Invest By Model

Audio Research

While we are having technical difficulties getting the research onto the site, we have an exciting announcement:  We will be providing audio updates selectively on names in the models.  Depending on the feedback we get, we hope to utilize this new feature extensively.  We will provide instructions on how to access the research as soon as it is up and running.  In the meantime, here is an example:

Download DORM092611

 

Sector Selector ETF Model Portfolio is Live

Effective 4/29, we are launching our third model portfolio, Sector Selector ETF Model Portfolio.  We are offering a free trial for 30 days, so please feel free to check it out yourself or to mention it to your friends, family and associates.

The goal of Sector Selector is to beat the S&P 500 using solely ETFs, primarily those representing various sectors of the market. The model may hold up to 25% in cash and must hold a minimum of 50% US equities. A maximum of 10% may be invested in each of the following: Commodity, High-Yield or Bond ETFs. A maximum of 20% may be invested in dollar-denominated Foreign Equity ETFs.

I expect that there will be many similarities to our other two models, but there are some substantial differences:

Similarities

• Same website - www.InvestByModel.com
• Same functionality - trade alerts, easy to figure position sizes
• Same Portfolio Manager - Alan Brochstein
• Diversification
• Performance focus
• Same thoughtful and persistent communication via the blog

Differences

• Fewer positions
• Less turnover
• Less research provided
• Lower subscription fee - just $10
• Lower overall cost (including commissions)

Before I share the initial model (which you can see on the website yourself), I want to explain why we are offering Sector Selector.  While I don't expect that anyone who subscribes to our stock-picking models will want to migrate, I do believe that this product will be something to apply to a different bucket, so to speak.  The Top 20 style or the Conservative/Growth Balanced style both have a lot of appeal - more than 10% of our subscribers choose both.  Still, I understand that there are many reasons why one might not want to put all of ones eggs in a single basket.  The ETF model offers a lot more diversification - no security risk.  It also gives me some additional flexibility not available in Top 20 with respect to using cash (25% maximum compared to 10%). 

Even if it doesn't appeal to those of you who already understand the value proposition and appreciate the performance, we are hopeful that it will open our whole portfolio model process and philosophy to a broader group of investors that might migrate over time to our stock-picking models.  We also avoid some of the crowding issues that might arise over time as we get larger - this model is much more scalable in that regard.

If the description above isn't clear, hopefully this explains what we will be doing.  My primary decision is to pick sectors of the market that have the most appeal and to adjust over time.  Since we are trying to beat the S&P 500, that opens up the possibility of choosing between various S&P 500 sectors (like the SPDR funds).  We can also choose to vary our market-cap exposure, shifting towards Mega-Caps or Small-Caps.  Finally, we have included a few other areas, with limited potential exposures, including commodities, bonds, high-yield, or international stocks (dollar-denominated though). 

I have shared some long-term goals for the other models in the past, suggesting that I aim for S&P 500 plus 12-20% for the Top 20 and a bit lower for CG/B (since we use bond ETFs and can't really add value in security selection on a large part of the portfolio).  For Sector Selector, my expectations are that we can beat the S&P 500 on a gross basis by 3-5% a year (including embedded ETF fees that typically are 0.2-0.3%).  To me, that type of performance over time would more than justify the price ($120 per year) for accounts larger than $25,000 (the math suggests possibly even lower, but it depends upon transaction costs). 

The initial model looks like this:

• PSCI - 5%
• XLG - 20%
• VWO - 15%
• XLK - 21%
• XLF 16.5%
• XLV - 7%
• XLY - 7.5%
• XLU - 5%
• Cash - 3%

So, let me tell you whatwe are trying to accomplish.  For those familiar with the structure of the other models, you will most likely detect a lot of consistency.  PSCI is Small-Cap Industrials - which are big in the Top 20.  XLG gets us the Mega-Cap exposure I have added to Top 20 and that is a great part of CG/B.  VWO gets us into a trade I like right now - Emerging Markets, which I expect can beat the S&P 500 over the balance of this year by 10-15%.  The other five ETFs represent the sectors.  We have exposure through XLG to all the sectors.  The balance is heavily weighted towards Technology (XLK) and Financials (XLF).  We have no Energy, Materials or Industrials and no Consumer Staples, and we have below-market exposure to Health (XLV) and Consumer Discretionary (XLY).  Utilities (XLU) account for the rest - a slight overweight that is designed to compensate for our lack of exposure to Telecom Services.

