 21 weekly data points.

Below you will see the factors I used at portfolio123.com (sign up for a free trial!)

 Period

Date Periods: 01/02/99 02/13/13

 General

Based on: 4Weeks – 12.58% annual based on Piotrosky

Starting Capital: $10,000

Benchmark: S&P 500

Commission each Trade: 0.5

Commission Type: % Of Total

Slippage Pct: 0.0
Rebalance Frequency: Four Weeks

Allow Rebuy Sold Holdings:Yes

Price for Transactions: Next Open

 Position Sizing

Position Sizing: Pct of Portfolio Value

Pct of Portfolio Value: 10.0

Max Deviation: 30

 Universe and Ranking

Universe: All Fundamentals

Ranking System: All-Stars: Piotroski

Use Ranking System Default

 Buy Rules

Buy1: EPSPExclXorTTM>0 // EPS above breakeven

Buy2: OpInc(0,TTM)> 0 // Operating Income above breakeven

Buy3: OCFPSTTM>0 // operating cash flow per share above breakeven

Buy4: GMgn%TTM> GMgn%PTM // gross margin improved in past year

Buy5: OCFPSTTM>EPSPExclXorTTM // operating cash flow per share above EPS

Buy6: DbtTot2AstQ< DbtTot2AstPYQ // Total debt to assets ratio down in past year

Buy7: CurRatioQ> CurRatioPYQ // Current ratio improved in past year

Buy8: AstTurnTTM>AstTurnPTM // Asset turnover improved in past year

Buy9: ROA%TTM> ROA%PTM // Return on assets improved in past year

Buy10: ShsOutAvgTTM<= ShsOutAvgPTM // Number of outstanding shares did not rise in past year

Buy11: Div5YCGr%> 10

Buy12: ROE%5YAvg> 10

Buy13: PEG< 1.3

Buy15: Universe(NOOTC) And AvgDailyTot(20)> 50000 //eliminate least liquid stocks

 Sell Rules

Rank: Rank< 80

 Stop Loss

Stop Loss Strategy: None

 Hedge / Market Timing

Hedging Options: Enable

Hedge Vehicle: ProShares Short S&P500 – SH

Pct of Total Equity: 50

Include Cash: Yes

Transaction Type: Long

Use Margin: No

Entry: sma(5,0,#spepscy)<=sma(21,0,#spepscy)

Exit: close(0,#sprp)>=1 and sma(5,0,#spepscy)>sma(21,0,#spepscy)

We already Bought RWE once earlier in late 2011 at €21.83, just 2 days before the stock bottomed & rallied sharply: http://profitimes.com/free-articles/rwe-nuclear-explosion-in-share-price/

We then sold RWE on October 10th, just one month later at €30.65. The stock then came down again to 25.5-26 and then rallied higher towards €37. It now retreated to below €29 again, and I think the stock is attractive at current prices…

We will therefore buy 138 shares at the current price of €28.98, for a total of 3,999.24€ for our Long Term Value Portfolio.

Yacktman Asset Management bought 12.2 million RIM shares last quarter, doubling the firm’s stake to about US$252 million, according to data compiled by Bloomberg. Yacktman sees value in the BlackBerry’s 80 million users worldwide, its physical keyboard and the promise of a new operating system, even as the phone’s U.S. market share drops to less than 2% from 8.5% a year ago.

Read more: FinancialPost

We will add 308 shares at todays closing price of $7.26 to our Long Term Value portfolio.

We might soon initiate a new position for our Trading portfolio as well.
 

If he liked it at 376 in September 2011, he should love it below 330 now… And so he does…

* Berkshire Hathaway ups Tesco stake to 5.1 pct from 3.2 pct
* Move follows plunge in Tesco shares on profit warning (Adds detail, background)
LONDON, Jan 19 (Reuters) – Billionaire U.S. investor Warren Buffett has lifted his stake in Britain’s Tesco in a move likely to be seen as a vote of confidence in Chief Executive Phil Clarke after a profit warning from the world’s No.3 retailer last week.
Buffett’s Berkshire Hathaway Inc had increased its stake in the British supermarket group from 3.21 percent to 5.08 percent as of Jan. 13, a regulatory filing showed on Thursday.
That’s a day after Tesco warned trading profit for its 2012-13 financial year would be flat as it steps up investment in its home market following its worst underlying Christmas sales performance for decades.
Dubbed the “Sage of Omaha” for a string of investments that have propelled him to number three on Forbes’ 2011 list of the world’s wealthiest men, Buffett’s share dealings are closely watched in financial markets.
After buying into Tesco in 2006, Buffett has gradually increased his holding.

Read more: Guardian

We will add 150 shares of Bekaert (Ticker: BEKB) to our long term value portfolio at a price of €26.855 (the current price).

