Our investing mission is

clear and on course




Overview



Our investing mission.

This is the age of the machines. Computer algorithms dominate the investing landscape. According to the latest research from Greenwich Associates, “… electronic trades make up about 55 percent of U.S. equity trading volume….”

Developing an investment portfolio driven by fundamental analysis (the preferred and most successful way for decades) has never been more challenging. The reason for such difficulty can be described in one word: volatility.

Predator computer algorithms are designed to drive human emotion and execute at speeds far beyond human capability. They are designed to profit by producing investor fear or greed and taking the opposite side of the transaction.

Can one fundamentally invest in a company with a 5-year time horizon and succeed?

Of course, but the volatility one must endure during that 5-year stretch has increased exponentially and the wide price swings make it difficult for the human to stay the course.

Proprietary computer technology is a must.

Four times in the last year-and-a-half the S&P 500 dropped an average of 10% in just seven weeks. Do you remember your portfolio during those swift declines?

Our investing mission is to employ proprietary computer technology, painstakingly evolved over the last 5-years, and vigorously tested over the last 10-years, to aid the human brain by dramatically reducing volatility.

Our platform’s core function: The goal that drives all of our algorithmic work is to dramatically reduce the drawdowns experienced in the “buy and hope” portfolio while still capturing the upside.

Capital preservation and growth are key.

Whenever capital is deployed risk is taken. In a strategy where Stop Loss rules are followed one can safely say the risks are always going to be relatively equal. The key then is to patiently determine when reward possibilities are at their highest and expose capital only at those optimal times.

If executed with discipline we believe this optimal-time-exposure process will result in an equity curve that stair-steps higher at a 45-degree angle. This means our capital will be growing at a steady clip while dramatically reducing the draw-downs, thus creating an investment experience much more comfortable than the wild volatility of the world we live in today.

We have designed a professional Algorithm Platform and an investing process for individuals (see below) to smooth out the investment experience and combat the institutional machines that are predators in the stock market.

Process — Swing Algorithm 

(intermediate investing term)
Focus on three indices.

We will be employing our computer algorithm technology on the three (3) most important and encompassing indices:

  1. S&P500 (SPY)
  2. NASD100 (QQQ)
  3. Russel SmallCap600 (IWM)

The resulting data will be our compass and will determine direction and exposure for the rest of the portfolio.

Seventy-five percent (75%) of Sectors, Groups and Stocks follow the direction of the major averages so these indices will always be our North Star.

Once we patiently sync portfolio with index direction we can begin to build our 45-degree equity curve. The challenge will be having the patience to remain liquid until the appropriate time arrives. Synchronizing with patience will always be the key to correct execution.

Process — Daily Hedging Algorithm Technique


Reduce volatility and avoid drawdowns.

We have developed important intra-day hedging for the express purpose of further reducing volatility and capital drawdowns.

Our Swing strategies execute at precise times of day based on extensive research. So, we must employ intra-day hedging techniques to buffer volatility until the Swing strategy signals a change in direction.

The key to this process is allowing for typical volatility during the day but recognizing that when volatility violates our program limits, protection of capital is required. We have optimized this recognition process for the specific volatility profile of each of the three (3) major indices and our proprietary selection of sectors and groups.

Appendix

Summarized statistics over a 10-year backtest

1/1/2007- 12/31/2016

 

Day Trader, Bret Rosenthal, shares an example of a SPY500 mean reversion trade.

A CLOSE STUDY OF THE SPY ALGORITHM OVER A 10-YEAR PERIOD REVEALS THE FOLLOWING IMPORTANT DATA

 

RETURN OF INVESTMENT

65% success rate over 10 years (includes financial crisis of 2008)

71% success rate over 8 years (excludes financial crisis of 2008) — This means 3 out of 4 entry signals result in profitable outcomes.

Return on Initial Capital = 164.41%

Buy & Hold Return = 93.00%

Annual Rate of Return = 9.71%

Profit Factor (Gross Profit vs. Gross Loss) = 2.99


DRAWDOWN

During the 2008 bear market

Max drawdown = 23.58%

Buy and hold max drawdown = 57.40%

 

8 years excluding 2008 bear market

Max drawdown = 5.18%

Buy and hold max drawdown = 21.7%


RINA Index = 440.80

RINA Index = Net Profit / (Average drawdown * percentage of time in market)

The RINA Index rewards strategies that spend less time in the market, decreasing the inherent market risk.

Target ratio = >100. Ideal ratio = >200.


% Time in the Market: 48.52%

Longest flat period: 63 days, 30 min.

Exhibit A

Equity Curve Detail is based on a $1mil portfolio over a 10-year period investing based on the Long-Only Swing Algo.

Exhibit B

SPY Weekly price chart representing the Buy & Hold strategy for comparison to Exhibit A.

Find out how the RCM Index Swing Strategy Platform can reduce downside risks in your portfolio.

SPEAK TO ONE OF OUR ALGORITHM ARCHITECTS…

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