Modern Investing Techniques — Episode 29

Hey, welcome to Modern Investing Techniques, episode twenty nine, for April twenty eighth, twenty twenty six. I'm Patrick, coming to you from Vancouver. Let's find the signal in today's noise and put your portfolio to work. Quick reminder, everything we discuss here is for education and entertainment. The Practice Investment of the Day uses simulated trades with no real money. I'm not a licensed financial advisor and this is not financial advice. Always do your own research before putting real money to work. Oil tops one hundred ten dollars on stalled Iran talks while clean power eyes records despite policy risks, two signals demanding disciplined positioning. This morning the markets traded mixed. The S and P five hundred closed at seven thousand one hundred seventy four for a gain of zero point one percent. The NASDAQ Composite reached twenty four thousand eight hundred eighty seven with a gain of zero point two percent. The T S X Composite finished at thirty three thousand eight hundred eighteen after declining zero point three percent. Geopolitical developments around Iran are dominating sentiment. These forces are lifting Brent crude above one hundred ten dollars while creating choppiness across equities and raising input costs elsewhere. Our simulated portfolio sits at year to date negative zero point five two percent versus the NASDAQ Composite's year to date gain of seven point one one percent. This produces alpha of negative seven point six three percent year to date and negative eleven point seven five percent since inception. We need a good week here. Like our TMUS relative value rotation two weeks ago that eked out modest positive alpha by focusing on resilient United States telecom risk reward, today's setups reward similar patience over reaction. While the indices are relatively quiet the underlying forces creating this chop are exactly what our Strategy Spotlight was built for today. Choppy market stock selection is a disciplined process. It focuses on identifying companies with durable competitive advantages. Those companies also show low leverage and consistent earnings power. This enables them to outperform during periods of elevated volatility. Today's conditions make the approach highly relevant. Geopolitical tensions are driving oil above one hundred ten dollars. The same tensions are pressuring European margins and creating uneven sector performance. This is exactly the environment where broad indices wobble but quality names hold or advance. To implement the strategy screen for stocks showing beta below zero point eight. Also require debt to equity under one point zero. Look for at least three years of positive free cash flow growth. You can use free or brokerage tools for this screen. Cross reference with recent earnings consistency. This approach has historically worked best during macro uncertainty such as twenty twenty two's inflation shock. It limits drawdowns versus the NASDAQ while still capturing eventual recovery. Risks include opportunity cost during strong momentum rallies. The strategy also requires ongoing monitoring to avoid value traps. The key action is to build a shortlist of eight to ten such names now. Size them at four to six percent each in your T F S A or R R S P. Deploy only on pullbacks to their fifty day moving average. This disciplined approach is useless without iron clad risk management which leads directly into today's Investor Education. This is a simulated trade for educational purposes only. No real money is involved and this is not financial advice. Today's Practice Investment is in verification mode with no new position. We are monitoring oil and energy for a sustainable move. The sector is commodity focused and the strategy is geopolitical premium assessment requiring multi source confirmation. The catalyst is reports that Trump is unhappy with Iran's latest proposal to end the war. This is driving Brent crude above one hundred ten dollars. On the technical side prices have broken above the one hundred dollar psychological level on daily charts with volume above recent averages. However the weekly R S I is elevated. Risk assessment shows sudden negotiation progress could trigger a ten to fifteen percent reversal in energy. Any eventual equity position would be sized to risk no more than one percent of total capital with a stop eight percent below entry. The target remains not applicable until confirmation. Confidence level is low because multiple independent reports align on tension. Yet resolution uncertainty plus the need to verify data availability from multiple providers keeps us on the sidelines. This no trade demonstrates the discipline of patience in high uncertainty environments like current Middle East developments. Listeners should learn that avoiding a marginal setup preserves capital for higher conviction ideas. Especially when our process requires cross verification that is not fully satisfied today. This exact discipline is why we are sitting on the sidelines in energy right now. We stayed disciplined today but yesterday's Flash Trade did not go our way. Here is what happened and the rule we are adding. Last Flash Trade was CLDX on an analyst upgrade play. It was based on successful Phase three results and accelerated enrollment. Entry was at thirty five dollars and seventy nine cents at market open. Exit was at thirty four dollars and thirty eight cents at market close. The result was a loss of three point nine four percent or thirty nine dollars and forty cents on a one thousand dollar position. The NASDAQ gained zero point two percent in the same session producing approximately negative four point one four percent alpha. Positive Phase three news was already priced in. Sector momentum was absent despite the confirmed catalyst. This reinforces the process gap we keep encountering with binary events. It highlights the critical need for multi source verification to judge true alpha versus the NASDAQ. New rule, always verify data availability from multiple providers before declaring a weekly hold closed. The tools below can help you run those multi source checks faster and spot the setups the market has not fully priced. Finviz delivers real time