All distributions and dividends are assumed to be reinvested, which has no meaningful effect on the rates and percentages shown. For comparison, the same period returns of the Vanguard Index 500 Fund (symbol VFINX), whose performance is close to the S&P 500 index, are also shown.
It should not be assumed that trades in the future following the Fidelity
Select Switching System will be profitable or will equal the performance of
the trades shown below.
Note: Buy prices marked by a * have been adjusted for a distribution by the fund between the purchase and sale dates. This distribution is assumed to be reinvested in the fund, which has no meaningful effect on the percent changes or overall rates of return shown. Fidelity normally makes any distributions for the Selects on the first two Fridays in April and on the first three Fridays in December. Sell or Index Buy Fund Sale/Exchange Buy Recent Percent 500 Date Purchased Date Exchange to: Price Price Change Change 1/3/07 Automotive 3/19/07 Money Market 38.71 39.99 3.3% -0.7% 1/8/07 Automotive 3/19/07 Money Market 38.51 39.99 3.8% -0.4% 1/16/07 Air Trans 3/5/07 Medical Delivery 51.90 49.53 -4.6% -3.8% 1/22/07 Air Trans 3/5/07 Medical Delivery 50.50 49.53 -1.9% -3.2% 1/29/07 Automotive 3/19/07 Money Market 40.73 39.99 -1.8% -1.0% 2/5/07 Natural Gas 6/11/07 Wireless 37.87* 45.19 19.3% 6.3% 2/12/07 Natural Gas 6/11/07 Wireless 37.35* 45.19 21.0% 7.3% 2/20/07 Transportation 4/2/07 Natural Gas 55.76 52.68 -5.5% -1.0% 2/26/07 Commun Equip 4/16/07 Energy Service 21.53 21.66 0.6% 2.8% 3/5/07 Medical Delivery 4/16/07 Energy Service 48.81* 52.24 7.0% 8.4% 3/12/07 Energy Service 8/20/07 Banking 67.03* 85.91 28.2% 4.9% 3/19/07 Money Market 4/23/07 Pharmaceuticals 1.00 1.00 0.48% 7.1% (Interest earned) 3/26/07 Energy Service 8/20/07 Banking 71.12* 85.91 20.8% 1.3% 4/2/07 Natural Gas 6/11/07 Wireless 40.74* 45.19 10.9% 6.3% 4/9/07 Natural Gas 6/11/07 Wireless 41.66* 45.19 8.5% 4.8% 4/16/07 Energy Service 8/20/07 Banking 76.27 85.91 12.6% -1.0% 4/23/07 Pharamceuticals 6/11/07 Wireless 11.72 11.68 -0.3% 2.2% 4/30/07 Pharamceuticals 6/11/07 Wireless 11.74 11.68 -0.5% 2.1% 5/7/07 Home Finance 6/18/07 Energy Service 48.26 48.85 1.2% 1.7% 5/14/07 Energy Service 8/20/07 Banking 78.80 85.91 9.0% -3.4% 5/21/07 Energy Service 8/20/07 Banking 82.93 85.91 3.6% -4.8% 5/29/07 Wireless 11/12/07 Utilities Grwth 8.13 8.67 6.6% -4.4% 6/4/07 Wireless 11/12/07 Utilities Grwth 8.34 8.67 4.0% -5.8% 6/11/07 Wireless 11/12/07 Utilities Grwth 8.20 8.67 5.7% -3.9% 6/18/07 Energy Service 8/20/07 Banking 87.46 85.91 -1.8% -5.3% 6/25/07 Energy Service 8/20/07 Banking 86.94 85.91 -1.2% -3.2% 7/2/07 Automotive 8/6/07 Money Market 46.77 43.37 -3.9% -3.3% 7/9/07 Wireless 11/12/07 Utilities Grwth 8.85 8.67 -2.0% -5.5% 7/16/07 Wireless 11/12/07 Utilities Grwth 9.08 8.67 -4.5% -6.6% 7/23/07 Energy Service 10/29/07 Software 93.82 101.92 8.6% 0.4% 7/30/07 Energy Service 10/29/07 Software 90.37 101.92 12.8% 5.0% 8/6/07 Money Market 9/24/07 Natural Resources 1.00 1.00 0.67% 3.7% (Interest earned) 8/13/07 Medical Equip 10/1/07 Wireless 24.88 26.77 7.6% 6.7% 8/20/07 Banking 9/24/07 Natural Resources 31.29 31.10 -0.6% 5.2% 8/27/07 Banking 10/1/07 Wireless 31.16 31.67 1.6% 5.7% 9/4/07 Computers 11/12/07 Utilities Grwth 46.89 45.49 -3.0% -3.0% 9/10/07 Energy Service 10/29/07 Software 94.14 101.92 8.3% 6.3% 9/17/07 Energy Service 10/29/07 Software 95.18 101.92 7.1% 4.5% 9/24/07 Natural Resources 11/19/07 Medical Delivery 37.42 36.60 -2.2% -5.3% 10/1/07 Wireless 11/12/07 Utilities Grwth 9.78 8.67 -11.3% -6.8% 10/8/07 Wireless 11/12/07 Utilities Grwth 9.93 8.67 -12.7% -7.2% 10/15/07 Automotive 11/19/07 Medical Delivery 46.95 39.30 -16.3% -7.3% 10/22/07 Networking 11/26/07 Consumer Staples 2.90 2.49 -14.1% -6.4% 10/29/07 Software 12/24/07 Natural Gas 82.46 82.51 0.1% -2.5% 11/5/07 Software 12/24/07 Natural Gas 83.61 82.51 -1.3% -0.1% 11/12/07 Utilities Grwth 1/28/08 Constr & Housing 62.08* 57.94 -6.7% -5.6% 11/19/07 Medical Delivery 2/4/08 Constr & Housing 50.56* 48.85 -3.4% -3.0% 11/26/07 Consumer Staples 1/14/08 Medical Equip. 