Van K. Tharp, Ph.D.

Putting Peak Performance to Work for You

Self Sabotage Reexamined

By
Van K. Tharp, Ph.D.

One of my passions in life is to once again, I discovered that most “consumer items” on credit. And
model things. When I’ve modeled people do all the wrong things. It’s that process starts as soon as they
different aspects of human excel- almost second nature to them. For earn money, perhaps even earlier if
lence, I’m always amazed at how example, they concentrate on the they are in college. Furthermore,
people seem to be almost hard- entry portion of system develop- when they become successful, most
wired to do things the wrong way. ment, often to the exclusion of people simply go further into debt
Let’s look at a few examples: critical items such as exits and po- because they can afford more debt.
sition sizing. In fact, this bias is As a result, you often hear wealthy
I first modeled the trading process
built right into most of the commer- people say, “I have the same prob-
and the Peak Performance Home
Study Program was born as a re- cially available software for system lems I had when I was poorer, only
development. That software is de- the problems now have more zeros
sult of this. And, what I discovered
signed to optimize historical entries behind them 1 .” And, in most
was that most people do all of the
wrong things almost naturally. For and will not even permit decisions cases, this happens even when you
that have to be made simulta- educate people about the pitfalls.
example, they tend to cut their prof-
neously at any given moment in They still go out and make the same
its short and let their losses run.
They focus on picking the right time such as position sizing deci- mistakes. Again, this seems like
sions. Trade Your Way to Financial self-sabotage to me.
stocks (and being right about them)
Freedom listed 25 different psycho-
as opposed to position sizing and Most people recognize their own
exits. They get emotional about logical biases that affect trading
system development and all of self-sabotage when they are trying
their trading. The list could go on to accomplish something and they
them are basically some sort of self-
and on and all of it appears to be continually fail at it. For example,
some form of self-sabotage. sabotage.
if you are trying to earn a living
Most recently, I’ve been interested trading and you continually lose in
Trade Your Way to Financial Free-
in modeling the wealth process. the market, you might eventually
dom came about as a result of
The wealth process is so simple that recognize this as self-sabotage.
modeling the area of trading that
almost everyone, including those Similarly, if you have set up a plan
seemed to be the least psychologi-
with a minimal education, can be- to trade a particular way, which you
cal—system development. I
come infinitely wealthy. However, do most of the time, but let’s say
wanted to know “how do traders
most people do everything they can once a month, something goes
developed good systems.” And,
to prevent that from happening. wrong and you give up all of your
They go deeply into debt to obtain
Research Project Portfolio

By V. Tharp, see page 7 1 In case you didn’t get this one, it simply means now you have to worry about
payments on a $2 million dollar loan instead of payments on a $20,000 loan. Continued on page two

Volume 7, Number 6 (103) June 2002 ©2002, IITM, All Rights Reserved
 Market Mastery

