System Z Week 4: $10,260.76; Commentary

System Z is an obvious work in progress. Hopefully, the returns it generates after paying off it's exhorbitant commission costs will lead to larger investments. The commissions on an account over $100,000 will be about 80-90% less, so it's important to separate out the commissions from the returns.

Two weakeness of System Z were exposed this week. The first is that this system simply games the expected relief rally from anxiety. I see an excess of anxiety as a force that will cause average returns to be significantly positive, but I do not know when the release of anxiety will occur. If the rally happens within a day or two, great. If it doesn't, I stop myself out of the position. This process is easy to backtest because it requires no qualitative decision-making.

However, as I saw this week in with the online brokerages, sometimes the relief rally takes an extra day or two to materialize. Although I labeled the potential relief rally as a likely occurence, adhering to the program did not allow me to wait for the rally. I realized significant losses that would have turned into significant gains had I held a day or two longer.

I will look into extending to holding period for "best bet" positions, but I hesitate to add a qualitative layer to the decision-making process. Part of the reason for this blog is to track qualitiative decisions...

In the meantime, I must note that System Z made it's first option trade. A purchase of out-of-the-money Etrade options. I want to selectively purchase long options for companies that have has longer-term optimistic feelings interrupted by shorter-term anxious feelings. The fears of a price war amongst online brokers, in the midst of optimism about accelerating trading growth, fits this paradigm.

The second problem this week was with XM Satellite Radio. This is a stock that's definitely facing a deceleration of speculative activity, and shoul dnot be in the universe of traded stocks. This error also helped me realize what additional stocks i could enter into the universe of traded stocks. System Z will soon find more buys than it did before. More anxiety, more money!

System Z account value: $10,260.76
commissions paid: $165
commissions should be: $66
which means I overpaid: $99
account value corrected for obscene commissions: $10,359.76

System Z actual return since 4/7: 2.61%
System Z corrected return since 4/7: 3.59%
Nasdaq return since 4/7: .15%

Refer to post from 4/19 for explanation of "corrected return"