Retirees Income Portfolio Revised for 2015

By Stan Heller, Consultant, VectorVest Canada

The Canadian market ended 2014 on a fairly volatile note, a trend that is continuing so far in 2015. Today is a perfect example.

From the daily chart to our left, you can see the Retirees opened sharply higher today and then fell back as the day progressed, rising slightly near the end of the trading day to close with a slight gain. Of course sometimes it’s gone the other way, but daily volatility has been a fairly regular visitor the last few months. A pattern recently is that when the price of oil starts to recover, money flows out of defensive dividend payers into more aggressive petroleum plays. That’s what happened again today. It seems when the price of crude falls back, the dividend payers do better. So, we will likely see continued volatility until oil prices recover some more and stabilize.

It’s important to remember the purpose of the Retirees Model Portfolio:

1. Find quality companies with high VST scores (Value, Safety and Timing) and high YSG scores (Dividend Yield, Dividend Safety and Dividend Growth).  The search criteria only finds companies that have a solid track record of raising their dividends year over year.
2. Provide a trading system template with market timing to serve as a guideline for your own trading plan.
3. Take a long term perspective and allow capital gains and dividend increases to compound over time while preventing a major collapse by any single stock.

To that end, the stop criteria for this year’s model portfolio has been tightened up considerably. After significant testing of various entry points and stop criteria, preference was given to a tighter stop that in testing delivered solid capital growth with just an 8.05% maximum drawdown. Maximum drawdown is defined as the largest percent decline from a portfolio peak to the next valley. So while the 15% trailing stop with a 30% Target Gain and 10% Maximum Loss delivered excellent overall results, it wasn’t the criteria that delivered the best percent returns. But it was the best overall and seems well-suited for our current market conditions.

While it’s possible to follow the trades in the Retirees Model Income Portfolio, we expect investors will use the ‘model’ as a guide to develop their own trading plan for What to Buy, When to Buy and When to Sell. No one should buy a stock without first checking the graph, the news and the industry group.

The Retirees has been automated to buy stocks at then next day’s open after any Primary Wave/Up signal. That’s VectorVest’s fastest market timing signal. It gets you in early after a market bottom, but there may sometimes be quick reversals. If the futures are down and the market opens sharply lower the day after a PW/Up signal, investors don’t have to pull the trigger on new purchases. Our automated Retirees trading plan however will buy stocks the next day at the open if there’s room in the portfolio, regardless if the market opens higher or lower. My testing showed that even with retirement stocks, getting in closer to market bottoms proved to be the safest time to buy for long term growth.

Attached below is the trading plan in Word document for the new Retirees Income Model Portfolio complete with backtesting results. Again, it’s always a good idea to do your own testing, study the charts of stocks that are being purchased in the backtest, and run tests with stop criteria that might be better suited to your own risk tolerance, investment goals and time horizon.

Below shows the backtest results of the new Retirees Income Model Portfolio between the dates of 12/30/2011 and January 2, 2015. It shows a 37% Annualized Rate of Return with just an 8.05% Maximum Drawdown. I’m trading it myself from the backtest date and I’m excited to see how it performs going forward.

DISCLAIMER: Investing involves risk. The information contained in this Blog is for education and information purposes only. It should not be considered as investment advice or individual stock recommendations. Everyone should have their own trading plan that reflects their own financial situation and goals, risk tolerance and time horizon. VectorVest offers considerable education and support including a Successful Investing Course on the Welcome page and free telephone support at 1-888-658-7638.

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