Proposal: Adjusting System Pricing with 30 day Notification
Author: DartboardTrader
Creation Date: 12/24/2013 9:33 AM
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DartboardTrader

#1
If you are interested in this proposal, please reply, so popularity/demand/priority can be evaluated.

Systems are a bit too static right now. There is no means to reprice a system or modify other parameters that are currently fixed for the lifetime of the system that do not influence the signal being published. The system marketplace needs to be a little more dynamic.

Consider adding to the subscriber terms of agreement that system parameters may be modified by the signal author with a 30 day notification period. The WealthLab site sends the notification email to all subscribers upon an author changing any of the following system parameters:

System's Subscriber Monthly Fee
System Name

A log of system name changes is displayed in a system change history page, so authors cannot "hide" or bait & switch a system by name.

This offers system authors a means to dynamically adjust their system's "price" in the system marketplace, or to rename a system, if they feel a new name may help advertise the system better.
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Eugene

#2
According to the WealthSignals policy, once a system enters the TSSN, the following properties can't be edited: the System Name, the Instrument, the Model Account Size, the Est. # of Trades, or the Subscription Price. You may call it static, but that's the rule.
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DartboardTrader

#3
That is today's WealthSignals Policy. This proposal requests a change to said policy, and with enough interest a policy change may be possible.
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Eugene

#4
QUOTE:
A log of system name changes is displayed in a system change history page, so authors cannot "hide" or bait & switch a system by name.


There's a Jewish joke I like and feel appropriate to cite here:

A Jewish guy comes to Rebbe
...or with an Alternative ending that I like better

In my humble opinion, the ability to rename a system after show-time adds the same layer of complexity: making "bait & switch" possible, crowding the System Details page, development/testing effort, taking it through legal etc.

For simplicity's sake, there's no problem to rename a system while it's in Public Sandbox to make better advertising, but after show-time, the problem simply does not exist if the ability to rename is disallowed.
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LenMoz

#5
Since this thread concerns WealthSignals policies, I'll throw this in. In May, 2013, via email outside of these forums, I expressed my concerns about WealthSignals. These concerns included (shortened / paraphrased here):

QUOTE:
1. The worth of a strategy to a Subscriber depends on the size of his portfolio. I don’t know how to determine a fair price for my strategy(s). WealthSignals should provide guidance here, to our mutual benefit.
2. The author of a good strategy has no compelling reason to publish on the uncertain WealthSignals marketplace with low visibility. Once his strategy has a track record, he may be able to find a buyer for it elsewhere and have no further commitment.
3. WealthSignals limited symbol list complicates building a strategy, although it serves the purpose of insuring liquidity. The number of supported symbols should be increased, especially in view of the “three trades per week” promotional requirement.
4. Consider a plan to buy the rights for and move a strategy in-house, with continuing compensation or royalties to its author.

My concerns remain. Just food for thought.

Len
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Cone

#6
1. Economic principles [should] apply, i.e., supply & demand. System performance being equal, lower cost should attract more buyers. If the cost is too low and there are few subscribers, then maybe it's not worth your effort. On the other hand, if you're trading the system anyway, and you can attract a handful of subscribers at $50 or $100/month, then why not spend the extra few minutes to publish? Provided the system generates a positive return after costs, it's a win for everyone.

2. The reason is that you won't get subscribers for publishing signals without a track record, and, good consistent track records are bound to attract subscribers. WealthSignals is still young and has only been "in business" during 2013 - a year that ranks in the top 5 in terms of market return in the last 40 years! If I were subscribing, I'd first like to see out of sample in at least a 7 to 10% market correction.

To the other point, anyone who can sell their system for more money than they can expect to make trading it and/or collecting subscription fees should do it. It's economics again, and I don't understand your concern. Please explain.

3. I'd like to see the symbol list expand too, and it will eventually although I can't provide a timeline for that. However, you've got me at a loss for the "three trades per week" thing. What's that?

4. We presume that no author wants to share their strategy code, and, we actually don't have interest in buying strategies (if that's what you mean by buying the rights). How that would be in our interest? Nonetheless, we're considering adding another strategy subscription model that we're not prepared to present yet.
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Cone

#7
Back on point 1, we don't have access to anyone's live account data, so we cannot provide guidance w.r.t. to subscribers' average account size. In my mind the two questions to ask yourself are:
1. What's the expected average monthly return of the model account?
2. What percentage of that return would I as a subscriber be willing to pay. 5%? 10% more? less?

Systems that require larger [model] accounts can probably demand more because of the expected larger dollar return. On the other hand, if a system trades $25K blocks of SPY (only) with a $25K model account and returns an average 1% per month, you better keep the price down.
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LenMoz

#8
QUOTE:
However, you've got me at a loss for the "three trades per week" thing. What's that?


Apparently it was a promotional requirement that may no longer apply. I couldn't navigate to this page, but Google was able to find it. You can see it here:
http://www.wealth-lab.com/EarnMoney/
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LenMoz

#9
Dartboard Trader: About repricing... So, you've signaled your customers into positions, and now want a higher monthly fee to tell them when to exit? Some Subscribers might see it that way. An idea might be for WS to implement "closed to new investors". You could publish a second, nearly equivalent "improved" version at a higher fee. Of course the OOS track record starts over.

A second point: In terms of pricing a strategy, a Publisher needs to consider that 2013 has been an extraordinary year (Cone's point earlier). Taking that further, a potential subscriber might compare your strategy's return to the alternative, an available no-load mutual fund. For example, per Morningstar, U.S.Small-cap fund BUFOX has a YTD gain of 61.3% as of 12/26/2013, with an expense ratio of 1.5. And requires no effort, nothing to do every day, comparatively less worry. It's available. I bought it in January. So, I wouldn't consider paying at all for any strategy that didn't significantly beat that benchmark. This year, the bar is set pretty high. If I'm considering becoming your subscriber, it will be based on your return in excess of BUFOX, minus your monthly fee.
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Cone

#10
61% in a year is phenomenal - even this year.

