Find new Trade Ideas
Additions to your Portfolio
Removals from your Portfolio
Positions that could be removed from your portfolio on Technical or Fundamental grounds can be automatically scanned for, by using our Portfolio Tracker Spreadsheet
Every time you choose to rebalance your portfolio, some positions could be candidates for removal, while others would be candidates for inclusion. We share our method for quickly weeding out the “losers”. Our philosophy is simple:
Do more of what works and less of what doesn’t. Traditional rebalancing takes money from winners and adds it to losers. We choose to rebalance by reducing losers and adding to winners. There are 2 types of losing positions.
Technical Losers
Some stocks simply don’t perform as expected. There could be multiple reasons: investor appetite for the industry, supply and demand for the shares, even leaked insider information. Whatever the explanation, their close price violates our most important technical considerations.
Hedges for your Portfolio
Manual Portfolio Screening
In order to perform a manual screening, we need to input our portfolio positions into the Fundamentals Screener. Follow the steps below:
Click here to open the Fundamentals Screener page; the screener has been pre-configured as follows:
Column A has been set to “Z-Score Absolute”
Column B has been set to “Quick Ratio”
Column C has been set to “Interest Coverage”
Positions are sorted by Z-Score Absolute
Click the “Ticker” selection box and input your positions
Note which Negative Trend positions have a Z-Score of less than 0; these violate our Technical rule
Note which Positive Trend positions have a Z-Score of less than -1; these violate our Technical rule
Note which positions have a Quick Ratio of less than 1; these may have weak fundamentals
Note which positions have an Interest Coverage of less than 2; this violates our Fundamental rule
If none of the positions in your portfolio are candidates for removal, yet you would still like to reduce equity risk exposure, then hedging using specific ETFs will achieve that goal. Refer to the section below.
Profitability
RETURN ON ASSETS > Industry Avg.
Return on assets is a metric that indicates a company's profitability in relation to its total assets; It tells you what earnings are generated from invested capital or physical assets;
More info here
RETURN ON EQUITY > Industry Avg.
Return on Equity is a metric that indicates a company's profitability in relation to its shareholder equity; The higher the ROE, the better a company is at converting its equity financing into profits;
More info here
RETURN ON CAPITAL EMPLOYED > 2
Return on Capital Employed is a financial ratio that measures a company’s profitability in terms of all of its capital;
More info here
Hint: screening your entire portfolio for these fundamental considerations is easy - check the Removals from your Portfolio section below
Scope
By the end of this activity, you will get a list of potential investment options for your portfolio, usable for further Analysis
Duration
30-60 minutes
Prerequisites
This activity works best when you have an investment theme that you’d like to investigate (Technology Small-Caps for example)
Deliverables
At the end of this activity you will get:
A list of stocksg suitable for inclusion in your portfolio (commonly referred to as Shortlist or Watchlist)
The list requires further analysis so as to establish Price Targets and suitable technical entry / exit points
A > Start by reviewing our own work
The “shortcut” to investment ideas can be found in our own work and model portfolios
Refer to the Stock Ratings section
Open the Dashboard
Click on “Stock Ratings”
Note the stocks we have assigned a BUY rating on
Note the “Opportunity Arrow” next to the rating (see explanation below)
Review the financial model and make sure our assumptions match your own
Did we not cover a specific stock you were looking for? Request a Stock Report by completing the fom below
The Opportunity Arrow
Next to the “BUY / HOLD / SELL” that rating we assign to any stock, there is an arrow symbol that is color coded (Green / Yellow / Red). What does it mean?
That is what we like to call the “Opportunity Arrow” and its purpose is to inform you visually about which stocks offer the best risk / reward ratio at the latest prices.