profits, then you’d probably call that strict cleansing diet since last Sep-
Market Mastery self-sabotage. tember. I’ve made incredible strides
in improving my health. Yet I find
However, most people are not aware
PUBLISHER/EDITOR that when I record what I eat in a
of their own self-sabotage as it oc-
Van K. Tharp, Ph.D. diary, I often eat one or two things
curs. For example, I just finished
that are on the “dangerous” list sim-
PRODUCTION DIRECTOR AND taking a group of six people through
COPY EDITOR ply because I like them. But when I
a mock trading game. They all made
Cathy W. Hasty forget to write down what I eat in a
huge mistakes and I was debriefing
diary, I’ll suddenly realize after a
Editorial Advisory Board
them by asking, “Give me three les-
week or ten days, that about 60% of
sons that you learned from the
what I’m eating is now dangerous.
game.” One woman had elected to
Brian June, CEO, IITM, Inc. And I suspect that if I totally ignored
go against the expectancy of the
the journal, I’d find myself getting
D.R. Barton, CEO, One Minute
game and ended up bankrupt. Yet,
back to normal American habits of
Trader Corporation with a lot of struggle, the only les-
90% dangerous food quite quickly.
sons she could come up with were:
“I risked too much and I didn’t think So what have we discovered about
about percentages.” When I ex- self-sabotage? Well, the following
This publication is intended to be plained to her that she went against points seem quite obvious to me.
instructional and should not be construed
as a recommendation to buy or sell any the odds so that she had no chance
• Most people are psychologically
futures contracts, options, or stocks. of winning if we played long
Trading is extremely risky and may result wired to lose, or perform very
enough, she said, “Oh, yes, I see
in substantial losses. The information poorly, at whatever they set out to
offered is gathered from sources believed that.” Yet later when I asked her to
to be reliable as well as from experiences do.
repeat her major lesson from the
of the editors. The publishers and editors
assume no responsibility for errors or game, she’d totally forgotten that • People are only aware of their self-
omissions or any losses resulting from one. sabotage when they have a distinct
the use of the information contained in
this publication. goal and they repeatedly thwart
Our game consisted of 100 trades,
themselves from achieving it.
HYPOTHETICAL OR SIMULATED PERFORMANCE and one person drew out over 40 los-
RESULTS HAVE CERTAIN INHERENT ing trades in a row. Even in a system • Most of the time we are totally un-
LIMITATIONS. UNLIKE AN ACTUAL
PERFORMANCE RECORD, SIMULATED RESULTS that is only correct 20% of the time, aware that we are doing things that
DO NOT REPRESENT ACTUAL TRADING. ALSO, the odds of 40 plus straight losses keep us at very sub-optimal levels
SINCE THE TRADES HAVE NOT ACTUALLY BEEN
EXECUTED, THE RESULTS MAY HAVE UNDER- are quite slim2 . She seemed a little of performance.
OR-OVER COMPENSATED FOR THE IMPACT, IF shocked after the experience. And The Matrix Theory of
ANY, OF CERTAIN MARKET FORCES SUCH AS
LACK OF LIQUIDITY. SIMULATED TRADING
later in the game when we had four Self-Sabotage
PROGRAMS IN GENERAL ARE ALSO SUBJECT TO 10R winners in ten trades, she only
THE FACT THAT THEY ARE DESIGNED WITH THE managed to increase her equity One of my favorite movies of all
BENEFIT OF HINDSIGHT. NO REPRESENTATION
IS BEING MADE THAT ANY ACCOUNT WILL OR IS about 2%. Yet when I asked her time is The Matrix. In this movie,
LIKELY TO ACHIEVE PROFITS OR LOSSES what mistake she was making, she human beings have been taken over
SIMILAR TO THOSE SHOWN. by robots. We, as a race, are all un-
didn’t have a clue.3 Again, it took
a lengthy explanation to get her to conscious and having a dream about
understand the mistake. Yet I would life. And that dream is very much
Market Mastery like our life today. However, the
is published by the International Institute of
call the mistake a major example of
Trading Mastery, Inc., (IITM) self-sabotage. hero of the movie, Neo, gets the op-
519 Keisler Dr., Suite 204, Cary, NC portunity to find out what’s really
27511, Telephone (919) 852-3994; Fax The last three articles in Market going on. He takes a “red pill” and
(919) 852-3942; web site www.iitm.com Mastery have been on the topic of after going through a very “wild” ex-
©2001 by IITM, Inc. All rights reserved. peak performance health. Most of
Reproduction in whole or in part without perience, wakes up to what seems
express permission is prohibited.
the foods we eat are killing us. Yet to be going on in his world.
I would guess that about 99% of the
Subscriptions: $240 for one year; $398 for In the Matrix world, Neo and oth-
two years.
American people are totally un-
Back issues are available: Market Mastery aware that 90% of what they eat is ers like him who are awake to their
$19.95 ea.; Course Update $34.95 ea. dangerous. In fact, I’ve been on a programming, can do something
For a list of back issues, visit www.iitm.com
2 The odds of that happening are about 0.00002 and so it’s not something you’d be likely to see every day.
3 In this particular case, I won’t tell you what the mistake was until the end of this article. Do you know?
Or would you do the same thing?