Let me know what you think!  We are excited about where we are headed, with ideas for an income model as well as a hedged model in the development phase.  We have received terrific feedback regarding our website redesign, which we continue to enhance.  So, please check out Sector Selector ETF Model and help us to spread the word.

Thanks,

 

Alan Brochstein

www.InvestByModel.com

My Own Analyst - Free Look

Thursday completes the first month of My Own Analyst as a subscription-based blog.  It's still a work in progress, but I encourage you to check it out over the next two days to see what it's all about.  With earnings reports on several holdings in the models due, April will prove to be a great time to subscribe to this additional service if you want:

• Timely additional information on the holdings in the model
• Access to information on the other names on my Watchlist
• Other ideas as they come up (check out the "Trash or Treasure" section, for instance)
• Answers to your questions

March has been a great month for InvestByModel.  Not only did we unveil the new website (thanks for your patience!), but we are nearing 100 subscribers.  More importantly, the performance is holding up!  Please keep your ideas coming as far as features you would like to see.  What can we do better?  One new feature that we are working on is to provide more timely information on our holdings via the website.  I hope to internalize this blog onto the website so that I can be more open regarding our holdings.

As always, thank you for your confidence and continued patronage.

Regards,

 

Alan Brochstein

www.InvestByModel.com

New Website is Live

My friends at Rainbox Holdings, who are responsible for the website, unveiled the long-awaited new version last night.  I think that subscribers will immediately appreciate the new look and functionality that has been added.  There are still some features to come, but I want to share the major changes thus far:

• Enhanced Performance Information
• Improved Highlighting of Pending Trades
• Upgraded Payment Processing through Authorize.Net

One of the first things you will notice is the performance chart, which allows you to see how the models have performed over time.  Not only can you see the absolute growth of the portfolio, but you can also see how it has done relative to its benchmark (S&P 500 for the Top 20 and a blend of S&P 500 and Barclays Aggregate Bond Index for Conservative Growth/Balanced).  Additionally, you can customize periods in the bottom panel to see how the models performed over shorter periods of time.  Also, we have added annual performance data and will soon be adding quarterly in tabular form.

The color coding for buys and sells is much clearer now.  Additionally, we have added arrows in case anyone might be color-blind! 

On payments, we now take Discover in addition to Visa, Mastercard and debit cards.  Additionally, our international subscribers can now subscribe directly to the website (yes, we have several that we have had to manually process).  We continue to use Authorize.Net, a leading provider of credit card processing services to smaller organizations, but all of the data for recurring billing will reside on their server rather than ours.  Some of you might remember Authorize.Net, as they were owned by CyberSource, a stock we bought in Top 20 just weeks before they were acquired by Visa last year.  You can be even more confident in Invest By Model as an e-commerce merchant knowing that we are an Authorize.Net Verified Merchant.

There are some other great features - I encourage you to spend some time on the website.  We will follow up with some details about these other benefits later when Rainbox finishes adding them.  One that I know many of you will appreciate is the addition of a print button and an export to excel button.  Those are two of the many little tweaks that I hope will make everyone even happier with the service.

Please let me know what you think, and stay tuned for more updates soon.

 

Alan Brochstein

www.InvestByModel.com

February: A Great Month

I will download the updated performance files later this week, but I wanted to post a picture of how the models look as of month-end.  It was a tough day for Top 20, but a good one for CG/B.  I will spare the commentary for the month and continue to give detailed color on a weekly basis.  Suffice it to say, both models were helped in February by the resurgence in smaller stocks, but big hits on a few names were the real driver.

 
So, January was a challenging month, but February was a great month, getting our performance back in line with the fairly consistent outperformance we have been showing for over two years now.  If you are following the model with an account as small as $50K for CG/B or $25K for Top 20, you have already paid for your subscription for the full year with the performance in just the two months.  This calculation builds in some room for commissions.  Not every week or month will prove to be successful, but my goal is to continue to keep those lines up above green!

The next few months should be very exciting.  We should be unveiling a new and improved website before June, hopefully in April.  In addition to a much better interface, we will be able to take more forms of payment as well as payments from outside the U.S.  Also, I have an income model I would like to launch.  We are getting close to 100 subscribers - if we can get there with our existing products, I will launch that next model (though after the new website is up and running).  I also have a hedged model that I intend to introduce for all you worry-warts!  On a more timely front, we did launch My Own Analyst tonight.  Thanks to those of you who were looking for more - I plan to deliver!  If you are interested in learning more about this subscription-based blog aimed at active investors, feel free to contact me.  As always, thanks for the confidence you show in me.

