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Matt Willson
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Founder of Pro-Folio.net Author of Pro-Folio newsletter - blog.Pro-Folio.net Former Series 7, 66, and 31 licensed financial advisor Former private equity analyst MBA in corporate finance from University of Texas (with honors)
My company:
Grin Press, Inc
My blog:
Pro-Folio
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  • Starting an Evaluation of Quantzilla.com
     Quantzilla.com is a relatively new web site (copyright 2010) that claims to use a 20-dimension quantitative model to recommend individual company stocks to buy (and when to sell those that have been purchased). It costs $99/mo or $49/mo depending on which plan you choose.About Quantzilla
    Quantzilla has two models, "Pro" which maintains a portfolio of 10 stocks (equally weighted) and makes weekly recommendations to buy and sell; and "Basic" which maintains a portfolio of 15 stocks and makes monthly recommendations. 
    When backtesting their quantitative approach over the period 2001-2010, Quantzilla claims that their Pro model has generated average annual returns north of 60%, and their Basic model has generated average returns north of 20%. Frankly, these returns are truly mind-boggling if they are in fact accurate.
    My Evalation Portfolio
    So, I opened a free trial subscription and have decided to do my own evaluation for the education (and perhaps amusement) of my readers. I have devoted $10,000 of my own portfolio to the weekly Quantzilla Pro model, and I will share with you in future articles how it goes.
    Quantzilla's Claim
    The following chart outlines what Quantzilla claims to have achieved over 10 years of backtesting:

    Value of $100k investment since 3-31-01*
    Total Market Value$10,536,618.00
    Number of Positions10
      
    Total Return10,416.35%
    Benchmark Return (S&P 500)9.75%
    Annualized Return61.18%


    Annual Turnover1864.32%
    Max Drawdown-61.96%
    Overall Winners(1408/2251) 62.44%
    Sharpe Ratio1.39
    Correlation with S&P 5000.77
     
    The Max Drawdown of 62% is a bit scary, but when your average annual returns are over 60%, maybe it is tolerable.
     
    Stay tuned to this channel, and I will provide monthly updates on how my Quantzilla Pro portfolio is holding up. 
     


    Disclosure: I am long ANN, ARW, AVT, CELL, ENTG, HS, POL, UFS.

    Additional disclosure: I have no relationship with or beneficial ownership of QTEK Inc, the operator of Quantzilla.com.
    Feb 07 10:58 PM | Link | 1 Comment
  • One Easy Proven Method for Tactical Asset Allocation
    In these times of market uncertainty, we continue to read how the old models have broken down - and yet there are too many new models to choose from - all unproven. Summing up this dichotomy among points of view is one of the best articles I've read lately: Roben Farzad in BusinessWeek last month - "Searching for True North."  In the end, though, we still lack a north star for navigating today's market.

    Or do we? Perhaps Mr. Farzad is unfamiliar with the work of Mebane T. Faber of Cambria Investments. Mr. Faber published a paper in The Journal of Wealth Management back in 2004, entitled "A Quantitative Approach to Tactical Asset Allocation." He updated the paper early in 2009 with data through the end of 2008's market cataclysm.

    The results are impressive: from Jan 1 1973 through Dec 31 2008, Faber's tactical model averaged 11.27% annual returns (before fees) and lost money only one year, 2008. Guess what the loss was? Less than 1%. Faber's model outperformed a comparable buy-and-hold model by an average of 1.5% per year.

    As impressive as the returns are, what really impressed me are three other attributes of this model: 1) it only evaluates the portfolio once a month; 2) it only holds 5 investments; and 3) the buy/sell discipline is entirely mathematical, removing human judgement (and error) from the equation.  In other words, this model is extremely fast and easy to implement and maintain in almost any portfolio.

    The model starts with an equal allocation of 5 indexes: S&P 500 (SPY), MSCI EAFE (EFA), S&P Goldman Sachs Commodity Index (GSC), NAREIT (IFNA), and 10-year treasuries (I approximate using IEF).

    The buy/sell discipline evaluates the price of each investment once-a-month against its 10-month simple moving average. If the price of the security is above its 10-month SMA, then it is time to buy in or stay invested at 20% of the portfolio. If the price of the security drops below the 10-month SMA, then it is time to sell the entire position and hold cash (money market) until the security price once again crosses over the 10-month SMA.

    Any readers interested in more information can download Faber's paper from the Social Science Research Network or my web page, Grin Press.

    I'd enjoy hearing from fans or critics of Faber's work.

    Disclosure: Long all of: SPY, EFA, GSC, IFNA, IEF.
    Nov 30 12:14 PM | Link | 1 Comment
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