2 ©2002, IITM, All Rights Reserved

 Market Mastery

that the average unaware person Figure 1

cannot – they can reprogram them-
selves. And when you reprogram
yourself to function in a world where
everyone else is unaware, you basi-
cally seem to function at a
superhuman level. Neo and his col-
leagues can now compete, although
just barely, even with those who are
doing the programming.
The Matrix model of self-sabotage
would basically say that we are pro-
grammed to perform at a very poor
level. The world gives us stimula-
tion (i.e., experiences) and because
of our faulty programming, we per-
form at a sub-optimal level. And
we are totally unaware of the fact
that we are doing so.
The fix for self-sabotage, in this
model, is to reprogram yourself to
perform at a “super-human” level.
And interestingly enough, this par-
ticular model is probably the their neural and linguistic patterns. the boating accident. Rick was fish-
dominant model for how self-sabo- And once you know the “program- ing one weekend, surprisingly
tage works and how people fix it. ming of those who do it well” you without Jeffrey. He’d gotten drunk,
And, of course, there is no fix for can program others to do the same fallen out of his boat, and drowned.
the problem that most people are un- thing.
Jeffrey was mortified. He blamed
aware of their self sabotage. The Given these examples, the Matrix himself because he was not there
model is illustrated in Figure 1. It model for self-sabotage seems to be with Jeffrey. Perhaps he could have
reminds me a lot of my early train- very popular and the one most saved him. Perhaps he could have
ing in psychology which focused, at people use in determining how to fix stopped him from drinking so much.
that time, on behaviorism. Behav- problems. You simply determine Perhaps he could have died with him
iorism assumes that we as human what the programming is and then (or instead of him) and then he
beings are “black boxes.” However, fix it. wouldn’t feel so lonely. There were
if you play around with the stimu- so many things he could have done,
lus-response programming of the Jeffrey: An Example
but he didn’t do them. And now
black box, you really don’t need to Jeffrey had been a real estate tycoon Rick was dead. Jeffrey was really
know anything else. during the boom period in the 1980s. down and he felt like it was all his
He made millions and was con- fault.
Anthony Robbins has really popu-
stantly doing deals. Everything he
larized this model with his Within the next year, real estate
touched turned to “gold” so to speak.
Neuro-Associative Conditioning™ started to become a bad investment.
Jeffrey thought he was on top of the
Model. Robbins assumes that we Loan rates skyrocketed and Jeffrey
world and he lived that way.
are programmed to avoid pain and found himself in a position in which
pursue pleasure and that if you Jeffrey was quite lonely and spent the bank started to call some of his
change the pain/pleasure dynamics most of his free time with his best loans. He said he could have easily
for an individual, you can reprogram friend, Rick. Jeffrey and Rick had sold the buildings for a profit, but
them for success. Much of what grown up together, attended school the bank wanted to call the loans.
Robbins does is from Neuro-Lin- together, and even dated girls as a He even had a positive cash flow on
guistic Programming which is also foursome. They were almost in- the buildings, but for some reason
based on the same model. Its basic separable. Jeffrey probably spent the bank wanted to call the loans.
tenant is that you can model how more time with Rick than he did And when they did, they sold the
people do things by determining with his wife. And then it happened,
3 ©2002, IITM, All Rights Reserved
 Market Mastery