When we assign a stock’s rating, we do so based on the prevailing market price at the time of writing. Naturally, this changes with the passage of time. A stock can be a BUY at $100, a HOLD at $150 and a SELL at $200. We only update these ratings every 3-6 months (sometimes more), but prices change daily. The Opportunity Arrow is there to let us know what investments make the most sense taking the latest close prices into account. Look for:
Green Arrow + BUY Rating
Green Arrow + Hold Rating
Yellow Arrow + BUY Rating
Check our Strategies, the Sigma Portfolio, and the Portfolio Rebalance Article
While the Enterprise strategy offers a more general allocation example, Nostromo, Horizon and the Sigma Portfolio contain more specific investments. Research ideas for ETFs and stocks can be found in our weekly Portfolio Rebalance Article.
Check the Nostromo strategy for specific ETFs either owned or targeted
Check the Millennium Portfolios for selected stocks
Check the Sigma Portfolio for our discretionary stock picks
Check the latest Portfolio Rebalance Article for ETF ideas (in Section 2 - Sector / Industry Selection)
Check the latest Portfolio Rebalance Article for stock ideas (in Section 3 - Sector / Individual Stock Selection)
B > Screen for Stocks
Our Stock Screener combines over 150 technical and fundamental factors that let you filter and sort the investible universe
If a picture is worth 1000 words, in the case of our Stock Screener, we’d rather let a video do all of the explaining. Don’t forget to check Section 3 of the Portfolio Rebalance Article for weekly screening ideas!
Common Screening “Hacks”
The following are some proven screening rules that will increase the performance of your selection, according to our backtests:
Both 6 month and 1 year returns should be positive (basic momentum requirement)
A Piotroski F-Score equal or larger than 5 ensures a “quality” component to your filter (more info here)
The Operating Leverage Mean should be at least 1, for growth companies (more info here)
R&D / Gross Profit 2YR Average > 25% is an indication the company is investing heavily in future solutions
C > Weed out the losers
According to our models, stocks should pass two basic technical and fundamental tests before making it to your final watchlist
Avoiding losses is probably the best way to insure your portfolio outperforms in the long run. Investments that you are considering should be able to pass both a fundamental and a technical test. If a stock can’t pass either test, then it’s probably not worth your time and attention.
The Technical Test
Stocks can trade either in an Up-Trend or a Down-Trend. There are different statistical STOP-LEVELS in either scenario. If a stock’s price has closed below this level, it has limited chances of performing well in the near future. Here are the 2 scenarios and their levels:
For stocks in an UP-TREND
When trading in an UP-TREND, a stock should not violate it’s lower channel trendline for a prolonged period of time.
In Signal Sigma Terms, this is defined as the Z-Score Absolute -1 Level, because it sits at 1 Standard Deviation below the stock’s median regression line.
Coming from a previous UP-TREND and violating this level means that a stock is losing the fundamental drivers that made it a winner in the first place.
For stocks in a DOWN-TREND
When trading in a DOWN-TREND, a stock should not violate its M-Trend level for a prolonged period of time.
In Signal Sigma Terms, this is defined as the Z-Score Absolute 0 level, as it sits exactly at the middle of the regression channel.
Any stock that is recovering from a technical DOWN-TREND will eventually form a bottom and then push up above the M-Trend.
Fundamental Losers
Deteriorating fundamentals are never a predictor for positive stock price performance. While temporary exceptions can happen (bankrupt meme stocks with soaring stock prices), these tend to not last long. For the most part, fundamentals and technicals DO align, eventually. There are several metrics that we track in order to establish the fundamental strength of a company. You can find these here.
Never overlook the largest detractor from a fundamental perspective: shareholder dilution. On average, stocks that significantly dilute shareholders (>5% / year) will underperform those that employ a share buyback program.
Automatic Portfolio Screening
The “Removals” tab in our Portfolio Tracker Spreadsheet will apply all of our rules to suggest which positions in your portfolio could be a candidate for removal.
Stocks that fail either the Technical or Fundamental test will display a “Warning” in the respective column. This is meant to focus your attention on that particular position and determine a review of your investment thesis.
Hint: screening your entire portfolio for this technical rule is easy - check the Removals from your Portfolio section below
The Fundamental Test
We take a look at a company’s Balance Sheet in order to find potential red flags. Remember: the Balance Sheet is a snapshot of a firm’s assets and liabilities at a point in time. That is why it’s useful to compare these snapshots quarter by quarter and draw conclusions from their evolution in time.
