Table of Contents
- What is the Stock Rebel Strategy?
- How does the strategy work?
- What is the reference portfolio?
- What stocks are in the portfolio?
- What is a benchmark index?
- Do you guarantee results?
- Should I use this strategy for all my investments?
- Will my results be the same as the reference portfolio?
- If fund managers usually can’t beat the market, how can this investment strategy?
- How can I participate?
- What do I receive with my subscription?
- How do I make my trades?
- Can you show me a trading example?
- What are my expected trading costs?
- Do I have to make my trades on the exact first market day of the new quarter?
- This seems too good to be true
What is the Stock Rebel Strategy?
The Stock Rebel Strategy™ is a simple method for selecting promising stocks in which to invest. The aim of the strategy is to outperform the market. For the Canadian strategy, the market benchmark is the S&P/TSX Composite Index. Since 2000, the strategy has been applied to our real-dollar reference portfolio. To year-end 2015 it has returned about 10.8% in annual compound growth, after the cost of trades. During that same period, the Composite Index has returned roughly 2.0%. The performance goal of achieving a greater percentage return than the market benchmark is critical to the strategy.
How does the strategy work?
The Stock Rebel Strategy uses a momentum approach to stock selection. We begin by identifying a group of high quality securities that will form our selection pool. Share prices for stocks in the pool are tracked over a period of time to determine promising candidates. A weighting formula is applied and ten stocks are chosen for the reference portfolio. Stock holdings in the portfolio are purchased in equal dollar amounts. Each quarter, the process is repeated and the portfolio is rebalanced.
Momentum strategies are based on the premise that if the price of a security has risen well over a recent period of time, there is a higher than average probability it will continue to do well going forward.
The Stock Rebel Strategy solves one of the most difficult challenges in investing: “When should I sell?” Buying is easy. Selling is hard. Cutting your losses is excruciating. The strategy takes fear and greed out of the equation. It also tends to “self-correct” over time. If a particular stock holding drops in value relative to other stocks, it is bumped out of the portfolio at the next rebalancing. Even if it simply plateaus, it can be pushed out by better opportunities elsewhere. On the other hand, when a stock has done well and has risen in value beyond ten percent of the portfolio value, it will be rebalanced. A portion is sold off and profits are taken.
What is the reference portfolio?
The reference portfolio is the official portfolio we use to track the success of the strategy. This portfolio was started in the fall of 2000 with real dollars. The strategy has been faithfully applied to the portfolio since that time, quarter after quarter, year after year. It has outperformed the S&P/TSX Composite index by a strong margin through one of the toughest periods in investment history.
What stocks are in the portfolio?
The stock holdings in the portfolio vary from quarter to quarter. They are selected from high quality, large cap companies; typically domestic or multinational leaders within their industries. These securities are among the largest and most liquid on the stock exchange.
What is a benchmark index?
A benchmark index is a market index, such as the S&P/TSX Composite Index for Canadian stocks, or the S&P 500 Index for U.S. stocks. A market index is based on the capitalizations of a group of large companies having stocks listed on the major exchanges. It is intended to be representative of the value of the broader stock market.
For an investment to “beat the market”, the percentage return for a given period must be higher than the return of the chosen benchmark index for that same period. The Stock Rebel Strategy compares its performance against the S&P/TSX Composite Index. Our performance goal each year is to achieve a greater percentage return than the Composite Index.
Do you guarantee results?
We do not guarantee results. No stock fund or strategy can because the stock market is unpredictable. The reference portfolio has met its performance goal of beating the benchmark index in 11 of 15 years, returning roughly 10.8% annual compound growth through a very difficult period in the markets. We are pleased with the results of the strategy so far, but that is no guarantee of future success. You should take a long view when investing in stocks and not invest money you are not prepared to lose.
Should I use this strategy for all my investments?
That depends on your investment goals and risk tolerance. The Stock Rebel strategy invests 100% in Canadian equities. Many experts recommend having a well-diversified portfolio of stocks, bonds, and cash invested in different regions. You may choose to employ the strategy within a broader investment plan. Speak to your professional financial advisor.
Will my results be the same as the reference portfolio?
Not likely. You may do worse, or you may do better. There are many variables at play, including the following:
- You will have entered the market at a different time than the reference portfolio did.
- Your trades will not occur at the exact same time and price as our portfolio.
- Your cost per trade may differ.
- The amount of money you invest will differ from that of the reference portfolio and, therefore, the cost of your trades will make up a different percentage of the overall value of your portfolio.
- The accounts in the reference portfolio are registered retirement accounts and are not subject to taxation until money is withdrawn. If you are trading a non-registered account, taxes will affect your results.
If fund managers usually can’t beat the market, how can this investment strategy?
Numerous studies indicate that more than 80% of active fund managers don’t beat market averages over the long term. Reasons for this poor result include the size of the funds, manager salaries, research costs, marketing costs, and fees paid to financial planners. And then there are the hefty fees you pay to participate in all the disappointment.
The Stock Rebel Strategy is a low-cost approach that has been very effective. It simply lets the market determine, through share price momentum, which shares may have promise going forward. Momentum strategies appear to do generally well over the long term. You pay a simple subscription fee to participate. That’s it.
How can I participate?