However, if you had bought that fund anytime from about May 2006 to Oct. 2007 and actually held it through the 75% drawdown (equally phenomenal), you're finally showing some ROI 6 years later.

While BUFOX may be your benchmark this year, would you subscribe to a trading system that exhibited a 75% drawdown during backtest? Part of what makes WealthSignals unique is the ability to show how a system reacts through periods like that in both in and out-of-sample, and while the jury is still out on the latter test, I'd personally feel much more comfortable trading a system that consistently returned between 5 and 25% with lower-than-average drawdowns.

Anyway, we're certainly "off topic" now.
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LenMoz

#11
QUOTE:
I'd personally feel much more comfortable trading a system that consistently returned between 5 and 25% with lower-than-average drawdowns.

I used BUFOX as an example that you could independently verify, but it's not the test I personally use, which is rather the strategy I trade.

This year I compare other strategies to my WLP small tech strategy, which has a YTD backtest return of 83.5%, shows a gain every year of a 10-year backtest, through 12/26/2013, with max drawdown of 30.3% (11/20/2008) through the period. The longest drawdown was 147 bars. The APR% for the 10 years is 44.76% while BH APR% is 10.78%. Starting the backtest with $100,000, it ends with $3,914,188. Limiting trades to 10% of Bar volume reduces APR% to 37.2% and drawdown is 30.5%. This strategy has been out-of-sample since July. An early version of it is in the Sandbox since March, but its symbols aren't supported. All numbers below are from WLP.

To the point of this thread, if the symbols were supported and I published it on WLS, how do I set a price?

Here's one attempt. Average monthly return is 2.95% and portfolio size is $100,000. So, the first year subscriber potentially averages $2,950/month. I'll charge 10%, $295/month. But, the Subscriber's portfolio and exposure is rising each month. After only a year, per APR% number above, he's investing $144,760 and gaining $4,500 or so/month. It would seem fair for me to raise my price. The opposite may be true in a market downturn where he's lost money. There's not a question here, just an illustration of the difficulties in setting a price and supporting DartboardTrader's request to allow price changes..

Supporting stats...
Annual Returns:
Period Starting Return Return % Max DD % Exposure % Entries Exits
1/5/2004 $5,937.91 5.94 -24.41 60.64 88 81
1/3/2005 $5,368.60 5.07 -15.49 88.55 107 106
1/3/2006 $45,481.51 40.86 -16.92 88.30 104 105
1/3/2007 $39,104.50 24.94 -14.44 80.17 106 107
1/2/2008 $48,783.37 24.90 -30.28 74.63 131 129
1/2/2009 $642,639.93 262.65 -22.51 87.07 128 128
1/4/2010 $356,023.59 40.12 -17.76 81.74 120 124
1/3/2011 $502,118.42 40.38 -21.68 85.12 130 125
1/3/2012 $441,712.18 25.31 -18.30 85.23 104 105
1/2/2013 $1,827,018.23 83.53 -7.64 85.43 85 85
Monthly Returns Since Out-of-sample(July, 2013):
7/1/2013 $298,361.75 10.01 -2.71 85.74 10 7
8/1/2013 ($94,494.93) -2.88 -5.26 80.07 9 8
9/3/2013 $189,431.35 5.95 -1.11 89.01 6 7
10/1/2013 $161,832.49 4.80 -2.60 82.62 6 8
11/1/2013 $234,201.76 6.62 -2.65 93.42 7 4
12/2/2013 $243,328.92 6.45 -1.67 92.35 3 4
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Cone

#12
There's some overlap in your question, but my understanding of DBT's proposal was simply about a site function that allowed author's to update the general subscription price. An author may want to drop the price if a system hasn't been performing well for a significant period of time, or raise the price for over-performance to limit the subscriber demand.

To your points, you really don't know your subscribers, how big their account sizes are, or even if they are actually trading the signals they've subscribed too. If you want to take a true percentage of the amount invested, WealthSignals isn't the place to do it. If you have 5 subscribers today, they may not be the same 5 you have next year. There will be turnover. Set a price that you're happy based on your model account subscriber. The idea is to get as many subscribers as you can at that price. If you're concerned that your subs will make more money on your signals than you do because of their purchasing power, maybe you should start a [hedge] fund instead?

Back to economics, if subscription rates are high, maybe you could raise the price at the risk of losing subscribers. 10 subs at $200 is the same as 20 subs at $100. While it doesn't cost you more to support more subscribers, maybe the more subs will pay more anyway. But look out if you charge "too much" while the system is in a drawdown. $300/month hurts even a $100K account holder if there is no return for months. If you lose subs, they might not come back.

Anyway, there's no magic formula for setting a subscription price. I think you can only consider generalities based upon the model account and expected risk and return.

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BigReturns

#13
I agree with the request. I think it is totally appropriate to allow publishers to adjust the price of a strategy.

It would make sense to have several options available:

1) 30 days price adjustment notice (as suggested)
2) "Grandfathered" clause for a period. For example, someone just signed up the the rate increased in the next 2 weeks. Grandfather clause would allow the publisher to honor a subscription period (i.e. 1 year or 6 months).

Additionally, if wealth signals takes off I would like to see the following pricing models in addition to a fixed model.
3) Tiered based Pricing. First 5 subscribers get it for $100/mo, next 5 pay $200, next 5 pay $300... etc..
4) Auction based Pricing. Top bidders get the subscriptions for the subscription period.

Thanks for listening.
-D