Click Here to open the Quarterly Fundamentals Explorer
Switch to the Balance Sheet tab
Enter a ticker into the selection box
Toggle between the most recent quarter, the average and the oldest quarter
Note the trend for key Liquidity, Solvency and Profitability metrics (higher is better)
Note the trend for Shares Outstanding (lower is better), Shareholder Equity and Total Assets (higher is better)
Ideally, trends should be positive, and metrics should pass the broad benchmarks we have set below (they do vary between industries, so take this into account).
Liquidity
CASH RATIO > 0.5
The cash ratio is a measure that shows a company's ability to cover its short-term obligations using only cash and cash equivalents;
More info here
QUICK RATIO > 1
The quick ratio is a measure that shows a company's ability to cover its short-term obligations using cash and cash equivalents, accounts receivable, and prepaid expenses.
A result of 1 is considered to be the normal quick ratio. It indicates that the company is fully equipped with exactly enough assets to be instantly liquidated to pay off its current liabilities;
More info here
CURRENT RATIO > 1.2
The current ratio measures a company’s ability to cover its short-term obligations using ALL of its current, or short-term, assets, such as cash and cash equivalents, accounts receivable, prepaid expenses and inventory;
More info here
Solvency
DEBT-TO-EQUITY RATIO < Industry Avg.
Debt-to-equity (D/E) ratio is used to evaluate a company’s financial leverage and is calculated by dividing a company’s total liabilities by its shareholder equity;
More info here
INTEREST COVERAGE > 2
Interest Coverage is a measure of a company's ability to meet its debt obligations based on its current income; The result is a number that shows how many times a company could cover its interest charges with its pretax earnings;
More info here
SHAREHOLDER EQUITY RATIO > Industry Avg.
The shareholder equity ratio indicates how much of a company's assets have been generated by issuing equity shares rather than by taking on debt. The lower the ratio result, the more debt a company has used to pay for its assets. It also shows how much shareholders might receive in the event that the company is forced into liquidation;
More info here
For stocks in an UP-TREND
When trading in an UP-TREND, a stock should not violate it’s lower channel trendline for a prolonged period of time.
In Signal Sigma Terms, this is defined as the Z-Score Absolute -1 Level, because it sits at 1 Standard Deviation below the stock’s median regression line.
Coming from a previous UP-TREND and violating this level means that a stock is losing the fundamental drivers that made it a winner in the first place.
For stocks in a DOWN-TREND
When trading in a DOWN-TREND, a stock should not violate its M-Trend level for a prolonged period of time.
In Signal Sigma Terms, this is defined as the Z-Score Absolute 0 level, as it sits exactly at the middle of the regression channel.
Any stock that is recovering from a technical DOWN-TREND will eventually form a bottom and then push up above the M-Trend.
Scope
Positions that underperform act like a drag on portfolio performance; periodically, scanning for removals from your portfolio will help you keep only those positions that actually work; it’s best to keep this activity as unemotional as possible
Duration
Instant, using our Portfolio Tracker; 15 minutes otherwise
Prerequisites
A list of portfolio positions; ideally, this list is inputted in our Portfolio Tracker for ease of use
Deliverables
By the end of this activity, you will get a list of positions that could be reduced or closed due to technical or fundamental considerations
Scope
When managing overall risk exposure in an equity portfolio, it’s rarely practical to trade into and out of ALL positions; usual practice involves keeping your long book intact, while sizing 2 or 3 broad-exposure short positions in order to navigate certain key periods
Duration
Instant, using our Portfolio Tracker; 15 minutes otherwise
Prerequisites
A list of portfolio positions; ideally, this list is inputted in our Portfolio Tracker for ease of use
Deliverables
By the end of this activity, you will get a list of ETFs that you can take short positions against in order to balance the exposure in your portfolio;
Alternatively, you could trim or close out certain positions due to an unwanted concentration into a single sector or factor.