buildings at a wholesale price just interestingly enough, he didn’t want friend would still be alive. And per-
to pay off the loans. Jeffrey was cer- to understand. He just wanted to haps, he felt, he’d still be the golden
tain that someone in the bank was make money again. boy.
out to get him. Second, Jeffrey didn’t have a busi- My experience with traders like Jef-
When the first building was sold, it ness plan. He hadn’t planned how frey is that attempting to fix the first
seemed to start a boomerang effect he would react in certain situations. four levels of problems without fix-
on Jeffrey’s business. Suddenly his He didn’t know how his system ing the deepest problem is doomed
cash flow was less and he really was would perform under various mar- to failure. If you teach Jeffrey R-
struggling to make payments. And ket situations – to the extent that he multiples, expectancy and position
then some tenants moved out and even had a system. Therefore, he sizing, it won’t work because he
the next thing Jeffrey knew, the bank couldn’t develop alternative plans doesn’t have a business plan to guide
was calling in another loan. And when market conditions changed. him. If you get him to develop a
then another and another. Soon Jeffrey certainly didn’t have worst complete business plan, it probably
Jeffrey had no other option but to case contingency plans. But he re- won’t work because he’s had some
declare bankruptcy. ally wasn’t interested in all of that. traumatic losses in the market and
He just wanted to make money they tend to make him fearful. The
Jeffrey managed to hide some
again. money issue is significant, because
money from his creditors, but some-
Third, Jeffrey was obsessed with Jeffrey’s focus is in the wrong place,
how his magic was gone. He could
money. And sometimes when that but changing the focus won’t change
no longer make deals. Nothing he
happens, the universe finds a way the problem. And if you attempt to
touched turned to gold. Instead,
to press your buttons. But Jeffrey fix the fear of trading issue, it prob-
what seemed to be gold turned to
didn’t care. He just wanted to make ably won’t work because Jeffrey still
lead if Jeffrey touched it. Or, at
money again. feels that people are out to get him
least, that was the way it seemed to
from his experiences in real estate.
Jeffrey. Fourth, Jeffrey had suffered some And finally, if you help him heal his
Jeffrey decided to try to day trade. horrible losses in the market. Sev- wounds from the real estate debacle,
He spent a year learning the craft. eral of them were serious enough to it still might not work because of the
But somehow there was no magic. scare most people away from the void in his life from the death of his
He’d made 20% in two months and market, but they didn’t stop Jeffrey best friend. However, if Jeffrey
then he’d give it all back and more. from trading. But that still wasn’t heals the issues with his best friend,
He’d make 40% and then lose 60%. the source of Jeffrey’s problem. then he can begin to solve all of the
And yet he felt like he should be able Fifth, Jeffrey’s confidence had been other problems that developed on
to make a fortune trading stocks. shaken horribly by his experiences that foundation – especially if, by
Other people were doing it, so cer- in real estate. He seemed to have doing so, Jeffrey can learn how to
tainly he should be able to do so. the opinion that someone was out fill the emptiness in his life.
Why not? Wasn’t he the golden to get him ever since his first loan The Reprogramming Fix
boy? Or, at least, he used to be the had been called. He still wanted to
golden boy. The “fix” needed in a situation like
kill the banker that ruined him, but
Jeffrey’s is to find the belief that Jef-
So, given that background, what is he wasn’t sure who he was. But
frey made about himself at the time
the problem? Is it Jeffrey or just un- even that wasn’t the real root of
of his friend’s death. In this case, it
fortunately circumstances? If it’s Jeffrey’s problem.
was “I’m useless, because I wasn’t
Jeffrey, how would you fix it? Lastly, Jeffrey’s self-esteem had there for my friend. I didn’t save
What’s the source of the problem? been totally shaken by the death of him.”
Let’s take a look at it and see how it his best friend. He was lonely and
Once you know the belief, you then
might fit into the Matrix model. Did lost. His best friend had filled a void
have to get Jeffrey to look at the
Jeffrey somehow get programmed to in his life. When Rick died, the void
impact of that belief in some way.
fail? And, if so, how could one fix became even bigger. In fact, Jeffrey
Different techniques of doing so
him? Or how could he fix himself? made it bigger by assuming that he
might include4 :
was to blame for Rick’s death by not
First, Jeffrey, like most traders,
being there. If he’d been there, his
didn’t have the fundamentals down.
He didn’t understand expectancy, R- 4 I’ve put the reprogramming technique that uses this method in parentheses after the technique. And my
multiples, and position sizing. And, list is far from exhaustive in terms of techniques one might use These are simply a few of the procedures
with which I have some experience.

