What does this “Steam Gauge” mean?

Hot Thermometer

HOT

Anything above 20% is good.

The asset you have evaluated has good positive momentum.

It’s a lot easier to make money when the market is moving in your direction.

Cold Thermometer

COLD

Anything in negative territory is not good.

Ask yourself why you want to be long an asset with negative momentum.

Do you really know something that the market doesn’t?

Do you have the money and/or the time to wait until you are proven right?

It’s not about being right…it’s about making a good return on your money.


How can I use the “Steam Gauge”?

Steam Gauge

Am I Hot or Cold?

Frankly, the “Steam Gauge” is designed to be simple. But for those of you who want to scratch a bit further, this is how we use tools like the “Steam Gauge” to evaluate asset classes

The “Steam Gauge” is a way to close the “information gap” which most of us experience when approaching investments.

The “Steam Gauge” is a simple but serious tool designed to measure the Relative Strength of a security. The answer you receive from the application helps you ask the next question and that will get you closer to identifying the assets which will help you reach your investment goals.

What’s the next question?

That depends on the answer you get from the “Steam Gauge”.

  • In the negative, blue zone…the next question should be, do I want to own this right now? The market is giving this one a thumbs down. Do you have an investment thesis that the market hasn’t discounted yet? If you do, great, this could be a big turn around. If you don’t, why do you want to fight the tape on this one?
  • In the middle, yellow zone…the next question should be, are circumstances likely to get better or worse? Again, unless you have some specific insights, you might want to see if you can find something better.
  • In the positive, red zone…the next question should be, what will bring this momentum down. Momentum will fade eventually but it will probably take a lot longer than you think. Check back on a weekly basis and watch for changes. Some uptrends last weeks, others months and years. There is no way to predict how long an uptrend will last. But, you can make some good money by investing in assets that are rising. And, isn’t that the whole point?

Always remember that a score of 22% is not the end of the process. The key is to compare different investments that represent different asset classes and invest in those asset classes which have the highest scores. Since asset allocation is responsible for 70% to 90% of your portfolio return (depending on which well researched scholarly paper you prefer), measuring the relative strength of the assets in your investment universe is a critical first step.

The next step involves comparing the results and choosing the strongest assets at predetermined intervals (which are largely driven by personal considerations). By overweighting the most promising assets and avoiding the laggards, you keep your portfolio well tuned and the chances of reaching your investment target increases dramatically.

How often should you check?

As often as you like but be sensitive to trading costs. To avoid overtrading, we recommend a monthly or quarterly review. The System is not for day trading as it is tuned to a 3-6 month investment horizon.

What investments can you include in here?

Pretty much anything that is publicly available on the Web. For now, we have tested it with US securities (equities, ETFs and Mutual Funds). Type in “PG” for Proctor and Gamble, “FRESX” for Fidelity’s Real Estate Fund or “SPY” to see how the S&P500 ETF stacks up with other investments. We have also tested it with Hong Kong listed equities (0005.HK is the format) and it works with most Taiwan equities (2330.TW is the format).

Back to the Gauge

What if I can’t find my asset?

Our System needs at least a year of data to work properly. New issues will either draw a blank or give you a funny reading.

If you find that we are missing a Symbol, or that a Ticker is giving you the wrong Name, please let us know so that we can fix it.