When looking to control exposure to a certain investment theme (like Sectors or Factors), the first thing you need to understand is your positions 90-day correlation to the most widely used ETFs. Our Portfolio Tracker Spreadsheet automatically calculates the weighted average correlations for your portfolio.
Our Portfolio Tracker Spreadsheet immediately reveals the Sectors and Factors your portfolio is most correlated to
Automatic Equity Portfolio Correlation
Clicking the “Sectors” or “Factors” tabs in our Portfolio Tracker Spreadsheet reveals the correlations table, as shown below. It takes into account the weight that each position holds in your Equities portfolio. Other portfolios are excluded from this calculation.
If we would like to balance Sectors exposure in the portfolio above, we would need to add Energy and Utility stocks and remove (or take short-ETF) positions in Industrials (XLI), Basic Materials (XLB) and Tech (XLK).
Manual Equity Portfolio Correlation
We can also screen for correlations within our portfolio manually, using one of the Correlation Screeners available on the platform. However, these do not take into account the corresponding weight of each position, and assume an equal weight distribution. Follow the steps below:
Click here to open the Sector Correlation Screener
Click the “Ticker” selection box and input your positions
Check the average correlation of your portfolio, at the bottom of each column
Check the Map Chart below the table for a visual representation of the highest correlations
Hedging the example portfolio represented in the Map Chart above would require taking short positions in Consumer Discretionary (XLY) Tech (XLK) and Communications (XLC)
Alternatives to Short Positions
If you are uncomfortable taking short positions or can’t do so for various reasons, there are inverse ETFs that accomplish the same task. Simply search for “inverse SPY ETF” online and see what comes up.
Additions to your Portfolio
Scope
By the end of this activity, you will get a list of potential investment options for your portfolio, usable for further Analysis
Duration
30-60 minutes
Prerequisites
This activity works best when you have an investment theme that you’d like to investigate (Technology Small-Caps for example)
Deliverables
At the end of this activity you will get:
A list of stocksg suitable for inclusion in your portfolio (commonly referred to as Shortlist or Watchlist)
The list requires further analysis so as to establish Price Targets and suitable technical entry / exit points
A > Start by reviewing our own work
The “shortcut” to investment ideas can be found in our own work and model portfolios
Refer to the Stock Ratings section
Open the Dashboard
Click on “Stock Ratings”
Note the stocks we have assigned a BUY rating on
Note the “Opportunity Arrow” next to the rating (see explanation below)
Review the financial model and make sure our assumptions match your own
The Opportunity Arrow
Next to the “BUY / HOLD / SELL” that rating we assign to any stock, there is an arrow symbol that is color coded (Green / Yellow / Red). What does it mean?
That is what we like to call the “Opportunity Arrow” and its purpose is to inform you visually about which stocks offer the best risk / reward ratio at the latest prices.
When we assign a stock’s rating, we do so based on the prevailing market price at the time of writing. Naturally, this changes with the passage of time. A stock can be a BUY at $100, a HOLD at $150 and a SELL at $200. We only update these ratings every 3-6 months (sometimes more), but prices change daily. The Opportunity Arrow is there to let us know what investments make the most sense taking the latest close prices into account. Look for:
Green Arrow + BUY Rating
Green Arrow + Hold Rating
Yellow Arrow + BUY Rating
Did we not cover a specific stock you were looking for? Request a Stock Report by completing the fom below
Check our Strategies, the Sigma Portfolio, and the Portfolio Rebalance Article
While the Enterprise strategy offers a more general allocation example, Nostromo, Horizon and the Sigma Portfolio contain more specific investments. Research ideas for ETFs and stocks can be found in our weekly Portfolio Rebalance Article.
Check the Nostromo strategy for specific ETFs either owned or targeted
Check the Millennium Portfolios for selected stocks
Check the Sigma Portfolio for our discretionary stock picks
Check the latest Portfolio Rebalance Article for ETF ideas (in Section 2 - Sector / Industry Selection)
Check the latest Portfolio Rebalance Article for stock ideas (in Section 3 - Sector / Individual Stock Selection)
B > Screen for Stocks
Our Stock Screener combines over 150 technical and fundamental factors that let you filter and sort the investible universe
If a picture is worth 1000 words, in the case of our Stock Screener, we’d rather let a video do all of the explaining. Don’t forget to check Section 3 of the Portfolio Rebalance Article for weekly screening ideas!