4 ©2002, IITM, All Rights Reserved

 Market Mastery

• Looking at the consequences of Assumptions of the Matrix Model of the self-sabotage persisted. Why?
the belief by asking questions such Let’s look at some of the assump- What else was going on?
as “What does a belief like that get tions of the Matrix model. It • For many years, I’ve taught that
you into? What does a belief like basically assumes that we human the most important trait for a good
that get you out of? (Dynamism) beings are like robots in that our be- trader is assumption that you totally
• Taking the belief and imagining havior is programmed. And who create your experience as a trader.
yourself in the future with that be- does the programming? Our par- When you do so, you are then in
lief with the worst possible ents? Our peers? Our teachers? charge of your destiny. However, if
scenarios and noticing how painful Perhaps that’s what happens. But we were programmed individuals,
it is. And then imagining yourself are you really a robot? Is our be- then we’d have to assume that the
with an alternative belief and notic- havior really the result of what programming, not us, produced the
ing how wonderful things could be. others do or from events that hap- results. That’s not a very useful as-
And in each case, really get into the pen to us. I don’t think so. sumption.
feelings. (Tony Robbins) In the Matrix movie, our hero, Neo, • Instead, we seem to be creative be-
• Looking at the incident that lead can develop superhuman behaviors, ings. We imagine something and
up to the belief and looking at the but those behaviors aren’t quite at then produce a result. This might
positive learning that might be there the level of the computers or robots occur through “manifestation” or
such as: “He or she did the best they that were involved in developing the other forms of creation, but it does
could with the resources they had.” Matrix itself. After all, Neo was op- seem to occur. Creation does not
(Part of Timeline work). erating out of the Matrix, so he seem to involve any form of pro-
needed to abide by its rules. How- gramming. Everybody creates, even
• Looking at the belief from a num-
ever, something happens to Neo. He if it is to create the status quo and
ber of different perspectives,
suddenly realizes that even the Ma- be passive about it.
including the past (i.e., before the
trix is made up and that he is
belief was formed) and the perspec- • In my training in biological psy-
something more than that. And in
tive of different people (i.e., a chology, attempts to look at the brain
the end of the movie, he transcends
neutral party, other people who were as if it were hard wired just didn’t
his programming and moves into
involved such as the other person in explain everything. In fact, it didn’t
“Godlike abilities” in which he can
the incident, etc.). (Timeline and explain much as far as I was con-
stop time and pick bullets out of mid
other NLP techniques) cerned. Memory could not even be
air.
• Looking at the belief from a spiri- localized in any particular place in
Our existence may be a lot like that. the brain. Are we just our brains? I
tual perspective of “oneness” or
Let’s look at some of the evidence think not!!
some other core state. (Core Trans-
about the nature of self-sabotage:
formation) • Evidence from near death experi-
• Let’s imagine that you have a sys- ences suggests that our
• Looking at the feelings that occur
tem, however, you always seem to consciousness does not die, but sur-
as a result of the belief and really
exit winning trades early before you vives in another existence. While it
feeling those feelings until they dis-
get a signal to exit. This model might be easy for some to assume
appear. (S. Grof techniques)
would suggest that somehow we’re that a “flesh and blood” human be-
Once the core belief has been found programmed to do that – perhaps be- ing can be programmed, can we
and transformed, a therapist can then cause of some big loss in the past, really say the same for our con-
begin to unravel the consequences you want to make sure it would sciousness as a spirit?
of having that belief. In Jeffrey’s never happened again. But is that
case, all of the other reasons men- In addition, in every case I can think
programming or a choice we make?
tioned for Jeffrey’s poor trading of, the faulty programming that
• I’ve personally worked on clear- needs to be undone occurs when
were really consequences of having
ing out my own blocks for many person adopts some belief that
that original belief.
years. The early part of that clear- seems faulty and illogical and then
The techniques just listed tend to ing involved overcoming negative gets stuck in that belief. Is that
work, if you can find the root belief experiences. However, after a faulty programming? Or is it an
and transform it. However, when while, there were no new negative active creative process? I tend to
they do work, are we really undo- experiences to overcome, yet some think it is the latter.
ing faulty programming? Or are we
doing something else? Continued on page six

