Study of Selling Strategy

I reviewed my database of about 2000 MFI stock years and tested the strategy of selling a MFI stock if it had dropped 20%. I found that this was not a very good strategy. If you own a stock, three things can happen:

1. It drops 20%and then continues to drop. Then the strategy is good
2. It never drops 20%. Then the strategy is neutral.
3. The stock drops at least 20% but finishes the year with less than a 20% drop.

Here are the counts and averages in each of those buckets:

	Count	Actual Gain/Loss	Gain/Loss with stop Loss
Stocks that would have been helped by selling after 20% drop	739	-47.0%	-20.0%
Stocks that did not have 20% drop	636	48.0%	43.0%
Stocks that dropped by 20% and recovered	595	20.0%	-20.0%
Totals	1970	3.9%	0.3%

So the 1970 stock years on average are up 3.9% (going back to January 2006). If yoy put in the stop loss, the average stock would be up only 0.3%. If you turn the strategy backwards and BUY a MFI stock when it drops 20% and those were the only stocks you bought, the average stock would be up 2.6%. Not quite as good as the overall +3.9%, BUT you would be invested on average under a year, so if you annualized the 2.6%, you'd likely be close to the 3.9%.

The lesson? Don't mess with the strategy. I still think a basic improvement is to buy stocks per my mechanical portfolio.

Speaking of which, I did add a new stock to my portfolio that was another "mechanical" stock. I bought RAI... your basic sin stock. Pays almost a 7% dividend, seems nice in today's unsure world.

My portfolio is hanging tough. AMED has been on fire and is now up over 60% for me (yes, it was a mechanical pick). Here is an update on the mechanical portfolio, top 50 (note AMED is up 72%):