Common Screening “Hacks”
The following are some proven screening rules that will increase the performance of your selection, according to our backtests:
Both 6 month and 1 year returns should be positive (basic momentum requirement)
A Piotroski F-Score equal or larger than 5 ensures a “quality” component to your filter (more info here)
The Operating Leverage Mean should be at least 1, for growth companies (more info here)
R&D / Gross Profit 2YR Average > 25% is an indication the company is investing heavily in future solutions
C > Weed out the losers
According to our models, stocks should pass two basic technical and fundamental tests before making it to your final watchlist
Avoiding losses is probably the best way to insure your portfolio outperforms in the long run. Investments that you are considering should be able to pass both a fundamental and a technical test. If a stock can’t pass either test, then it’s probably not worth your time and attention.
The Technical Test
Stocks can trade either in an Up-Trend or a Down-Trend. There are different statistical STOP-LEVELS in either scenario. If a stock’s price has closed below this level, it has limited chances of performing well in the near future. Here are the 2 scenarios and their levels:
For stocks in an UP-TREND
When trading in an UP-TREND, a stock should not violate it’s lower channel trendline for a prolonged period of time.
In Signal Sigma Terms, this is defined as the Z-Score Absolute -1 Level, because it sits at 1 Standard Deviation below the stock’s median regression line.
Coming from a previous UP-TREND and violating this level means that a stock is losing the fundamental drivers that made it a winner in the first place.
For stocks in a DOWN-TREND
When trading in a DOWN-TREND, a stock should not violate its M-Trend level for a prolonged period of time.
In Signal Sigma Terms, this is defined as the Z-Score Absolute 0 level, as it sits exactly at the middle of the regression channel.
Any stock that is recovering from a technical DOWN-TREND will eventually form a bottom and then push up above the M-Trend.
Hint: screening your entire portfolio for this technical rule is easy - check the Removals from your Portfolio section below
The Fundamental Test
We take a look at a company’s Balance Sheet in order to find potential red flags. Remember: the Balance Sheet is a snapshot of a firm’s assets and liabilities at a point in time. That is why it’s useful to compare these snapshots quarter by quarter and draw conclusions from their evolution in time.
Open the Quarterly Fundamentals Explorer
Switch to the Balance Sheet tab
Enter a ticker into the selection box
Toggle between the most recent quarter, the average and the oldest quarter
Note the trend for key Liquidity, Solvency and Profitability metrics (higher is better)
Note the trend for Shares Outstanding (lower is better), Shareholder Equity and Total Assets (higher is better)
Ideally, trends should be positive, and metrics should surpass the industry average.
Hint: screening your entire portfolio for these fundamental considerations is easy - check the Removals from your Portfolio section below
Removals from your Portfolio
Positions that could be removed from your portfolio on Technical or Fundamental grounds can be automatically scanned for, by using our Portfolio Tracker Spreadsheet
Scope
Positions that underperform act like a drag on portfolio performance; periodically, scanning for removals from your portfolio will help you keep only those positions that actually work; it’s best to keep this activity as unemotional as possible
Duration
Instant, using our Portfolio Tracker; 15 minutes otherwise
Prerequisites
A list of portfolio positions; ideally, this list is inputted in our Portfolio Tracker for ease of use
Deliverables
By the end of this activity, you will get a list of positions that could be reduced or closed due to technical or fundamental considerations
Every time you choose to rebalance your portfolio, some positions could be candidates for removal, while others would be candidates for inclusion. We share our method for quickly weeding out the “losers”. Our philosophy is simple:
Do more of what works and less of what doesn’t. Traditional rebalancing takes money from winners and adds it to losers. We choose to rebalance by reducing losers and adding to winners. There are 2 types of losing positions.