5 ©2002, IITM, All Rights Reserved

 Market Mastery

The Creative Model of When you are unwilling to feel a Figure 2

Self-Sabotage feeling like that, what happens is
that you tend to stuff it and store the Creative Model
As a result, let’s look at another pos-
feeling in your body. The net result
sible model for self-sabotage – I call
is that the next time you want to ask
it the Creative Model because it as-
someone for a date, that feeling is
sumes that we create our
there for you to experience before
experiences through our beliefs. We
they even respond. You hear a voice
then get to enjoy and experience
in your head that says, “Remember
those creations. However, if we
what happened last time!” and you
deny our experience or assume that
feel those feeling of rejection. As a
it is not us, then we give those cre-
result, you feel rejected before you
ations our power, and through that,
even approach the new person. You
have an experience of self-sabotage.
probably approach them as if you
The creations seem to control us. In
expect a negative response, by say-
Jeffrey’s case, for example, he sim-
ing, “You wouldn’t want to go out
ply developed an interesting
with me, would you?” When you
creation when he took on the belief
ask them that way, you’ll probably
that “I’m not worthwhile, because
get the response you expected. But
I wasn’t there for my friend.”
even worse is when you don’t ask
Figure 2 shows a diagram of the Cre- because you expected to be rejected.
ative Model of Self-Sabotage, in By not asking and
which self-sabotage simply occurs feeling rejected, you
because we deny our creations. In prove yourself to be
fact, the model actually gives a very right.
interesting definition of self-sabo-
In Jeffrey’s case the
tage: namely, self-sabotage occurs
result is much more
when you deny your creations. Self-
subtle. First, he
sabotage occurs when you are
wasn’t aware of
unwilling to experience the result of
forming the belief
what you create. In Jeffrey’s case,
that he wasn’t worthwhile. It just
he certainly didn’t like the results at all of them in the continuation
seemed to happen. And when he
he created when he decided he of this series. We will also look at
started to have experiences that con-
wasn’t worthwhile. He wasn’t will- the spiritual model of self-sabo-
formed to that belief, such as his real
ing to experience those creations. tage.
estate empire falling apart, he cer-
As a result, he continually experi-
tainly wasn’t willing to have those
enced them – both in real estate and
experiences. As a result, he got
in trading. -----------------------------------
stuck in them.
I’ve already talked about this model Answer from page two:
The market is a great place to find a
when it comes to feelings. People
justification for all sorts of experi- The person whose equity only went
are not willing to have the experi-
ences you don’t want to feel, such up by 2%, despite four 10R win-
ence of feelings that they judge to
as fear or anger or whatever you feel ners in ten trades, was only risking
be negative. The example I’ve al-
when you don’t feel worthwhile. 0.12% of her equity. On a $100,000
ways used is that of being rejected
What experiences are you not will- account this amounts to risking
by a person of the opposite sex when
ing to have while trading? Are you $120 or buying 10 shares of CISCO
you are looking for a date. He or
stuck in them? with no stop at its current price of
she says “no” just because they’ve
had a bad day. You interpret “no” Next month I will continue with this $12. Would you call that self sabo-
as a personal rejection. Since you idea of self-sabotage coming from tage?
hate the feeling of rejection, you try a belief that we create. There are at š
not to feel it and say, “I really least eight ways that this could re-
wouldn’t have had a good time with sult in self-sabotage and we’ll look
that person anyway!”