You participate by subscribing for Stock Rebel membership. You’ll receive quarterly trading data to use for trading your own account. We don’t have access to your investments, so you're in complete control. You’ll receive information on stocks to sell, stocks to hold, and stocks to buy for the next quarter. These are the same trades that occur for the Stock Rebel reference portfolio. Simply rebalance your own portfolio to match. It requires about an hour of work, four times per year.
What do I receive with my subscription?
You receive access to a proven investment strategy that has outperformed the market by a strong margin for over 15 years.
When you sign up, you'll get immediate access to trading data for the current calendar quarter. Going forward, you'll receive a number of email notifications on a quarterly basis. The first will arrive about one week before the start of each new calendar quarter. It’s a reminder that your trading data will soon be available. The trading data is posted to your secure membership area the evening before the first business day of each new calendar quarter. It contains the list of the stocks you should hold in your portfolio over the next three months.
You also receive a complete portfolio rebalancing guide along with a helpful “smart” stock rebalancing worksheet. The worksheet is already filled in with trading data from the previous quarter and new stocks for the upcoming quarter. Simply enter your current balance and share holdings. The worksheet calculates how many of each stock you need to buy or sell.
And remember, we’re happy to answer questions and support you all the way.
How do I make my trades?
On a calendar quarterly basis, we give you trading data for the stocks you should hold in your portfolio for the next three months. You can trade right away, or wait a few days if you prefer. Our reference portfolio is traded on the first business day of each calendar quarter.
Each of the ten stocks in the portfolio should be held in roughly equal dollar amounts in your portfolio. If you were just starting out and had $100,000 to invest, you would purchase $10,000 worth of each of the ten stocks. If you’ve already participated in the program and are holding stocks from the previous quarter, some of these stocks will likely need to be changed up. For others, you may have to sell a portion of your holdings in that stock to bring it down to ten percent of the portfolio value.
Occasionally, you may be holding a stock from the last quarter that has lost some value but is still on the hold list. It may have dropped below ten percent of the value of your portfolio. You may choose to purchase additional shares in this stock to bring it back into balance. In our experience, this doesn’t occur frequently. A stock that is not doing as well as its peers usually gets bumped from the portfolio.
For the reference portfolio we have always used regular market orders. We have not employed stop market (stop-loss) or other special orders.
Can you show me a trading example?
Say that in quarter one you held ten stocks in your $100,000 portfolio. We’ll call them Company A through to Company J. At the beginning of quarter one, each of the ten holdings had a value of about $10,000 each. Three months later, some have increased in value and some have decreased. Some will be dropped from the portfolio and others added. What you will trade at the start of quarter two might look like the chart below. To keep it simple, we haven’t included trading costs, but you would subtract those from your total available value. Divide the dollar values by the current price per share to determine how many shares you should be buying or selling. The goal is to have roughly the same dollar value for each holding.
|Your holdings at the end of quarter 1||Our ten stock picks for quarter 2||Your trades at the start of quarter 2||Your holdings at the start of quarter 2|
|A $12,500||Company A||Sell $2,230||A $10,270|
|B 8,000||Sell 8,000 (all)|
|C 9,500||Company C||Buy 770||C 10,270|
|D 7,500||Sell 7,500 (all)|
|E 11,000||Company E||Sell 730||E 10,270|
|F 10,500||Sell 10,500 (all)|
|G 9,000||Sell 9,000 (all)|
|H 13,200||Company H||Sell 2,930||H 10,270|
|I 11,000||Company I||Sell 730||I 10,270|
|J 10,500||Sell 10,500 (all)|
|Company K||Buy 10,270||K 10,270|
|Company L||Buy 10,270||L 10,270|
|Company M||Buy 10,270||M 10,270|
|Company N||Buy 10,270||N 10,270|
|Company O||Buy 10,270||O 10,270|
|Total: $102,700||Total: $102,700|
When you subscribe, you’ll have access to a smart rebalancing worksheet similar to the table above. Simply enter your information and it will perform the calculations for you.
What are my expected trading costs?
Trading costs are determined by the fees charged by your brokerage provider and by the number of trades you make. For the reference portfolio, we pay about $10 per trade. The maximum possible number of trades you could incur in a year is 80, but that has never happened with the reference portfolio. In one particular quarter, all ten stocks were changed up, resulting in 20 trades, but this has occurred only once. On average, we see 12 to 14 trades per quarter. This is for rebalancing the holdings in the portfolio and for taking profits on some growing stocks.
Do I have to make my trades on the exact first market day of the new quarter?
You don't. You can make your trades when it is convenient to you. The Stock Rebel reference portfolio is rebalanced on the first market day of each calendar quarter. If you want your results to match the reference portfolio as closely as possible, you'll want to do the same. What is important is that your portfolio is rebalanced consistently four times each year. Closer to the start of the quarter is better because the trading information is more current at that time.
This seems too good to be true
Too good to be true would be laying by the beach, making 100% risk-free returns while someone serves you cold drinks.
The Stock Rebel strategy has had its ups and downs over the years. It hasn’t always been a smooth ride as you can see from the yearly results chart. We present our results accurately showing all the good, the bad, and the ugly since the beginning. The first two years were pretty horrible. We could have made the numbers look much better by showing results starting from 2003, but we didn’t.
Over the long run, we are pleased with the results. The rebels are all in. We stick with the strategy quarter after quarter, year after year, through the ups and the downs. Discipline and a long-term view are the key.