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Article Title:
What's Working Now?

Article Description:
Financial markets are not static.  What works now might not work 
tomorrow.  Sometimes what worked in the past will start to work 

Additional Article Information:
700 Words; formatted to 65 Characters per Line
Distribution Date and Time: Tue Apr 18 03:54:04 EDT 2006

Written By:     Lyle Wilkinson
Copyright:      2006
Contact Email:  mailto:[EMAIL PROTECTED]

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What's Working Now?
Copyright © 2006 Lyle Wilkinson
DIY Portfolio Management

Financial markets are not static.  What works now might not work 
tomorrow.  Sometimes what worked in the past will start to work 
again.  Market forces push prices thru the theoretical correct 
price and back from one side to the other of this correct price. 
Accepted calculation of theoretical correct price based on 
discounted future cash flow, is easy to understand.  However it 
is not fool proof as future earnings and appropriate discount 
rates are estimates.  It's not easy for an individual to wade 
thru all the info available and make money on stock equity.

I've been increasingly enthused about ETFs, Exchange Traded 
Funds.  In DIY Portfolio Management, I recommend SPY* or a mix 
of a few large ETFs as good strategies for those who don't want 
to invest a lot of time or assume a lot of risk.  The appeal of 
holding ETFs comes from low expense ratios, diversification, and 
tradability.  ETF expense ratios range from .2% to a high of 
.95%.  ETFs are baskets of equities, usually designed to mimic 
the performance of some index, thus reducing risk of holding 
individual equities.  ETFs trade all day long, like stock 

ETFs are becoming increasingly popular.  There is more and more 
info about ETFs on the net, just google ETF.  In 1993 there was 
just one ETF, and by April 2006 listed 234 

Starting in 2004, I've been paper trading Trend Regression 
Portfolio Strategies using models with 50 ETFs.  Paper results 
looked good with these accounts beating the market.**  I switched 
one of my real money accounts to a traded ETF strategy in March 
2005, and expanded to a second account in November.

The oldest account grew 29% from 3/28/05 to 4/1/06, compared to a 
13% return for SPY.  The newer account grew 12% from 11/7/05 to 
4/1/06; SPY grew 7% in the same period. 

These strategies are funded at FOLIOfn.  This broker works for me 
because I focus on managing portfolios rather than investing in 
individual equities.  

My oldest funded ETF account is a mix of a daily price and a 
weekly price models using the same 50 ETFs.  The ETFs were picked 
primarily based on length of trading history.  The newer account 
adds continuous holding of 6 large ETFs.***  The total number of 
ETFs held varies week to week, from 9 to 12.  Both accounts are 
always 100% invested.  The newer account blends 'buy and hold' 
and Trend Regression Portfolio Strategies in a single account.

The performance of these strategies has been good relative to 
SPY.  I don't know how long it will last.  My experience has been 
that models work for a while then fade.  I'm not sure yet whether 
it is because the models just stop working or because my focus 
shifts.  Anyway!  The point is not that the outstanding 
performance of these ETF models makes them terrific strategies, 
but that it is possible to beat the market.  Remember, beating 
the market takes work, discipline, and acceptance of risk.  For 
most individual investors busy with their lives, it is probably 
best to lock in a market return by buying SPY.

*SPY is the ticker for S&P Depositary Receipts the ETF designed 
to capture the total return of the S&P 500 index.   SPY mimics 
the S&P 500 index by holding stock in all 500 companies in the 
index in the same proportions as the index itself.  SPY is the 
oldest ETF (inception 1/29/1993), the largest ($51 billion net 
assets), and is the second most actively traded (62 million 
shares per day average).

**I'm defining the market as the S&P 500 index.  SPY has a beta 
of 1.  An account with a higher total return than SPY is beating 
the market.  SPY is a pretty broad measure of the US market.  If 
you are thinking global you can use a broader index.  I use one 
created using a paper-trading account with 5 ETFs rebalanced 
weekly.  This index gained 19% between 3/28/05 and 4/1/06.  The 
actively modeled/managed ETF account's gain on market depends on 
how you define the market.

***The six large ETFs are SPY (for broadness), DIA (for 
tradition), QQQQ (for tech), EFA (for international), EWJ 
(because my wife is Japanese), and EWC (because I'm Canadian).

Lyle Wilkinson, investor, trader, author, MBA
Helps individuals learn to self direct their stock portfolios.
Book, e-book, PowerPoint "DIY Portfolio Management"



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