6 ©2002, IITM, All Rights Reserved

 Market Mastery

IITM Efficiency Model Research Update Through June 15th

By Van K. Tharp
At the end of May, all three major now turned into a winning position Even though the market is down, we
averages were down again. The and makes up for the losses in the are allowed to add one new position
Dow Jones Industrials stood at stocks. should any stock warrant such an ad-
9925.25, down 0.21% for the month. dition. Table 2 shows you the top
Most importantly, our portfolio is
The S&P 500 stood at 1067.14, efficiency stocks effective May 31st.
only down $162.61, or 0.6%. This
down 0.91% for the month. And The efficiency table is very interest-
is less than we’ve paid in commis-
lastly, the NASDAQ composite ing. It is the weakest listing we have
sions. All of the major averages
stood at 1615.73, down 4.3% for the seen since we’ve been doing the re-
are down significantly on the year
month. These percentages are suf- search. Only one stock has an
so we are ahead of our goals. How-
ficient to allow us to add to our short efficiency rating above 15 when we
ever, I must also caution that I feel
position in the NASDAQ. As a re- usually see 10 or more stocks above
our short position is too leveraged
sult, our first action of the month that level2 .
for what we are trying to do, but I
will be to add to our short position
won’t change the rules until after six The only real high efficiency stock
in the Pro Funds Ultra Short Mu-
month (i.e., June 30th). is NAB, an Australian bank, with an
tual Fund (USPIX) at the close on
June 3rd which was $59.82. This Three of our stocks have efficiency efficiency rating of 15.24. The next
time we will only invest $2500.1 ratings below 8 and require us to sell most efficient stock is HCBK, the
at the open on June 3rd. Those stock we added to our portfolio last
Now let’s look at our portfolio ef- month, at 14.72. PORT, which we
stocks are BLL (open at 41.58 on 6/
fective May 31st, 2002. Refer to 3); NVR (open at 327 on 6/3) and own is also in the top five. And no-
Table 1. tice the predominance of banking
RACN (which opened at 19.79 on
All of the stocks are down for the 6/3). We will sell all three at those stocks. In addition, more than half
month except for the financial prices and subtract our $15 commis- the stocks in our list are ADRs
stocks, but nothing was stopped out. sion for each. Two of them, NVR (meaning that they are foreign
However, our bear mutual fund has and BLL are slightly profitable. stocks, not U.S. stocks).
Since we are heavily short and we
Table 1: Model Portfolio Effective May 31st exited three positions because of ef-
Stock Cost 5/31 Close High Stop Shares Value ficiency drops, we are going to add
Close
BLL $1006.62 41.58 51.17 38.38 21 873.18
two new stocks this month. The first
HCBK $990.00 39.18 39.24 29.31 26 1018.68 stock will be NAB which will give
KF $1011.93 17.29 18.78 14.09 57 985.53 us a heavy banking presence. And
MFSF $1011.05 19.70 19.75 14.81 55 1083.5 the second stock will be ASA. Gold
NVR $956.25 331 388.25 291.19 3 993 has been doing fairly well in this
PORT $1014.13 35.18 36.75 27.56 31 1090.58
RACN $998.84 19.78 22.44 16.83 58
market, so ASA will be an interest-
1147.24
USPIX $5015 55.30 64.23 44.96 92.098 5093.02 ing hedge in the portfolio.
Stock Total $12,284.77 We purchase NAB at it’s open of
cash $12,552.62
102.85 on June 3rd and ASA at its
Total $24,837.39
open of 37.5 on June 3rd. Our port-
Table 2: The Top Efficiency Stocks at the End of May folio is up enough that we will now
Stock 5/31 Close 5/31 Efficiency 20 Day Eff. 45 Day Eff. Rating be risking $257 per position (i.e., 1%
NAB 102.85 15.24 8.35 11.50 8 of $25786) in these two new pur-
JWL 21.41 12.44 2.47 6.42 7
chases. Our new risk level allows
LII 16.60 12.30 3.81 7.02 7+
HNP 33.21 12.03 5.53 10.51 7 us to purchase 10 shares of NAB
UIC 24.95 11.69 0.64 8.36 6+ (instead of 9) and 27 shares of ASA
ASA 37.5 11.33 3.23 8.05 8 (instead of 26).
1 Again, I believe that this position is too leveraged. It has worked out well for us, despite my reservations
However, we will continue to follow the system through the end of this month and then reassess our rules as
has been planned.
2 As a contrast in January 2000, the efficiency model had 77 stocks with rating of 15 or above. Continued on page eight

