1996 Weekly Trades

All transactions are assumed to be at the closing net asset value. Unlike most mutual funds, the Selects are priced hourly during the market day. The maximum 3% load and Fidelity's small transaction fees are NOT included in the percent changes shown. All distributions and dividends are assumed to be reinvested, which has no meaningful effect on the rates and percentages shown. For comparison, the same period returns of the Vanguard Index 500 Trust (symbol VFINX), whose performance is close to the S&P 500 index, are also shown.

It should not be assumed that trades in the future following the Fidelity Select Switching System will be profitable or will equal the performance of the trades shown below.

Note: Buy prices marked by a * have been adjusted for a distribution by the
      fund between the purchase and sale dates.  This distribution is assumed
      to be reinvested in the fund, which has no meaningful effect on the
      percent changes or overall rates of return shown.

                                                             Sell or          Index
Buy       Fund              Sale/Exchange              Buy   Recent  Percent  500
Date      Purchased         Date     Exchange to:      Price Price   Change   Change

1/2/96    Energy Service    2/12/96  Developing Comm.  15.15  15.95   5.3%    6.8%
1/8/96    Biotechnology     2/26/96  Air Trans.        34.82  36.95   6.1%    5.5%
1/15/96   Chemicals         3/4/96   Air Trans.        36.64  40.29  10.0%    8.8%
1/22/96   Medical Delivery  2/26/96  Air Trans.        27.52  28.99   5.3%    6.3%
1/29/96   Electronics       3/4/96   Air Trans.        26.27  26.40   0.5%    4.5%
2/5/96    Electronics       3/11/96  Retailing         27.89  26.50  -5.0%    0.0%
2/12/96   Developing Comm.  3/18/96  Retailing         19.32  19.03  -1.5%   -1.1%
2/20/96   Air Trans.        4/29/96  Electronics       20.17* 20.97   4.0%    2.5%
2/26/96   Air Trans.        4/29/96  Electronics       20.89* 20.97   0.4%    0.9%
3/4/96    Air Trans.        4/29/96  Electronics       21.26* 20.97  -1.4%    0.8%
3/11/96   Retailing         7/1/96   Natural Gas       29.38  32.62  11.0%    6.3%
3/18/96   Retailing         7/1/96   Natural Gas       30.40  32.62   7.3%    4.2%
3/25/96   Energy Service    5/13/96  Electronics       17.25* 18.21   5.5%    2.0%
4/1/96    Energy Service    5/13/96  Electronics       17.44* 18.21   4.4%    1.4%
4/8/96    Brokerage         5/13/96  Electronics       18.80  19.25   2.4%    2.6%
4/15/96   Natural Gas       5/20/96  Technology        12.32  12.61   2.4%    5.0%
4/22/96   Computers         6/17/96  Environmental     39.61  40.34   1.8%    3.1%
4/29/96   Electronics       6/17/96  Environmental     29.60  28.31  -4.4%    2.1%
5/6/96    Electronics       6/17/96  Environmental     29.73  28.31  -4.8%    4.1%
5/13/96   Electronics       6/17/96  Environmental     30.40  28.31  -6.9%    0.8%
5/20/96   Technology        6/24/96  Const. & Housing  57.45  51.74  -9.9%   -0.5%
5/28/96   Financial Serv.   7/8/96   Natural Gas       65.91  64.09  -2.8%   -2.7%
6/3/96    Developing Comm.  7/8/96   Natural Gas       21.48  20.16  -6.1%   -2.1%
6/10/96   Environmental     7/15/96  Natural Gas       14.55  12.77 -12.2%   -6.1%
6/17/96   Environmental     7/22/96  Energy Service    14.49  12.83 -11.5%   -4.6%
6/24/96   Const. & Housing  7/29/96  Home Finance      20.27  19.09  -5.8%   -5.5%
7/1/96    Natural Gas       8/12/96  Electronics       13.42  12.45  -7.2%   -1.3%
7/8/96    Natural Gas       8/12/96  Electronics       13.39  12.45  -7.0%    2.2%
7/15/96   Natural Gas       8/26/96  Paper & Forest    13.62  12.95  -4.9%    5.7%
7/22/96   Energy Service    9/3/96   Natural Gas       18.34  18.64   1.6%    3.6%
7/29/96   Home Finance      9/23/96  Computers         33.67  36.87   9.5%    9.2%
8/5/96    Electronics       2/24/97  Home Finance      27.52  39.99  45.3%   24.1%
8/12/96   Electronics       2/24/97  Home Finance      28.27  39.99  41.5%   23.0%
8/19/96   Retailing         10/7/96  Computers         32.59  33.63   3.2%    5.8%
8/26/96   Paper & Forest    9/30/96  Electronics       21.05  21.51   2.2%    3.7%
9/3/96    Natural Gas       10/14/96 Computers         13.06  13.84   6.0%    7.8%
9/9/96    Energy            10/28/96 Energy Service    21.30  22.69   6.5%    5.3%
9/16/96   Software          11/11/96 Computers         38.12  41.43   8.7%    7.3%
9/23/96   Computers         2/10/97  Brokerage         41.51* 51.10  23.1%   15.3%
9/30/96   Electronics       2/24/97  Home Finance      31.47  39.99  27.1%   18.8%
10/7/96   Computers         2/10/97  Brokerage         43.77* 51.10  16.7%   12.4%
10/14/96  Computers         2/10/97  Brokerage         45.20* 51.10  13.1%   12.4%
10/21/96  Energy Service    12/16/96 Electronics       20.72* 20.51  -1.0%    1.9%
10/28/96  Energy Service    12/16/96 Electronics       20.47* 20.51   0.2%    3.8%
11/4/96   Energy Service    12/16/96 Electronics       20.15* 20.51   1.8%    2.3%
11/11/96  Computers         2/10/97  Brokerage         47.53* 51.10   7.5%    7.9%
11/18/96  Air Trans.        1/13/97  Energy Service    18.76  19.38   3.3%    3.4%
11/25/96  Electronics       2/24/97  Home Finance      35.89  39.99  11.4%    7.5%
12/2/96   Air Trans.        1/13/97  Energy Service    19.03  19.38   1.8%    0.6%
12/9/96   Electronics       2/24/97  Home Finance      38.21  39.99   4.7%    8.5%
12/16/96  Electronics       2/24/97  Home Finance      35.53  39.99  12.6%   12.8%
12/23/96  Biotechnology     2/18/97  Brokerage         31.94  35.13  10.0%    9.6%
12/30/96  Brokerage         3/31/97  Air Trans.        23.32  23.15  -0.7%    0.9%


