Scottish race car driver Sussie Stoddart and her helmet (credit: Elist 10)
Bulletproof Investing: Week Eighteen Performance
Each week since the beginning of June, I have presented at least two hedged portfolios created by Portfolio Armor to my Bulletproof Investing subscribers. This is an "investing with a helmet on" approach, and these portfolios are designed to last six months at most. I have promised to publicly share the final performance of each of these portfolios. Here, I update the final performance of the three hedged portfolios and the top 10 names (unhedged) that I presented in the 18th week I offered my service.
Bulletproof Investing Background
In the beginning, when I offered my service, I presented the $1 million portfolio with the highest ratio of possible upside to possible downside over the next 6 months, and the $100,000 portfolio with the highest ratio of possible upside to downside. In many cases, the portfolios that scored best according to that ratio were hedged against smaller than 9% declines. Some of those tightly hedged portfolios have often underperformed their expected returns, so recently I've shifted to presenting portfolios hedged against larger declines, though during the recent correction some of the tightly-hedged portfolios have outperformed.
One thing I've kept doing since the second week is presenting my system's top names each week, and also a portfolio comprised of them, hedged against a >9% decline over 6 months. Let's look at what I presented in week 18 and how it did.
This was the $100,000 portfolio initially presented here. The data below was as of September 28th. The primary securities here were Alibaba (BABA), IPG Photonics (IPGP), PayPal (PYPL), and Take-Two Interactive (TTWO). They were selected because they had the highest potential return estimates, net of hedging costs at the time when hedging against a >10% decline, and they had share prices low enough that you could buy a round lot of one of them for less than $25,000. Sina (SINA) was added in a fine-tuning step to absorb leftover cash from rounding down to round lots of the first four names.
The worst case scenario for this portfolio was a decline of 8.61% (the "Max Drawdown"), and the best case scenario was a gain of 28.92% (the "Net Potential Return", or aggregate potential return net of hedging cost). The "Expected Return" of 9.16% was a ballpark estimate taking into account that actual returns, historically, have averaged 0.3x Portfolio Armor's potential return estimates.
Portfolio 1 Performance
Here's how the portfolio performed, net of hedging and trading costs, and assuming the hedges were opened at the worst ends of their respective spreads.
This portfolio returned 5.74%, which underperformed its potential return of 9.16%, but outperformed the SPDR S&P 500 ETF (SPY), thanks in part to the market's recent swoon.
This was the $1,000,000 portfolio presented here initially. This portfolio had Alibaba (BABA), Baidu (BIDU), IPG Photonics (IPGP), 51job (JOBS), Nvidia (NVDA), PayPal (PYPL), and Take-Two Interactive (TTWO) as primary securities, and then Sina (SINA) to absorb cash leftover from the process of rounding down to round lots of the primary securities.
The worst case scenario for this one was a decline of 9.44%; the best case scenario was a gain of 27.27%; and the ballpark estimate of an expected return was 8.81%.
Portfolio 2 Performance
Here's the performance chart for Portfolio 2
This was the top names portfolio, hedged against a >9% decline, originally presented here, along with the list of top names.
The worst case scenario here was a Max Drawdown of 8.5%, the best case scenario, a gain of 19.03%, and the Expected Return was 6.27%.
Portfolio 3 Performance
New: Hedged Portfolio Performance Roundup
You can bookmark this page if you want to see updated hedged portfolio performance in one place. New portfolios will be added each week, 6 months after they were created.
These were Portfolio Armor's top 10 names as of September 28th: Take-Two Interactive (TTWO), Alibaba (BABA), IAC/InterActive (IAC), 51job (JOBS), IPG Photonics (IPGP), PayPal (PYPL), Nvidia (NVDA), Myriad Genetics (MYGN), Yum China (YUMC), and YY (YY).
Top Names Performance
The table below shows the performance of the 17 weekly top names cohorts for which we have complete 6-month performance data so far; each of the starting dates is hyperlinked to a page with an interactive chart of that cohort.
|Starting Date||Portfolio Armor 6-Month Performance (unhedged)||SPY 6-Month Performance|
|June 8, 2017||14.49%||9.99%|
|June 15, 2017||19.85%||10.97%|
|June 22, 2017||24.45%||11.27%|
|June 29, 2017||18.24%||11.68%|
|July 6, 2017||21.03%||14.81%|
|July 13, 2017||28.25%||14.85%|
|July 20, 2017||25.04%||14.62%|
|July 27, 2017||33.52%||17.10%|
|August 3, 2017||20.72%||12.66%|
|August 10, 2017||13.05%||8.36%|
|August 17, 2017||10.71%||13.48%|
|August 24, 2017||15.23%||13.72%|
|August 31, 2017||8.42%||10.87%|
|September 7, 2017||12.75%||11.61%|
|September 14, 2017||29.05%||11.19%|
|September 21, 2017||22.56%||8.99%|
|September 28, 2017||14.30%||4.73%|
So Portfolio Armor's top ten names averaged 19.51% over the average of these 17 6-month periods, versus SPY's average of 11.82%, an average outperformance of 7.69% over 6 months.
New: Top Names Performance Roundup
You can bookmark this page if you want to keep track of Portfolio Armor's top names performance. It's updated weekly.
For a few months, in addition to posting those top names in my Seeking Alpha Marketplace service, I also time-stamped them on Twitter. If you click on the tweet shown below, and scroll down, it will take you to a thread showing those time-stamped posts as well as charts of their subsequent performance.
Week 18 Assessment
Two out of three hedged portfolios outperformed their expected returns, and all three outperformed SPY, despite risking only single-digit declines. The ten names (unhedged) outperformed SPY for the 15th out of 17 times. I think the performance of the top names alone warrants a higher price for Bulletproof Investing.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.