7 ©2002, IITM, All Rights Reserved

 Market Mastery

Our Portfolio on June 15 th : A HCBK has split two for one, so we the inflow of pension fund money
Midmonth Peek now have 52 shares at about half the into the market. The market over
During the first half on June, the price. the last 12 months has followed this
market continued its downtrend. trend. The low in the market oc-
An Examination of Our Closed
This did not help our long positions curred after the September 11 th
Trades
much, but it helped our short posi- crash. We also purchased our bear
Table 4 shows all of our closed fund, right on schedule, on the first
tions tremendously. Table 3 shows
trades, together with their R-mul- of May (although the market started
our positions effective on the close
tiples and the change in price since down in April).
June 14th. As of the middle of the
we closed it out. Notice that sev-
month we are up $763.72 or 3.1%. Although interest rates are at long
eral of them, MIMS and VERS are
Contrast this to the year to date term lows and there is massive
down significantly from our close
prices for the major averages and stimulation in the economy, there
out price.
our record is excellent. For ex- are currently huge negative factors
ample, the DOW is down 5.46% Our expectancy after nine closed at work in the market. First, we have
year to date, the S&P500 is down trades is still negative –0.133. We a huge amount of non-productive
12.26% year to date, and the have closed out nine trades, six at a government spending going on in
NASDAQ is down 22.85% year to loss and three at a profit – all with the market. George Bush’s War on
date. Thus, we are well ahead of R values of less than 1.0. In addi- Terrorism could be a disaster for the
our benchmarks. tion, half of our eight open trades economy. In addition, the dollar is
are losing money. Nevertheless, starting to weaken (it’s been strong
Our cash position is obtain by tak-
with 7 winners and 10 losers, we are so far throughout this bear market)
ing the cash at the end of last month,
still up 2.2%. and that will further erode the U.S.
subtracting the cost of our new open
trades and adding back the value of Current Market Comments stock market in the eyes of foreign-
our closed out trades. We are 60% ers. If they start pulling large
There is a seasonal trend to the mar- amounts of money out of the mar-
invested with a little more than half ket which suggests that one should
of the investments in a short posi- ket, then the predictions I heard last
buy in October/November and sell year of a stock market crash
tion. in May. This trend basically follows (NASDAQ) to the 500 level could
come about.
Table 3: Model Portfolio Effective June 14th close Let me caution everyone, however,
Stock Cost 6/15 Close High Stop Shares Value
Close that this article is simply a research
ASA $1027.50 34.05 38.88 29.16 27 919.35 project. My opinions are just that,
HCBK $990.00 39.53 40.12 30.09 26 1027.78 my opinions. In addition, our port-
KF $1011.93 17.3 18.78 14.09 57 986.1 folio is not meant to be taken as buy
MFSF $1011.05 19.46 19.76 14.81 55 1070.3 or sell recommendations. It is be-
NAB $1023.62 100.75 105.64 79.23 10 1007.50
PORT $1014.13 36.2 36.75 27.56 31
ing done for educational purposes
1122.2
USPIX $2515 64.67 65.81 46.067 42.230 2731.01
only.
USPIX $5015 64.67 65.81 46.067 92.098 5955.98 š
Stock Total $14,820.22
cash $10,943.50
Total $25,763.72 Upcoming Courses:
• July 12-14, Position Sizing/Trading
T a b le 4 : O u r C lo sed P o sitio n s R e-ex a m in ed o n J u n e 1 5 th Simulation (1 full day of money mgmt!)
S to ck R -M u ltip le D a te C lo sed E x it 6 /1 5 P rice D ifferen ce • July 24-August 5, Retreat in Ireland
P rice
with Bruce DuVe’ and Van Tharp.
ACS -0.5 1 F eb 1 st 47 .82* 51 .79 3.9 7
BLL -0.5 9 June 3 rd 41 .58 40 .62 -0.9 6 • July 27-28, Basic Stock
DLX + 0.4 1 A p r 1 st 46 .63 42 .43 -5.2 • August 9-11, Advanced Stock
JN C -0.1 9 M ar 1 st 52 .50 55 .45 2.9 5
• September 13-15 Advanced Options
NVR + 0.3 9 Jun 3 rd 32 7 31 9.5 -7.5
M IM S -0.32 F eb 1 st 16 .64 10 .79 -5.8 5 • October 11-13, Peak Performance101
OI -0.7 6R A p r 25 th 14 .40 16 .05 1.6 5 • November 8-10, Peak Performance202
RACN + 0.5 2 June 3 rd 19 .73 18 .74 -0.9 9
VERS -0.1 5 F eb 1 st 19 .24 9.6 5 -9.5 9
E x p ecta n cy -0 .1 3