Symbol		Original	Current	Dividend	S&P O	S&P D	Stock Chg	S&P Chg	Diff
HPY	1/24/09	8.54	14.67	-	83.11	2.18	71.8%	39.7%	32.1%
HLIT	1/31/09	5.15	6.34	-	82.83	2.18	23.1%	40.1%	-17.0%
HGT	1/31/09	13.06	17.92	0.65	82.83	2.18	42.2%	40.1%	2.1%
CNU	2/8/09	1.96	4.99	-	86.98	2.18	154.6%	33.4%	121.2%
SJT	2/8/09	19.05	22.17	0.55	86.98	2.18	19.3%	33.4%	-14.2%
SGU	2/8/09	2.55	4.27	0.20	86.98	2.18	75.5%	33.4%	42.0%
TC	2/8/09	4.33	14.06	-	86.98	2.18	224.7%	33.4%	191.3%
bioc	2/14/09	3.72	4.44	-	82.76	2.18	19.4%	40.2%	-20.9%
FORR	2/14/09	17.56	28.12	-	82.76	2.18	60.1%	40.2%	19.9%
ZYXI.OB	2/14/09	1.20	1.03	-	82.76	2.18	-14.2%	40.2%	-54.4%
FRD	2/21/09	4.95	5.67	-	77.42	2.18	14.5%	49.9%	-35.4%
SOLR	2/21/09	4.22	5.97	-	77.42	2.18	41.5%	49.9%	-8.4%
MTXX	2/21/09	17.90	4.59	-	77.42	2.18	-74.4%	49.9%	-124.3%
TYPE	2/21/09	3.02	9.74	-	77.42	2.18	222.5%	49.9%	172.6%
PTIE	2/21/09	5.41	5.26	-	77.42	2.18	-2.8%	49.9%	-52.7%
PDO	2/21/09	3.19	4.83	-	77.42	2.18	51.4%	49.9%	1.5%
SAPE	2/21/09	3.38	8.53	-	77.42	2.18	152.4%	49.9%	102.5%
VDSI	2/21/09	5.25	7.82	-	77.42	2.18	49.0%	49.9%	-1.0%
IGTE	2/21/09	2.99	10.16	-	77.42	2.18	239.8%	49.9%	189.9%
DECK	2/28/09	41.27	106.55	-	73.93	2.18	158.2%	57.0%	101.2%
KTII	2/28/09	55.48	148.50	-	73.93	2.18	167.7%	57.0%	110.7%
INT	2/28/09	29.01	52.72	-	73.93	2.18	81.7%	57.0%	24.7%
ICAD	2/28/09	0.90	1.49	-	77.42	2.18	65.6%	49.9%	15.6%
EXBD	3/6/09	12.96	24.32	-	68.92	2.18	87.7%	68.4%	19.2%
DISH	3/6/09	9.27	19.88	-	68.92	2.18	114.5%	68.4%	46.0%
QLTI	3/6/09	1.41	4.62	-	68.92	2.18	227.7%	68.4%	159.3%
SRDX	3/6/09	16.87	21.18	-	68.92	2.18	25.5%	68.4%	-42.9%
INFI	4/16/09	5.83	6.09	-	87.08	1.62	4.5%	32.6%	-28.2%
CRAY	5/1/09	3.98	5.38	-	87.89	1.62	35.2%	31.4%	3.8%
TWX	5/1/09	22.84	28.62	-	87.89	1.62	25.3%	31.4%	-6.1%
RST	5/1/09	29.83	18.96	-	87.89	1.62	-36.4%	31.4%	-67.9%
ulcm	5/1/09	8.72	9.87	-	87.89	1.62	13.2%	31.4%	-18.2%
AAV	5/15/09	3.41	6.77	-	88.71	1.62	98.5%	30.2%	68.3%
AMED	5/29/09	30.43	59.87	-	92.53	1.62	96.7%	24.8%	71.9%
UTA	5/29/09	7.90	10.23	-	92.53	1.62	29.5%	24.8%	4.7%
PFE	6/5/09	14.51	19.94	-	94.55	1.62	37.4%	22.2%	15.3%
VM	6/5/09	4.55	5.50	-	94.55	1.62	20.9%	22.2%	-1.3%
ONTY	6/11/09	2.60	5.36	-	95.08	1.62	106.2%	21.5%	84.7%
BPI	6/19/09	16.74	14.90	-	92.04	1.10	-11.0%	24.9%	-35.9%
GME	6/19/09	22.95	20.51	-	92.04	1.10	-10.6%	24.9%	-35.6%
SHAW	7/10/09	23.69	30.92	-	87.96	1.10	30.5%	30.7%	-0.2%
RTN	7/24/09	45.39	54.48	0.62	98.06	1.10	21.4%	17.3%	4.1%
CBZ	7/31/09	6.54	7.49	-	98.81	1.10	14.5%	16.4%	-1.8%
CBI	7/31/09	13.95	23.54	-	98.81	1.10	68.7%	16.4%	52.4%
DRC	7/31/09	29.11	31.85	-	98.81	1.10	9.4%	16.4%	-7.0%
JEC	7/31/09	40.98	40.14	-	98.81	1.10	-2.0%	16.4%	-18.4%
NPSP	7/31/09	3.89	3.46	-	98.81	1.10	-11.1%	16.4%	-27.4%
ASGN	7/31/09	4.23	7.00	-	98.81	1.10	65.5%	16.4%	49.1%
AGX	8/7/09	12.35	14.20	-	98.81	1.10	15.0%	16.4%	-1.4%
BBND	8/7/09	4.00	3.33	-	98.81	1.10	-16.8%	16.4%	-33.1%
LHCG	8/7/09	24.55	34.22	-	98.81	1.10	39.4%	16.4%	23.0%
RGR	8/7/09	11.45	11.09	-	98.81	1.10	-3.1%	16.4%	-19.5%
PRIM	8/7/09	6.95	8.01	0.05	100.79	1.10	16.0%	14.1%	1.9%
SEPR	8/7/09	18.12	23.00	-	100.79	1.10	26.9%	14.1%	12.8%
CEU	8/21/09	5.10	6.78	-	102.96	1.10	32.9%	11.7%	21.3%
CYTK	8/21/09	3.04	3.01	-	102.96	1.10	-1.0%	11.7%	-12.7%
CMFO	8/28/09	4.55	7.01	-	102.96	1.10	54.1%	11.7%	42.4%
NAVR	9/4/09	1.79	2.04	-	102.60	1.10	14.0%	12.1%	1.9%
WTW	9/11/09	26.00	29.09	0.35	104.77	1.10	13.2%	9.8%	3.5%
MIPS	9/18/09	3.72	4.15	-	106.72	1.10	11.6%	7.7%	3.8%
ESI	10/30/09	90.35	97.91	-	103.56	0.59	8.4%	10.5%	-2.2%
VRSK	10/30/09	27.43	27.99	-	103.56	0.59	2.0%	10.5%	-8.5%
APOL	11/6/09	55.99	59.33	-	107.13	0.59	6.0%	6.9%	-0.9%
CBST	11/6/09	17.60	20.89	-	107.13	0.59	18.7%	6.9%	11.8%
SNTA	11/6/09	3.20	4.85	-	107.13	0.59	51.6%	6.9%	44.7%
IMMU	11/6/09	3.61	4.23	-	107.13	0.59	17.2%	6.9%	10.3%
PBH	11/13/09	6.95	7.96	-	109.62	0.59	14.5%	4.4%	10.1%
IDCC	11/20/09	23.56	26.10	-	109.43	0.59	10.8%	4.6%	6.2%
PDLI	11/27/09	6.63	6.75	-	109.57	0.59	1.8%	4.5%	-2.7%
CBPO	12/4/09	9.06	11.79	-	111.01	0.59	30.1%	3.1%	27.0%
XOMA	12/4/09	0.72	0.70	-	111.01	0.59	-3.0%	3.1%	-6.1%
SHE	12/31/09	5.15	8.70	-	111.44	-	68.9%	2.2%	66.7%
RAI	1/15/10	53.81	54.03	-	113.64	-	0.4%	0.2%	0.2%
TRMS	1/15/10	2.45	2.41	-	113.64	-	-1.6%	0.2%	-1.9%
SAI	1/15/10	18.90	18.89	-	113.64	-	-0.1%	0.2%	-0.3%
						Top 50 Portfolio
						Totals	22.6%	2.7%	19.9%
53.6% of stocks beat the S&P 500 Benchmark						Closed	12.1%	-9.2%	21.2%
S&P C			113.89			Open	44.4%	27.3%	17.1%