2006 Weekly Trades

All transactions are assumed to be at the closing net asset value. Unlike most mutual funds, the Selects were priced hourly during the market day through September 2006, but they adopted the standard practice of only one price each day effective in October 2006. The maximum 3% load (eliminated in September 2003) and Fidelity's small transaction fee (that was waived if a Fidelity-employed human was not involved in the order placement and was eliminated in October 2006) 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 Fund (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.

Notes: 1) 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.
       2) Fidelity changed the names of six of the Selects funds effective in
          October 2006. The names shown below and in other tables are the ones
          in use at the times of the trades.

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

1/3/06    Air Transport     2/27/06  Defense & Aero    40.53  43.71   7.8%    2.3%
1/9/06    Energy Service    2/21/06  Defense & Aero    71.07  71.36   0.4%   -0.4%
1/17/06   Energy Service    2/21/06  Defense & Aero    73.89  71.36  -3.4%    0.2%
1/23/06   Energy Service    2/27/06  Defense & Aero    78.54  68.30 -13.0%    2.6%
1/30/06   Energy Service    3/6/06   Biotechnology     79.19  68.37 -13.7%   -0.3%
2/6/06    Transportation    4/24/06  Energy Service   48.12*  53.05  10.2%    3.8%
2/13/06   Air Transport     5/30/06  Money Market     41.50*  43.45   4.7%    0.3%
2/21/06   Defense & Aero    4/10/06  Energy Service    78.68  82.44   4.8%    1.3%
2/27/06   Defense & Aero    4/10/06  Energy Service    80.21  82.44   2.8%    0.4%
3/6/06    Biotechnology     4/10/06  Energy Service    67.67  62.68  -7.4%    1.6%
3/13/06   Environmental     5/15/06  Industrial Mat.   17.48  17.97   2.8%    3.3%
3/20/06   Telecomm          4/24/06  Energy Service   43.84*  43.35  -1.1%    0.3%
3/27/06   Automotive        5/8/06   Energy Service    35.79  37.31   4.2%    1.9%
4/3/06    Energy Service    6/12/06  Utilities Grwth  72.45*  66.44  -8.3%   -4.4%
4/10/06   Energy Service    6/12/06  Utilities Grwth   75.63  66.44 -12.2%   -4.4%
4/17/06   Energy Service    6/12/06  Utilities Grwth   75.66  66.44 -12.2%   -3.5%
4/24/06   Energy Service    6/12/06  Utilities Grwth   78.94  66.44 -15.8%   -5.2%
5/1/06    Energy Service    6/12/06  Utilities Grwth   78.68  66.44 -15.6%   -5.0%
5/8/06    Energy Service    6/12/06  Utilities Grwth   81.01  66.44 -18.0%   -6.5%
5/15/06   Industrial Mat.   6/19/06  Utilities Grwth   50.18  44.82 -10.7%   -4.0%
5/22/06   Money Market      8/7/06   Brokerage          1.00   1.00  0.95%    1.4% (Interest earned)
5/30/06   Money Market      8/7/06   Brokerage          1.00   1.00  0.87%    1.6% (Interest earned)
6/5/06    Biotechnology     7/24/06  Medical Delivery  59.50  58.78  -1.2%   -0.2%
6/12/06   Utilities Growth  9/18/06  Retailing         46.53  50.60   8.7%    7.4%
6/19/06   Utilities Growth  9/18/06  Retailing         46.59  50.60   8.7%    7.0%
6/26/06   Money Market      8/7/06   Brokerage          1.00   1.00  0.52%    2.2% (Interest earned)
7/3/06    Natural Gas       8/21/06  Networking        41.50  40.23  -2.1%    1.6%
7/10/06   Natural Gas       8/21/06  Networking        39.81  40.23   1.1%    2.6%
7/17/06   Energy Service    8/21/06  Networking        69.28  69.75   0.7%    5.2%
7/24/06   Medical Delivery  9/11/06  Insurance         49.89  50.77   1.8%    3.4%
7/31/06   Utilities Growth  9/18/06  Retailing         49.66  50.60   1.9%    3.8%
8/7/06    Brokerage         10/23/06 Biotechnology     69.32  76.21   9.9%    8.3%
8/14/06   Natural Gas       9/18/06  Retailing         39.57  36.94  -6.6%    4.4%
8/21/06   Networking        10/16/06 Biotechnology      2.19   2.43  11.0%    5.8%
8/28/06   Networking        10/16/06 Biotechnology      2.22   2.43   9.5%    5.4%
9/5/06    Networking        10/16/06 Biotechnology      2.29   2.43   6.1%    4.4%
9/11/06   Insurance         10/16/06 Biotechnology     69.53  72.45   4.2%    5.5%
9/18/06   Retailing         11/13/06 IT Services       51.43  54.39   5.8%    5.0%
9/25/06   Retailing         11/13/06 IT Services       51.81  54.39   5.0%    4.6%
10/2/06   Brokerage         11/13/06 IT Services       74.93  77.60   3.6%    4.2%
10/9/06   Biotechnology     12/4/06  Natural Gas       64.26  67.74   5.4%    4.6%
10/16/06  Biotechnology     12/4/06  Natural Gas       65.02  67.74   4.2%    3.2%
10/23/06  Biotechnology     12/4/06  Natural Gas       65.42  67.74   3.5%    2.6%
10/30/06  Natural Gas       12/26/06 Medical Delivery 36.50*  37.74   3.4%    3.2%
11/6/06   Energy Service    1/3/07   Automotive       66.34*  64.49  -2.8%    3.0%
11/13/06  IT Services       1/3/07   Automotive       16.68*  17.10   2.5%    2.6%
11/20/06  Electronics       12/26/06 Medical Delivery 45.78*  43.73  -4.5%    1.4%
11/27/06  Air Trans         1/29/07  Automotive       48.72*  50.10   2.8%    3.1%
12/4/06   Natural Gas       1/8/07   Automotive       40.41*  36.16 -10.6%    0.4%
12/11/06  Natural Res.      1/16/07  Air Trans         28.87  26.37  -8.7%    1.5%
12/18/06  Energy Service    1/22/07  Air Trans         69.25  64.01  -7.6%    0.2%
12/26/06  Medical Delivery  2/20/07  Transportation    48.70  52.44   7.7%    3.3%