charts, fundamentals, aggregated news, and technical scanners in one free interface. It lets you instantly filter for R S I below thirty. You can also screen price relative to fifty and two hundred day moving averages or volume surges. Canadian investors gain an edge by running combined T S X and NASDAQ screens in under sixty seconds. This spots emerging setups before they appear in mainstream alerts. The free tier is more than enough for daily use. Log on at finviz dot com each morning as part of your pre market routine. Community templates in Google Sheets let you input your own free cash flow growth assumptions between nine and fifteen percent. You also set WACC around nine percent and terminal rates at two point five percent. This tests whether a stock is actually twenty percent or more above fair value. The technique removes reliance on sell side targets. It is ideal for T F S A and R R S P holdings where you want to validate long term dividend compound annual growth rate above eleven percent before committing capital. Download free Google Drive versions, adjust the bear base and bull cases. Run reverse discounted cash flow to see exactly what growth rate the current price requires. Update quarterly after earnings. Prime Minister Mark Carney promises good news in the spring economic update. The federal government will table its spring economic update Tuesday afternoon. The Prime Minister is highlighting the Liberals record as good fiscal managers. For Canadian investors this creates potential tailwinds for domestic growth sectors and tax advantaged accounts. Review your T F S A and F H S A Canadian equity holdings for any rebalancing needs before the Tuesday release. A family owned personal protective equipment producer warns of impending shortages and price increases for oil derived everyday goods. This stems from Strait of Hormuz disruptions. It is a second order inflation effect that can pressure consumer margins and spending patterns. Add a modest inflation hedge sleeve, commodity or real asset exchange traded fund, to your R R S P if current exposure is below ten percent. After reports of Open A I missing targets one company saw its worst share price decline in six months. SoftBank shares suffered their largest single day percentage drop in six months. The move highlights how quickly artificial intelligence related valuations can reset on fundamentals. Trim any artificial intelligence adjacent name exceeding eight percent of portfolio weight to enforce concentration limits. United States clean energy installations are projected to reach another record. This comprises the vast majority of new power additions despite policy headwinds from the current administration. Add a clean energy or utilities exchange traded fund to your watchlist for evaluation on any weakness over the next thirty days. Now let us look at portfolio performance on these simulated trades of one thousand dollars each. Total trades stand at eight. Win rate is thirty eight percent with three wins four losses and one break even. Cumulative profit and loss is negative forty one dollars and fifty six cents. Average return per trade is negative zero point five two percent. Best trade was positive seven point eight eight percent. Worst trade was negative seven point four nine percent. Current streak is one loss. Our artificial intelligence analysis is learning from these patterns and adjusting. This remains a learning journey where we track real outcomes against the NASDAQ. Imagine you bought an energy related name last week when oil first spiked on Iran news. You allocated twelve percent of your fifty thousand dollar T F S A because it felt like a sure geopolitical play. Your order filled at market but a follow up proposal headline triggered an immediate nine percent gap lower. Suddenly five hundred forty dollars, or one point zero eight percent of the entire account, vanished in one session. Position sizing caps any single name at five percent of total capital. That way even an eight percent adverse move costs the portfolio only zero point four percent. Stop losses fixed at seven to ten percent below entry or trailing based on fourteen day average true range automate exits before small losses compound. The simplified Kelly Criterion further refines this. Position size equals win probability times payoff ratio minus loss probability divided by payoff ratio. Even a conservative zero point two five times Kelly on a fifty five percent win rate strategy prevents overbetting during emotional conviction moments. Correlation matters too because three energy names at five percent each still act like a twelve percent sector bet if oil correlation exceeds zero point seven. Portfolio drawdowns above fifteen percent historically take eighteen to twenty four months to recover. Professionals always calculate the exact dollar risk, account size times one percent maximum loss, before they choose position size or stop level, never the reverse. The biggest mistake with risk management is treating high conviction ideas as unlimited bets. Or moving stops farther away as a position goes against you. Instead always define your maximum portfolio loss first then let the math dictate the share count. Open your brokerage account right now and calculate the portfolio impact if your single largest holding dropped ten percent tomorrow. If that loss would exceed two percent of total capital reduce the position this week to align with the five percent maximum sizing rule we covered. It takes under ten minutes and builds the exact habit we discussed in risk management. Before we wrap I have my eye on something in the energy sector for when multi source confirmation lines up more clearly. That wraps up today's Modern Investing Techniques. Remember, every trade is a learning opportunity, win or lose. Subscribe, share with a friend who wants to invest smarter, and we will see you tomorrow. This podcast is curated by Patrick but generated using AI voice synthesis of my voice using ElevenLabs. The primary reason to do this is I unfortunately don't have the time to be consistent with generating all the content and wanted to focus on creating consistent and regular episodes for all the themes that I enjoy and I hope others do as well.