Wednesday, January 09 2013
Our flagship MIPS3/MF model did NOT do really well in 2012. Our portfolio managed by MIPS3/MF trading
SPY long and short was up about 8.5% for the year (9% counting dividends earned and commissions
paid), versus about 13% growth for the SPY. So, what can we do to perform better?
Here are three ways to do better using the MIPS3/MF model (at least they have been better over the last 7 years).
Improvement #1 - Trade Multiple ETFs
As most of you know, our MIPS models are tracking the ETF for the S&P500 Index (SPY), because we
believe that the S&P500 is a very good representation of "the market". For this reason and this reason
only, we report our performance of MIPS models trading the SPY.
However, as you most likely know, MIPS members are not restricted to trading just the SPY. In fact, as
you can read under the "Services" tab on our homepage, MIPS members can trade any ETF that
"correlates" well with the SPY (or any mix thereof). Most of he ETFs that represents the major USA
indices (SPY, MDY, IWM, QQQ), fill this bill. See the definition of "correlates" at Investopedia.com:
Therefore, if so desired, MIPS investors can trade the following:
I.) Conservative investors trading SPY long and short (or buying SH on shorts).
II.) Aggressive investors buying 1/3 each of SPY, IWM, QQQ on long signals, but only
shorting the SPY on short signals (or buying SH).
III.) More Aggressive investors buying 1/3 each of SPY, IWM, QQQ long and either shorting
these ETFs or buying their corresponding inverse ETFs on short signals (SH, RWM, PSQ).
BTW, I usually apply profile "II" or "III" above to my trading.
So, in the last 3 years 2010-2011-2012 (certainly not the best time for MIPS3/MF), when the SPY with
buy/hold was up 28%, MIPS3/MF trading just SPY (using profile "I") was up 42% (not at all bad). But,
trading with profile "III" in this time period, MIPS3/MF would have been up a whopping 58% (tons better
than the 28% with buy/hold, and also better than 42% from trading just the SPY with MIPS3/MF).
If we look at the last 7 years (longer-term view), the SPY was up 14%, and the trading profile "III" with
MIPS3/MF would have been up 379% (verified by TimerTrac.com) !!!
Improvement #2 - New "Improv" Release
This one is on the house. The performance of the current MIPS models are some of the very best in
the industry. However, as most of you know, we at MIPS are continually trying to make our models
To that end, we recently updated some of the algorithms in our models to respond more effectively
in flat or sideways market (like the markets in 2011-12), and hence these MIPS models will do a lot better
in these types of markets in the future. This, of course, will improve the overall results of all MIPS models
Please note that these are NOT NEW models, they are simply the old models with relatively simple
but very effective revisions. When we develop a completely different model, the name of the new
model, or course, will definitely be different from that of any existing models (as in MIPS3/MF versus
Improvement #3 - Trading Leveraged ETFs
Investors who are willing to take more risk would most likely do better with the MIPS3/MF model trading
"double leveraged" ETFs. I personally do not like to trade leveraged ETFs on every trade. Sometimes
I do use double leveraged SPY on long signals, but I use single leveraged SPY on short signals. The
results of using MIPS3/MF signals with this trading strategy are shown below (from TimerTrac.com).
In the 7-year period of 2006-12, MIPS3/MF trading single leveraged SPY was up 314% (left graph); but trading
double leveraged SPY on long signals and single leveraged SPY on short signals would have produced gains of
about 700% (right graph). Please pay close attention to the vertical axis in both graphs below.