65.38* 64.96 -0.6% 0.9% 12/3/07 Retailing 1/7/08 Energy Service 42.23* 37.87 -10.3% -3.6% 12/10/07 Chemicals 3/10/08 Computers 85.48* 74.92 -12.4% -15.6% 12/17/07 Chemicals 3/10/08 Computers 80.80 74.96 -7.3% -11.5% 12/24/07 Natural Gas 5/5/08 Networking 46.74* 52.62 12.6% -5.3% 12/31/07 Energy 2/4/08 Constr & Housing 66.67 61.19 -8.2% -5.5% Money Market fund assumed to earn interest at a 5.00% annual rateIn order to keep this complicated page from becoming even more so, the trade results shown do NOT include the use of "stop-loss" tactics, which is now my recommended strategy. These are discussed in several other pages on this site, and there are some examples that illustrate the potential beneficial effects of using stop-losses. The more volatile sector funds such as those in high technology, Biotechnology, and Energy Service are more likely to get stopped out. In many such cases, the fund likely would have been held less than 30 days. If so, it would have been hit with Fidelity's 0.75% short-term selling penalty for Select funds.
Since it is unlikely that any investor would act on all of the weekly signals shown above and on the linked pages for prior years, here is an illustration of one use of the weekly trade list tables.
Starting on 1/3/07, the closest "Monday" to the start of 2007, if one had invested into a single Select fund and followed the system, these would be the trades: Buy Fund Sale/Exchange Percent Index 500 Date Purchased Date Exchange to: Change Change 1/3/07 Automotive 3/19/07 Money Market 3.3% -0.7% 3/19/07 Money Market 4/23/07 Pharmaceuticals 0.48% 7.1% 4/23/07 Pharamceuticals 6/11/07 Wireless -0.3% 2.2% 6/11/07 Wireless 11/12/07 Utilities Grwth 5.7% -3.9% 11/12/07 Utilities Grwth Still held as of 12/31/07 3.5% 2.3% -------------------------------------------------------------------- Total return as of 12/31/07 13.2% 6.9% accounting for maximum 2% annual management fee 11.2% The calculation for the total return for the track is: (1.033)(1.0048)(0.997)(1.057)(1.035) - 1 expressed as a percent.Here is a table showing what have happened if one had followed the method illustrated above starting on the closest "Monday" to the beginning of each year since 1996. The returns shown are those for the following year (52 weeks). "Selects System" shows the results of trading the Select funds, which have been reduced by the maximum 2% annual management fee. Those returns do not reflect Fidelity's load (removed in September 2003) applied to initial purchases of Select funds, which ranged from 0% to 3% depending on the amount of the purchase. The links in the right column show the weekly trades for each year and the computations of the values in the table. Returns for the Vanguard Index 500 fund are included to provide a market condition context.
Year Selects System Index 500 Weekly Trade Lists & Computations 1996 31.2% 21.9% 1996 Weekly Trade List 1997 33.1% 28.6% 1997 Weekly Trade List 1998 17.1% 27.7% 1998 Weekly Trade List 1999 56.4% 19.6% 1999 Weekly Trade List 2000 32.0% -10.8% 2000 Weekly Trade List 2001 -20.5% - 9.5% 2001 Weekly Trade List 2002 -23.8% -21.3% 2002 Weekly Trade List 2003 18.4% 28.2% 2003 Weekly Trade List 2004 14.7% 8.8% 2004 Weekly Trade List 2005 12.5% 7.4% 2005 Weekly Trade List 2006 12.8% 13.6% 2006 Weekly Trade List 2007 11.2% 6.9% ------ ------ Average(96-07) 16.3% 10.1%
No claim is made that the system will perform in the future as it has in the past or as illustrated above. Also, there can be no assurances that the system will produce a profit in the future; it is possible that the system will produce losses.
December 31, 2007:
Another year has been completed, so we can see the 52 "week" performance of the track starting on the closest "Monday" to the start of the year, which was actually a Wednesday this time because New Years Day 2007 was on a Monday and the market was closed the following day. Although the performance period was a couple of days short of a full 52 weeks, there were 52 weeks of signals involved.