Technical Losers
Some stocks simply don’t perform as expected. There could be multiple reasons: investor appetite for the industry, supply and demand for the shares, even leaked insider information. Whatever the explanation, their close price violates our most important technical considerations.
Fundamental Losers
Deteriorating fundamentals are never a predictor for positive stock price performance. While temporary exceptions can happen (bankrupt meme stocks with soaring stock prices), these tend to not last long. For the most part, fundamentals and technicals DO align, eventually. There are several metrics that we track in order to establish the fundamental strength of a company. You can find these in the section above.
Never overlook the largest detractor from a fundamental perspective: shareholder dilution. On average, stocks that significantly dilute shareholders (>5% / year) will underperform those that employ a share buyback program.
Automatic Portfolio Screening
The “Removals” tab in our Portfolio Tracker Spreadsheet will apply all of our rules to suggest which positions in your portfolio could be a candidate for removal.
Stocks that fail either the Technical or Fundamental test will display a “Warning” in the respective column. This is meant to focus your attention on that particular position and determine a review of your investment thesis.
Manual Portfolio Screening
In order to perform a manual screening, we need to input our portfolio positions into either Fundamentals Screeners. Follow the steps below:
Open the Sector Fundamentals Screener
Click the “Ticker” selection box and input your positions
Set Column A to “Z-Score Absolute”
Set Column B to “Quick Ratio”
Set Column C to “Interest Coverage”
Sort positions by Z-Score Absolute
Note which Negative Trend positions have a Z-Score of less than 0; these violate our Technical rule
Note which Positive Trend positions have a Z-Score of less than -1; these violate our Technical rule
Note which positions have a Quick Ratio of less than 1; these may have weak fundamentals
Note which positions have an Interest Coverage of less than 2; this violates our Fundamental rule
If none of the positions in your portfolio are candidates for removal, yet you would still like to reduce equity risk exposure, then hedging using specific ETFs will achieve that goal. Refer to the section below.
Hedges for your Portfolio
Our Portfolio Tracker Spreadsheet immediately reveals the Sectors and Factors your portfolio is most correlated to
Scope
When managing overall risk exposure in an equity portfolio, it’s rarely practical to trade into and out of ALL positions; usual practice involves keeping your long book intact, while sizing 2 or 3 broad-exposure short positions in order to navigate certain key periods
Duration
Instant, using our Portfolio Tracker; 15 minutes otherwise
Prerequisites
A list of portfolio positions; ideally, this list is inputted in our Portfolio Tracker for ease of use
Deliverables
By the end of this activity, you will get a list of ETFs that you can take short positions against in order to balance the exposure in your portfolio;
Alternatively, you could trim or close out certain positions due to an unwanted concentration into a single sector or factor.
When looking to control exposure to a certain investment theme (like Sectors or Factors), the first thing you need to understand is your positions 90-day correlation to the most widely used ETFs. Our Portfolio Tracker Spreadsheet automatically calculates the weighted average correlations for your portfolio.
Automatic Equity Portfolio Correlation
Clicking the “Sectors” or “Factors” tabs in our Portfolio Tracker Spreadsheet reveals the correlations table, as shown below. It takes into account the weight that each position holds in your Equities portfolio. Other portfolios are excluded from this calculation.
Manual Equity Portfolio Correlation
We can also screen for correlations within our portfolio manually, using one of the Correlation Screeners available on the platform. However, these do not take into account the corresponding weight of each position, and assume an equal weight distribution. Follow the steps below:
Open the Sector Correlation Screener
Click the “Ticker” selection box and input your positions
Check the average correlation of your portfolio, at the bottom of each column
Check the Map Chart below the table for a visual representation of the highest correlations
Hedging the example portfolio represented in the Map Chart above would require taking short positions in Communications (XLC) to offset the lower allocation to the other sectors.
Alternatives to Short Positions
If you are uncomfortable taking short positions or can’t do so for various reasons, there are inverse ETFs that accomplish the same task. Simply search for “inverse SPY ETF” online and see what comes up.