To illustrate the use of the table, the "track" starting on 1/2/96 is:

Buy       Fund              Sale/Exchange            Percent  Index 500
Date      Purchased         Date     Exchange to:    Change   Change

1/2/96    Energy Service    2/12/96  Developing Comm.   5.3%    6.8%
2/12/96   Developing Comm.  3/18/96  Retailing         -1.5%   -1.1%
3/18/96   Retailing         7/1/96   Natural Gas        7.3%    4.2%
7/1/96    Natural Gas       8/12/96  Electronics       -7.2%   -1.3%
8/12/96   Electronics       Still held on 12/31/96     29.0%   12.2%
--------------------------------------------------------------------
Total return for 1996                                  33.2%   21.9%
   accounting for maximum 2% management fee            31.2%

The calculation for the total return for the track is:

(1.053)(0.985)(1.073)(0.928)(1.290) - 1

expressed as a percent.

Go to Current Trade list

The trades listed above illustrate how the system works. It is typical that most of the profits come from one or two large gains each year. In 1996, the best trades were in Retailing, Chemicals, and the trades in Electronics and Computers that were still open at the end of the year.

The table shows that some trades may do much worse than the market. Testing on historical data and my actual trading experience show that Select Switching should make up this gap and then some if one will stick with the system. It may take some time. You can use the updates of the table to see how tracks starting with these funds perform against the market. Because sector funds can be quite volatile, I usually recommend that an investment in the Selects using the illustrated methods be phased in using two or three tracks over a period of one or more months. See Implementation Issues under System Description for a more detailed discussion of this topic.

You can see how Pankin's personal and client accounts have performed since November 1993 under Performance. The client accounts are managed using the switching system, but most accounts are invested in more than one fund at a time. This tends to reduce both the returns and the volatility. Consequently, the client accounts' average return for 1996 was less than the 1996 return for the track shown above.

No claim is made that the system will perform in the future as it has in the past or as illustrated above. Also, there can be no assurances that the system will produce a profit in the future; it is possible that the system will produce losses.

Comments and Implementation Issues

(Past comments are deleted when they are no longer relevant)

December 31, 1996: The last two weeks of the year continued December's choppy pattern. The Dow made a new high late in the month, but fell 100 points on the last trading day of the year. The current trade in Electronics, which is the second longest one in the history of the Selects Switching System (the longest was also in Electronics, in March - Sept. 1995), enabled the 1996 track shown above to outperporm the index fund by a comfortable margin.

December 16, 1996: The market's rise abruptly reversed in the last week. The high technology area was particularly hard hit, but most sectors lost ground. This can be seen in the 7% fall in Electronics from 12/9 to 12/16. After the strong rise that lasted over a month, some sort of pullback was almost inevitable. The key question is whether the high techs will recover or if their upward move is over. The Select Switching System says to hold Electronics and Computers for another week. If the high techs continue to fall, a good portion of the profits in the open trades could be lost. Investing in sector funds carries special risks not associated with more diversified funds. The volatile high tech sectors are subject to relatively large short-term swings. No system will be right all of the time, but it is critical to stick with the system. The situation was similar in October, and these funds moved to even higher levels. That does not mean the system will be right this time, but if one is trading the Selects for their large profit potential, there are going to be times when one has to live through some drawdowns. The key thing is to focus on long-term returns. We won't be right all the time, but if my research and experience trading the funds with real money for over three years are a reasonable guide, the system should produce above market profits for those who stick to it.

August 5, 1996: The poor performance of the market over the past two months shows some of the risks involved in trading sector funds. These funds tend to be more volatile than the market or diversified mutual funds. Since no sector has had a sustained uptrend recently, just about any purchase of a Select fund would show a loss, sometimes substantial. The energy area held up well for the first half of July, but it has fallen sharply in the last three weeks. Suprisingly, the system did not call for switching out of the Natural Gas purchased on July 1. While I don't think it is a good idea to override the system, this might be an exception. However, switching into Electronics, a volatile high tech fund, carries extra risks if the past week's rally does not continue and the "correction" resumes. The past two months have been about the worst possible market conditions for the Selects Switching System with the exception of another 1987 type crash. No sectors have shown a sustained trend up, and those that show strength briefly have reversed sharply.

June 24, 1996: The high technology Selects have been particularly hard hit in the recent market decline. The system was able to switch out of Computers and some of the Electronics before a lot of damage was done. Technology, however, would have sustained a nearly 10% loss. This might be painful for most investors if they held only one Select fund. Diversification usually reduces the amount of losses in a given period, but at the price of reducing gains in a rising market. See Implementation Issues under System Description for a discussion of diversification. Another way to control losses is with a so-called "stop-loss" point. I sometimes use a 7% drop as such a point. In the case of Technology, selling at this level would have been before 30 days and would have incurred Fidelity's 0.75% penalty for selling a Select within 30 days. Still, the total loss would have been a bit less than that shown above.

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