I will upload an in-depth analysis soon.

Please find an updated version of our Long Term Value Portfolio here.

Since March 22nd, our portfolio is up 5.10% in Euro. This compares to -18.85% for the Eurostoxx 50, and +2,72% for the SP500 in €.

Dividend investing is a form of value investing, where investors do not realize all of their return all at once, but rather on regular and consistent intervals. Dividends provide a direct link between the financial performance of a company, and the returns of its shareholders. Sometimes the market does not recognize that certain firms are more valuable for extended periods of time, even if their earnings are higher and valuations are cheap. With dividends, value investors realize a return that puts them closer to realizing the intrinsic value of the stock, no matter what the market or the stock price does.

Not all dividend stocks are attractive bargains however, which is evidenced when applying certain quantitative and qualitative criteria. In addition, investors should analyze whether the dividend payment is sustainable. There has to be an adequate margin of safety in dividend coverage from earnings or cashlows, which would ensure prompt payment of distributions even if there was a temporary fluctuation in operating performance.

I typically look for a margin of safety in dividends in corporations to be 50%-60% or below. This means that the dividend payout ratio should not be over 60%, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. When a company pays out almost all of its earnings as dividends, that leaves little room for maneuvering if earnings decline. In addition, this leaves little for investing and growing the business. There are some exceptions, where investors need to look beyond dividend payout ratio in order to evaluate dividend sustainability for Real Estate Investment Trusts, Master Limited Partnerships or Business Development Corporations to name a few. For REITs, investors should look at Funds from Operations (FFO). FFO is defined as net income available to common stockholders, plus depreciation and amortization of real estate assets, reduced by gains on sales of investment properties and extraordinary items.

For example, in 2010 Realty Income (O) distributed $1.722/share in dividends, whereas earnings were $0.92/share. It’s FFO per share was $1.83/share however. Check my analysis of this REIT.

Some companies with safe dividends include:

Amazon hired an investment bank this summer to review a potential merger with RIM, but it didn’t make a formal offer, one of the sources told Reuters.

RIM and Amazon declined to comment to Reuters.

Website: http://www.reuters.com

Prem Watsa, often called the “Canadian Warren Buffett,” is the founder of hedge fund Fairfax Financial, and insurance and investing corporation. Unlike Buffett, he likes technology stocks and as of the third quarter, they are 27.4% of his portfolio, the largest sector represented.

The largest technology stocks in his equity portfolio are: Dell Inc. (DELL), Research In Motion (RIM) and Motorola Mobility Holdings (MMI).

Research In Motion is a world leader in the mobile communications market and has a history of developing breakthrough wireless solutions. Research In Motion Ltd. has a market cap of $9.1 billion; its shares were traded at around $17.36 with a P/E ratio of 3.1 and P/S ratio of 0.5. Research In Motion Ltd. had an annual average earnings growth of 53.4% over the past 5 years.

UK-based research firm Canalys reported on November 1 that RIM’s U.S. market share fell from 24% in the third quarter of 2010 to 9% in the third quarter 2011, and it was below 10% for the first time. RIM’s volumes also declined 58% year over year.

“The picture for RIM in other parts of the world is clearly more positive. It grew 59% in EMEA and 56% in APAC over a year ago, largely driven by the continued popularity of BBM, its BlackBerry Messenger service. The Middle East and Africa and Southeast Asia were particular bright spots, and while October’s outage, focused on EMEA particularly, has hurt RIM’s reputation for reliability we do not expect it to have a substantial impact and expect a decent Q4 performance there,” said UK-based Canalys Senior Analyst, Tim Shepherd.

Research In Motion has by far the smallest P/E of its competitors, at 3.08, compared to 13.6 for Apple, and 22.88 for Nokia. Over the last five years, the stock has dropped 62%, and Tuesday trades for $18, a low not seen since 2005. The company’s earnings per share, however, are at a record $6.52 for fiscal 2011, an increase from $4.41 for fiscal 2010. Return on equity, return on assets and net income have each also reached all-time highs.

RIM has a strong balance sheet, with zero long-term debt, $281 million in long-term liabilities, though its cash decreased from about $2.9 billion in the quarter ended May 28, 2011 to about $1.4 billion in the quarter ended August 27, 2011. The company spent the money primarily on Nortel’s patent portfolio and capital expenditures.

Watsa also liked RIM’s management, as he said in his GuruFocus interview: “Particularly right now for RIMM, getting new management would be a disaster, would be the biggest mistake that the board would make.”

RIM is the fifth-largest holding in Watsa’s portfolio and is a relatively new addition. He bought 2,065,000 shares at an average of $50 in the third quarter 2010, 6,308,300 in the second quarter 2011 at about $44 per share, and 3,425,000 shares at about $27 per share.

Read more: Gurufocus.com