Money Market fund assumed to earn interest at a 4.50% annual rate
In order to keep this complicated page from becoming even more so, the trade results shown do NOT include the use of "stop-loss" tactics, which is now my recommended strategy. These are discussed in several other pages on this site, and there are some examples that illustrate the potential beneficial effects of using stop-losses. The more volatile sector funds such as those in high technology, Biotechnology, and Energy Service are more likely to get stopped out. In many such cases, the fund likely would have been held less than 30 days. If so, it would have been hit with Fidelity's 0.75% short-term selling penalty for Select funds.

Since it is unlikely that any investor would act on all of the weekly signals shown above and on the linked pages for prior years, here is an illustration of one use of the weekly trade list tables.

Starting on 1/3/06, the closest Monday to the start of 2006, if one had invested
into a single Select fund and followed the system, these would be the trades:

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

1/3/06    Air Transport     2/27/06  Defense & Aero     7.8%    2.3%
2/27/06   Defense & Aero    4/10/06  Energy Service     2.8%    0.4%
4/10/06   Energy Service    6/12/06  Utilities Grwth  -12.2%   -4.4%
6/12/06   Utilities Growth  9/18/06  Retailing          8.7%    7.4%
9/18/06   Retailing         11/13/06 IT Services        5.8%    5.0%
11/13/06  IT Services       1/3/07   Automotive         2.5%    2.6%
Total return as of 1/3/07                              14.8%   13.6%
    accounting for maximum 2% annual management fee    12.8%

The calculation for the total return for the track is:
 (1.078)(1.028)(0.878)(1.087)(1.058)(1.025) - 1  expressed as a percent.
Here is a table showing what have happened if one had followed the method illustrated above starting on the closest Monday to the beginning of each year since 1996. The returns shown are those for the following year (52 weeks). "Selects System" shows the results of trading the Select funds, which have been reduced by the maximum 2% annual management fee. Those returns do not reflect Fidelity's load (removed in September 2003) applied to initial purchases of Select funds, which ranged from 0% to 3% depending on the amount of the purchase. The links in the right column show the weekly trades for each year and the computations of the values in the table. Returns for the Vanguard Index 500 fund are included to provide a market condition context.
Year      Selects System    Index 500      Weekly Trade Lists & Computations

1996           31.2%           21.9%       1996 Weekly Trade List
1997           33.1%           28.6%       1997 Weekly Trade List
1998           17.1%           27.7%       1998 Weekly Trade List
1999           56.4%           19.6%       1999 Weekly Trade List
2000           32.0%          -10.8%       2000 Weekly Trade List
2001          -20.5%          - 9.5%       2001 Weekly Trade List
2002          -23.8%          -21.3%       2002 Weekly Trade List
2003           18.4%           28.2%       2003 Weekly Trade List
2004           14.7%            8.8%       2004 Weekly Trade List
2005           12.5%            7.4%       2005 Weekly Trade List
2006           12.8%           13.6%
              ------          ------
Average(96-06) 16.7%           10.3%

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 may be deleted when they are no longer relevant)

January 3, 2007:

Now that we are in 2007, we can take a look at how Select Switching did last year (actually for the period from January 3 to January 3). There were six completed trades, which is right in the middle of the typical five to seven a year. Five of the six were profitable, which was better than the typical 2/3 of the trades being winners. Four of these five beat the broad market as represented by the Vanguard Index 500 fund, and the other one just barely trailed. The best compared to the index fund was the first of the year in Air Transportation. Unfortunately, the one losing trade, in Energy Service was very bad. That trade and the stop-loss tactic I used are discussed below in the June 12 commentary.

