SELECTING YOUR BEST CHOICES:
|BTF trend tools are available in either a daily interval plot spanning 6 months, or a weekly
interval plot, spanning 2 years using forecasts made on each Thursday of the period. Each BTF picture provides a table of specific current
end-of-day price and high (red) and low (green) extremes of forecast price at the the most recent, indicated
date. These are the plotted values for the rightmost vertical bar of the pictured trend of
forecasts. The heavy dot (white) is the current price.|
Key to understanding the content of the BTF pictures is the balance between upside prospect and downside exposure in each forecast. Investors typically set action decisions based on the balance between these dimensions. Example: "I won't buy a stock unless it offers at least four times as much upside as drawdown exposure." Or, When a stock I own has five times as much downside exposure as its remaining upside, it's time to stop reaching for more, and get out."
To make these balances easier to deal with -- once familiarized with the measure -- a simple yardstick is available, the Range Index. It tells what proportion of that top-to-bottom vertical line in the BTF picture above lies below the current price dot. The smaller the Range Index, the cheaper the subject is, in terms of its upside to downside. Example: A Range index of 20 is a forecast that has four times as much upside (100-20=80, 80/20=4) as its downside.
Our example investor can look at an investment candidate stock that has a Range Index of 20 to see how often in the past a standard investment policy would have been profitable, and by how much, if it had been bought every time it had a Range Index of 20.
The illustrated data table tells that for SPY at the time, out of the last 1383 days there were 161 with Range Indexes at least as attractive as 33 (twice as much upside as down). Following a policy of wanting a sell-target price of at least as high at each day's forecast, and not being willing to hold any investment longer than 3 months, there were 73% of the 161 buy opportunities that would have been closed out at gains. Including the losses, the average gain would have been 3.5% and taken ten weeks (of 5 trading days). That produced an annual rate of return of +19%, with an average maximum drawdown exposure in all 161 cases of -1.8%
Many far better opportunities than are present in this illustration are available every day.
A horizontal bar may appear above the picture's bottom line, between small zero and 100 numbers. When present it measures the subject's past reward~risk tradeoff ranking, as "better than" that percent of other alternatives in our 2400-issue population.
Another metric provided with the BTF is a thumbnail sketch of the Range Index history for the prior 5 years, if the stock, fund, or index has existed for that long. Below are two examples, the first having a full history of 1261 samples and one with a shorter history. The number at the top corresponds to the current Range Index for that day, or the most recent data available.