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Bulkowski’s Mutual Fund (Winners) Test Portfolio

Market

Dow industrials (^DJI):

Dow transports (^DJT):

Dow utilities (^DJU):

Nasdaq composite (^IXIC):

Russell 2000 (^RUT):

S&P 500 (^GSPC):

Wilshire 5000 (^DWC):

As of 11/20/2008

7,552.29 -444.99 -5.6%

2,988.99 -152.53 -4.9%

335.73 -18.09 -5.1%

1,316.12 -70.30 -5.1%

385.31 -27.07 -6.6%

752.44 -54.14 -6.7%

7,471.44 -542.81 -6.8%

YTD

-43.1%

-34.6%

-37.0%

-50.4%

-49.7%

-48.8%

-49.6%

Tom’s Targets

7,900 by 12/01/2008

3,400 by 12/01/2008

300 by 12/01/2008

1,550 by 12/01/2008

475 by 12/01/2008

850 by 12/01/2008

8,500 by 12/01/2008

Test Portfolios and CPI

Industry relative strength: 2.7%

Mutt Losers: -52.4%

Mutt Winners: -40.8%

Wilder RSI: -32.9%

CPI: bearish as of 11/4/2008

This page shows a test portfolio based on trading Vanguard mutual funds showing the best performance. You can find background information and what my tests revealed in Trading Mutual Funds.

Warning: I am not recommending that you use this portfolio to build a trading system or to trade the funds listed in the portfolio. I just show this model as an experiment of how a system based mutual fund portfolio would do in real life.

You should conduct your own research to verify this trading idea and performance before relying on the results. Historical testing may not reflect real-time trading and past performance does not guarantee future results. See Privacy/Disclaimer for more information.

Overview

Portfolio Construction Rules

Trading Tips

The Portfolio

Overview

As mentioned previously, for full details on the historical experiments used to test this trading setup, see Trading Mutual Funds.

The idea behind this portfolio is simplicity itself: Trade the winners. Periodically review the portfolio and substitute another fund if it is performing better than one owned.

Portfolio Construction Rules

I used the following guidelines to construct and maintain the portfolio.

Use only Vanguard funds.
Use Index (any fund with the word Index in its name) and non-index funds.
No commissions or fees are charged (so any fund having a buy/sell fee is excluded).
Fractional shares are allowed.
Funds with a minimum hold time over 2 months are excluded (such as a 1 year minimum hold time).
All trades occur at the net asset value (NAV) the next trading day after a signal.
No duplicates allowed (each fund held is different).
The portfolio begins with $100,000, split evenly between the two funds ($50,000 each).
Proceeds from sales are used to buy the next fund without any redistribution of cash. That means if a sale has a value of $65,000, the full $65k is used to buy the next fund, not split between the funds.
Rank the funds for performance over the prior month.
Buy the two best performing funds in the list.
Hold each fund for a minimum (no maximum) of 7 months.
After holding for 7 months, check monthly (the first trading day of each month) if the prior month’s performance of an owned fund is worse than the best performing fund in the list of available funds. If so, then replace the held fund with the better performer.

Trading Tips

The historical performance of this portfolio is better than one based on trading the worst performing funds.

Index and non-index funds work better than either index or non-index funds alone.

The Portfolio

In the table, the Buy/Sell columns show the dates when shares were purchased/sold at the NAV. The Net Change column is the profit or loss of the trade, expressed as a percentage (shares x sell price) - (shares x buy price). If the trade is still open, the closing price as of the date the list was created is used as the sale price. The S&P Change column is the change in the S&P 500 index between the Buy and Sell dates, using the opening prices. The Max Loss column shows the largest drop below the buy price during the time the fund was held.

Stock	Buy	Shares	Price	Sell	Price	Net Change	S&P Change	Max Loss
VMVIX	02/04/2008	2,453	$20.38	10/02/2008	$16.55	-18.8%	-16.8%	-17.9%
VISVX	02/04/2008	3,309	$15.11	10/02/2008	$13.39	-11.4%	-16.8%	-12.8%
VHDYX	10/02/2008	2,717	$16.31	Open	$11.27	-30.9%	-35.2%	-26.1%
VEIPX	10/02/2008	2,076	$19.56	Open	$13.75	-29.7%	-35.2%	-24.7%

Using completed trades only, a portfolio with a starting value of $100,000.00 would be worth $84,911.94, a change of -15.1%, with an maximum loss of 17.9%.

Including open trades, the starting value is $100,000.00 and the ending value is $59,159.41, a change of -40.8%, with an maximum loss of 26.1%.

This report was prepared on November 20, 2008 and it covers the trades shown.