 

Alan Brochstein

www.InvestByModel.com

Green Again

I have a confession...

Intellectually, I understand that performance ebbs and flows.  I know that I can't "bat 1000", but I still don't like to stall the way both models had done to start the year.  Sure, I can put the lag into context, as we knocked the cover off the ball in 2009 and 2010.  I also have been very upfront about setting expectations - it won't be as easy going forward.  A lot of the success has come from our ability to find mispriced securities, and it's getting harder.  Quite simply, there aren't as many and they aren't as mispriced.  Despite my disappointment with the start of the year, I am glad to say that I didn't let it influence my decision-making.  Three things you can count on:  I will stick to my processes, work hard and keep my emotions in check.

As you look below, you will see nothing but green.  I can't promise it will stay this way, but I think it will.  7 weeks into the year, we are keeping up with a torrid market in the Conservative Growth/Balanced model and earning our keep now with the Top 20:

 
Top 20 was lagging by 0.5% a week ago, so it was a very strong week.  The model returned 2.77%, while the S&P 500 jumped a nice 1.11%.  Big picture, small stocks have come roaring back.  The Russell 2000 index is now up 6.64%, just slightly behind the S&P 500.  While this is just one factor among many that affect performance, the early weakness this year in small stocks was a big headwind.  The R2000 is up 6.94% in February, while the S&P 500 is up "just" 4.59%.  Our week was helped by 4 stocks increasing by more than 5%.  Interestingly, they included our two largest positions and two others that are above average.  That's the way it is SUPPOSED to work!  Next week is busy, with 2 of our holdings reporting as well as 20% of my 100-stock Watchlist.

CG/B, which also has two names reporting next week, moved from being down 0.76% a week ago to being slightly ahead now.  For the week, its value increased 1.72%, while its benchmark (60% stocks and 40% bonds) rose 0.87%.  Bonds had a nice week, though they lagged stocks.  Our performance was driven by three stocks in particular.  Encouragingly, these are all names to which we have added over the past 19 days.

Brief Market Update

I don't have a lot new to say on the market, which confounds everyone.  I will say this - it's getting crazy.  For example, of the 100 stocks I follow most closely, 10 are already up 20% YTD (Sorry, I haven't nailed too many of these - just two).  Only 2 are down 10% or more.  The market has a lot of extended stocks, but it's not particularly overbought, at least the way I look at it.  All of this tells me that we could see some consolidation ahead.  I am thinking in mid-March.  I don't expect a pullback of more than 10% for the whole year, so this potential consolidation might be an opportunity for us to rotate a little.  For CG/B, which is about making money but keeping it too, we should expect to see some trims in the coming weeks.  In fact, I have a couple in mind for next week already, so stay tuned.

Published Articles

I published several articles this week:

For TradeKing, I shared a screen of potential breakouts (4 names in our models made the cut)

For Seeking Alpha, I published four notes:

• 10 High-Yielding REITs
• S&P's New Market Cap Definitions
• Mega-Cheap Mega-Caps(over 20K pageviews - very popular justification of higher market)
• 6 High-Yielding Electric Utilities

MoneyShow - Las Vegas

I mentioned last week that I am taking it to the road.  I will be presenting in May in Las Vegas and in August in San Francisco.  I have never been to a MoneyShow before, but I have heard that they are well-attended and highly informative.  If you happen to be in Las Vegas or San Francisco, I would appreciate the opportunity to say hello, whether you attend the event or not.  For those interested, I have chosen a topic and have an assigned time on May 11th in Las Vegas.  Click HERE for more info...

New Service

In case you didn't see the announcement, I am planning on launching a private blog soon.  I have already received firm interest from a few and several other possible subscribers.  My goal is to provide a higher level of service to active traders or long-term investors who have needs that go beyond replicating our two models.  What will make it work for those types of folks is the timeliness and quality of the information - always from the view of a full-time professional.  A lot of the focus will be on stocks that I closely follow, but I expect to have lots of other timely ideas.   This may surprise some of our readers, but model subscribers are getting only a small portion of what I do!  Additionally, blog subscribers will have the opportunity to get their questions answered (though on the blog).  The price will be $100 per month, with no long-term commitment.  The more people we get involved, the more time and effort I will be able to put into it, so get involved!  Feel free to email me or even to call me if you would like to discuss this exciting new service.