For the year, the system did slightly better than the broad market. Not exciting in that regard, but since stocks made nice gains this year, keeping even with the market is a pretty good result for the year.

October 9, 2006:

Fidelity reorganized the Select funds and made some operational changes effective at the beginning of this month. They changed the names of six of the funds, modified the investment policies of some of the funds, and changed the benchmarks used to evaluate the managers for some funds. Their intention is to group the Selects so that they fall into ten more or less standard major industry groupings.

The hourly pricing feature, which was unique among mutual funds, was terminated, so the Selects now show only closing prices like almost every other mutual fund. The 0.75% charge for selling a Select fund other than Money Market within 30 days of purchase is still in place. Additionally, the Select funds, like other Fidelity funds, are now subject to possible trading restrictions if there are too many sales within 30 days of purchase.

See the Fidelity web site for more information and the numerous details involved.

June 12, 2006:

The drop in the broad stock market over the last month illustrates some of the risks in sector fund investing. This is particularly so for the more volatile funds, and Energy Service, as illustrated in the table above, is perhaps the most volatile of the Selects with the possible exception of Gold (not traded by the system). The early Energy Service trades were well ahead at one point as can be seen in the steady increase in the price of that fund from 72.45 (adjusted for a distribution paid on 4/7/06) on 4/3/06 to 81.01 on 5/8/06. The fund then fell by a breathtaking 18.0% in the next five weeks.

That raises the question of whether sector funds in general and the more volatile ones in particular are just too risky to trade. I don't think so, but some measures to reduce the risk are called for, especially with funds such as Energy Service, Biotechnology, Electronics and the other high techs. The first defensive measure is not having a large percentage of one's portfolio in sector funds. My normal guidance is for most investors is 10-20%. An 18% drop on 20% of one's holdings is 3.6% of the total portfolio, which while not pleasant is not devastating by itself. Another risk reduction tactic is to be somewhat diversified by holding more than one uncorrelated sector fund. That might mean 10% of the portfolio in Energy Service and 10% in another fund.

For the more volatile sector funds, I recommend using a "stop-loss" tactic (although to reduce complexity it is not shown in the tables). Some client accounts held Energy Service, and I sold them well before this week and at significantly higher prices than those shown in the table. I am also willing to move client accounts partially or fully out of the market when my judgment and market evaluation models I follow indicate that the risks of owning sector funds are too great in relation to the potential rewards. Currently, all of my managed accounts that trade the Selects are partially or totally in money market.

April 10, 2006:

The signals this week show how two "tracks" (the example above shows the track starting 1/3/06, which is affected by this week's signals) can merge because two funds, Defense & Aerospace and Biotechnology are to be sold. If the proceeds from both sales are used to buy the top-ranked fund, Energy Service, then there will be a merger of tracks. An investor who owned both Defense and Biotechnology might not want to lose diversification by putting the combined assets into just one Select fund. There are at least two ways to avoid that. One, which I often use when managing accounts, is to buy the second ranked fund if it is not correlated with the top-ranked one. This week, the number two fund is Natural Resources, which is somewhat correlated with Energy Service, so I would not buy it if I wanted to maintain diversification. Another method is to keep the proceeds from one of the sales in Select Money Market (or another Fidelity money market fund) until a Select fund not correlated with Energy Service rises to the top of the rankings. There is no short-term selling charge for selling Select Money Market, so we do not have to worry about whether it will be held for 30 days.

February 27, 2006:

Stocks have shown modest gains for the first two months of the year. January was an up month for most indices, and February has seen what is essentially sideways movement. The gains in January (for the S&P 500) are a good sign according to the "January Barometer." It indicates an over 80% probability that the Feb. through Dec. period will show gains, and on the average those gains have been very good.

On the other hand, the second year after a presidential election, on the average, is not a good one for stocks. However, the mid-term year often sees the market bottom out before the stronger pre-election and election years. I have some doubts that scenario will play out. We are in a long-term (so-called "secular") bear market that began in 2000. Such markets see a lot of somewhat volatile essentially sideways to down movements. Within them, there are "cyclical" bull markets, and we have been in one for about three years. That is a long time compared to the typical past ones. Moreover, this one looks like it is running out of steam. Whether that is so is at best a guess on my part, and I make no claim that my guessing abilities are better than anyone else's.

My management of accounts is based on well researched quantitative analysis, and it does not depend at all on my ability to foresee what the markets will do over the next year or any other time period. The value added results from extensive research to develop the trading methods I use and the discipline to execute them. For most investors, those are much more valuable than the clarity of crystal balls.

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