Seeking Alpha

Bulletproof Investing Performance Update: Week 21

by: David Pinsen

It's been six months since I presented 4 hedged portfolios and 10 top names in week 21 of my Marketplace service (October 19th). Performance was strong across the board.

All 4 hedged portfolios outperformed both their expected returns and SPY.

The top 10 names were up 20.73% (unhedged) vs. 6.08% for SPY. This was the 18th time out of 20 since June 8th that our top names beat SPY.

Race car driver.

Scottish race car driver Susie Stoddart and her helmet (credit: Elist 10)

Bulletproof Investing: Week 21 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 4 hedged portfolios and the top 10 names (unhedged) that I presented in the 21st 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 six 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 six months. Let's look at what I presented in week 21 and how it did.

Portfolio 1

This was the $100,000 portfolio initially presented here. The data below was as of October 19th. The primary securities here were Align Technology (ALGN), Alibaba (BABA), Netflix (NFLX), and Nvidia (NVDA). 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. Weight Watchers (WTW) 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 9.08% (the "Max Drawdown"), and the best-case scenario was a gain of 26.62% (the "Net Potential Return" or aggregate potential return net of hedging cost). The "Expected Return" of 8.59% 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 13.66%, which outperformed its potential return of 8.59%, and outperformed the SPDR S&P 500 ETF (SPY) return of 6.08%.

For an interactive version of the chart above, click here.

Portfolio 2

This was the $1,000,000 portfolio presented here initially. This portfolio had ASML (ASML), Boeing (BA), TopBuild (BLD), CoreSite Realty (COR), IAC/InterActive (IAC), ICON (ICLR), and IPG Photonics (IPGP) as primary securities, and then Freeport-McMoRan (FCX) 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 7.55%, the best-case scenario was a gain of 23.58%, and the ballpark estimate of an expected return was 7.67%.

Portfolio 2 Performance

Here's the performance chart for Portfolio 2:

Chart via PA

This portfolio returned 8.92%, which outperformed its expected return of 7.67%, and of course outperformed SPY.

For an interactive version of the chart above, click here.

Portfolio 3

This was the aggressive portfolio, originally presented here. This one included Align Technology, Alibaba, Baidu (BIDU), IAC/InterActive, Netflix, Nvidia, and PayPal (PYPL) as primary securities, and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) to absorb cash leftover from the process of rounding down to round lots of the primary securities.

This one was aggressive because it had a much larger Max Drawdown: 18.29%. The best-case scenario was a gain of 30.78%, and the expected return was 10.07%.

Here's how it did:

Chart via PA.

This one finished up 13.06%, outperforming its potential return of 10.07% and SPY.

You can see an interactive version of the chart above here.

Portfolio 4

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 8.43%, the best-case scenario a gain of 24.34%, and the Expected Return was 7.91%.

Portfolio 4 Performance

Chart via PA.

The actual performance of this portfolio, 9.66%, outperformed its expected return of 7.91% and SPY's 6.08% return.

For an interactive version of the chart above, click here.

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, six months after they were created.

Top Names

These were Portfolio Armor's top 10 names as of October 19th: Align Technologies, Alibaba, Nvidia, IAC/InterActive, PayPal, Take-Two Interactive (TTWO), Novanta (NOVT), Netflix, Baidu, and IPG Photonics (IPGP).

Top Names Performance

The top names were up 20.73% on average vs. 6.08% for SPY. This is the 18th cohort out of 20 that has outperformed SPY over the next six months.

The table below shows the performance of the 20 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 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% 9.42%
September 28, 2017 14.30% 4.73%
October 5, 2017 11.53% 5.26%
October 12, 2017 15.37% 5.38%
October 19, 2017 20.73% 6.08%
Average 18.96% 10.90%

So Portfolio Armor's top ten names averaged 18.96% over the average of these 20 6-month periods versus SPY's average of 10.90%, an average outperformance of 8.06% over 6 months.

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 21 Assessment

Four out of four hedged portfolios outperformed both their expected returns and SPY. The top ten names (unhedged) more than tripled the performance of SPY. Maybe it's time to start charging more for this service.

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.