Have a nice long weekend!

 

Alan Brochstein

Portfolio Manager, www.InvestByModel.com

 

Soon to Launch: Private Blog

I have heard back from several InvestByModel subscribers that they want more than the whole portfolio management approach - they are looking for short-term and long-term ideas. With that in mind, I expect to launch a private blog to share my actionable ideas on a timely basis in a value-added manner. I intend to charge $100 per month for access to my blog that will be updated on a daily (sometimes more than once!) basis (with real-time alerts). We will cover names on my watchlist but also beyond. I will be responding to your ideas as well, providing my own perspective when I can. I intend to launch as soon as we have 10 people committed to the service. Email me if you are interested.

A Note for Investment Professionals

From our early days, we have attracted investment professionals to Invest By Model.  While we are flattered that investment advisors and financial consultants find the service valuable, we want to remind everyone that this service is for individual use only.  I am one of the last guys to read the fine print, so I understand if you might have missed the paragraph in our Terms of Service, but here is section 3:

The membership is granted only to Individual Investors. An Individual Investor is defined as a person (and not a corporation, partnership, proprietorship or any other entity whatsoever) who does not perform, and is not in any way engaged, in investment services and is only making investment decisions for his/her account and/or dependents and non-business use. Any use that violates these terms may subject the Subscriber making such uses to immediate revocation of access to the Site, as well as any other applicable civil or criminal penalties

The good news is if you are an investment professional and would like to use the model, it is possible.  AB Analytical Services, which runs Invest By Model, is already allowing several financial consultants to integrate the model into their work.  Please contact me to discuss the financial arrangement, but not a single client or prospective client that has come to me via the model has complained about the price.  In fact, they call it a "win-win" to quote a recent prospective financial consultant client.  Why?  Not only does the investment professional get the output of my work that they can integrate into their own business, but they also get access to so much more.  Additionally, having a bona fide relationship helps them get around regulatory compliance issues.

If you are an investment advisor or financial consultant interested in applying our models in your own clients' portfolios, I hope that you will contact me.  I am happy to share with you many other benefits that you will enjoy as a client of AB Analytical Services.  I am currently in discussions to build customized models that might be similar to one of the models we offer subscribers at Invest By Model but tailored to your own distinct needs. 

Thanks for your cooperation in this matter, and I wish you a very successful 2011!

New Facebook Page

I have heard back from several of you, and I appreciate the feedback.  One of our biggest challenges has been marketing, and I will be working on trying to use alternative means beyond my primary one (Seeking Alpha).  In that spirit, I created a Facebook Page for Invest By Model last night.  If you are on FB and would like to help spread the word by "liking" it, please visit Invest By Model on Facebook

Feedback Needed

Dear Subscribers, Free-Trial Participants and Followers,

    We have had a remarkable run of success at Invest By Model in terms of performance over the past 2 1/2 years, but I am not satisfied with our performance as a company.  I will be frank:  I need help.  If we can't grow our subscriber base, it isn't worth my time to pursue what I believe is a fantastic idea.  I am sure most of you get it, but Invest By Model is providing exceptional portfolio management for a fraction of the cost of completely outsourcing it to a third-party. 

    How can you help me?  I can think of two ways:

1. Refer us
2. Give me feedback

    As far as referrals, I reached out to subscribers earlier this week with an offer to give your associates a 60-day free trial.  Unfortunately, I have heard back from only one person.  I understand that it may be somewhat awkward to go through the process I described (letting the notification come from me), so I encourage you to consider contacting anyone you might feel could benefit from the service.   I will set them up with a 60-day free trial if they let me know who referred them.  I know that many of you have spread the word, and I appreciate it.   If I can't increase our subscriber base, I will be forced to consider raising our price of subscription.

    The feedback that I need is regarding what you like or don't like about the service.  I have had the opportunity to speak or email with several of you, and I appreciate the great ideas you have shared.  Email me or call me - either way I want to talk to you.  We can take this in a completely different direction or we can tweak the delivery of the service.  I need to know what you (and others) want to see.

    I remain committed to the concept of sharing professional advice in an affordable way with individual investors in a transparent manner, but I am not confident that I am going about it in the best way.  Please take the time to share some feedback and to consider "spreading the word". 

Thanks,

 

Alan J. Brochstein, CFA