The expectation is for 5-7 trades per year. The fifth one has not yet been completed, but it is seven weeks old, so we can consider it as a full trade for discussion purposes. I expect about 2/3 of the trades to be profitable. One this past year was in the money market fund, so it doesn't really count in that regard. The four other trades had three finish on the plus side, and the other one was down less than half a percent. Although there were no really big winners, the track handily outperformed the broad market as represented by the Vanguard 500 index fund. The margin was over 4%, 11.2% after deduction of management fees vs. 6.9%.
I will continue to show the track until the Utilities Growth trade is completed. The track for 2008 will begin with the 12/31/07 purchase of Select Energy.
November 12, 2007:
Last week was quite bad for the broad market as the index fund fell by a little over 4%. It was a brutal week for most sector funds, especially for those in the technology sectors, with many dropping well over 10%. The track shown above had been ahead by a huge amount over the index fund for the year, but after last week it is ahead by a nice, but not spectacular, margin. The Wireless trade in the track had been ahead over 19%, but finished with a gain of not quite 6%, which illustrates how punishing the week was.
Sector funds can be expected to be more volatile than the broad market because they are quite concentrated. That is the main reason for their profit potential, but it also illustrates the risks involved. That is one reason I think exposure to sector funds should be at most 20% of an investor's portfolio, and less for many who are not willing or able to accept the risk levels. Volatility such as we have been seeing for the past couple of months magnifies the effects. It would be nice if there were a consistently good method for dealing with the large swings. I don't think there is, so limiting one's exposure and realizing that sector funds sometimes make mind boggling moves are critical aspects of investing in them.
August 13, 2007:
The past few weeks have seen wild market actions with 100 point or more moves in the Dow more often than not. The market seems to be somewhat of a manic-depressive in that fears of subprime mortgages causing a financial crisis dominate for a few days followed by giddiness about the strength of the overall economy pushing stocks back up. All told, stocks are down from their mid-July peaks. We have been spoiled by how steady, with the exception of a few days in late February and early March, the rise has been. Historically, bull markets usually see some "corrections" or pullbacks of the magnitude we are now experiencing although they often take longer. Note that for the year to date the broad market is still is up around five percent.
For several months it seems that the top-ranked fund has been Energy Service or Wireless with a few exceptions. Those two funds continue to be leaders. Energy Service can make huge moves in either direction as the table above shows. Wireless moved up nicely after the first purchases as can be seen from the increasing buy prices of the later purchases. However, it has given back a good portion of the gains. That is typical of sector funds, particularly the ones in the energy and technology sectors, which are normally much more volatile than the broad market. I find that the best way I can trade these funds is to stick with my formulas. Sometimes they will not work well, but they work better for me than trying to figure out the direction of the next significant move of these volatile funds.
April 16, 2007:
Two Select funds are signaled for sales this week. That happens several times a year. If both funds are exchanged into Energy Service, the top-ranked fund, then two "tracks" will have been merged. If one wants to maintain some diversification in the Selects holdings, that likely is not what is wanted. There are a couple of ways this can be handled. One is to exchange one of the funds into Energy Service and the other into a money market fund. When a fund not in an energy sector rises to the top of the rankings, the money market assets can be exchanged into that fund. Another possibility is to buy a fund that is highly ranked, say second or third, if it is not in an energy sector. As it turns out, this week's second ranked fund is Pharmaceuticals, which was quite close to being top-ranked. If there were no energy funds in the Selects holdings one might exchange Communications Equipment into Energy Service and Medical Delivery into Pharmaceuticals.
March 19, 2007:
Select Money Market is the top-ranked fund this week. That means all the other Select funds, with the possible exception of Gold that is not part of the trading group, have fallen over the most recent ranking period. There is no 0.75% charge for selling Select Money Market before it has been held for 30 days as there is for the other Select funds. One reason for the five week minimum holding period is avoiding that charge. However, my research has shown that five weeks is a good minimum holding period even without the short-term trading charge. Accordingly, I treat Money Market like the other Select funds in the trading method, so it will be held for at least five weeks.
February 26, 2007:
Stocks have shown modest gains for the first two months of the year. January was an up month for most indices, and February has seen what is essentially sideways movement. The gains in January (for the S&P 500) are a good sign according to the "January Barometer." It indicates an over 80% probability that the Feb. through Dec. period will show gains, and on the average those gains have been very good.
Another positive indicator is that the year before a presidential election, on the average, is a good one for stocks, the best overall in the four year presidential cycle. On the other hand, in spite of the new Dow highs we are still in a long-term (so-called "secular") bear market that began in 2000. Such markets see a lot of somewhat volatile essentially sideways to down movements. Within them, there are "cyclical" bull markets, and we have been in one for about four years. That is a very long time compared to the typical past ones. Moreover, this one looks like it may be running out of steam. Whether that is so is at best a guess on my part, and I make no claim that my guessing abilities are better than anyone else's.
My management of accounts is based on well researched quantitative analysis, and it does not depend at all on my ability to foresee what the markets will do over the next year or any other time period. The value added results from extensive research to develop the trading methods I use and the discipline to execute them. For most investors, those are much more valuable than the clarity of crystal balls.
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