Bulletproof Investing: Week 18

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Includes: BABA, BIDU, IAC, IPGP, JOBS, MYGN, NVDA, PYPL, SINA, SPY, TTWO, YUMC, YY
by: David Pinsen

Summary

It's been 6 months since I presented 3 hedged portfolios and 10 top names in week 18 of Bulletproof Investing (September 28th). Here's how everything did.

2 out of the 3 hedged portfolios outperformed their expected returns, and all three outperformed SPY, despite risking only single-digit declines.

The top 10 names were up 14.3% (unhedged), versus 4.73% for SPY. This was the 15th time out of 17 since June 8th that our top names beat SPY.


Race car driver. 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.

Portfolio 1

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.

Image via PA. 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.

Portfolio 2

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

Chart via PA. This portfolio returned 10.35%, which outperformed its expected return of 8.81% and outperformed SPY's 4.73% return.

Portfolio 3

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

Image via PA. The actual performance of this portfolio, 8.36%, outperformed its expected return of 6.27% and SPY's 4.73% return.

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.

Top Names

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

Image via PA. The top names were up 14.3%, on average, versus 4.47% for SPY. This is the 15th cohort out of 17 that has outperformed SPY over the next 6 months.

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%
Average 19.51% 11.82%

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.