Bulletproof Investing Performance Update: Week 27

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Includes: ALGN, ALNY, ASMB, BA, CHDN, ERII, FSLR, HOME, IBKR, IONS, MYGN, OLED, PYPL, SGMO, SGMS, SPY, TLYS, TREX, VC
by: David Pinsen

Summary

It's been six months since I presented 4 hedged portfolios and 10 top names in week 27 of my Marketplace service (November 30th). Here's how everything did.

This was the worst week yet. All 4 portfolios underperformed their expected returns, and 3 posted negative rturns.

The top 10 names returned -0.19% (unhedged) vs. 3.8% for SPY. This was the 5th time out of 26 since June 8th that our top names underperformed SPY.

McKenna Haase Safety First: Sprint Racer McKenna Haase and her helmet (via Racing News)

Bulletproof Investing: Week 27 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 27th week I offered my service. This was the fourth week of a weak performance streak. Let's look at what I presented in week 27 and how it did.

Portfolio 1

This was the $100,000 portfolio presented here initially. The data below was as of November 30th. The primary securities here were Energy Recovery (ERII), PayPal (PYPL), Tilly's (TLYS), Visteon (VC). They were selected because they had the highest potential return estimates, net of hedging costs at the time when hedging against a >6% decline, and they had share prices low enough that you could buy a round lot of one of them for less than $25,000. Ionis Pharmaceuticals (IONS) 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 5.8% (the "Max Drawdown"), and the best-case scenario was a gain of 15.46% (the "Net Potential Return" or aggregate potential return net of hedging cost). The "Expected Return" of 5.27% was a ballpark estimate taking into account that actual returns, historically, have averaged 0.3x Portfolio Armor's potential return estimates.

Something unusual about this portfolio was its negative hedging cost. More on that later.

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. For a few of these portfolios, there were issues with starting values of securities, so the starting values of the portfolios had to be adjusted, as the notes below the charts explain.

Chart via PA. This portfolio returned -5.39%, which of course underperformed its expected return and the return of the SPDR S&P 500 ETF (SPY).

Portfolio 2

This was the $1,000,000 portfolio presented here initially. This portfolio had Boeing (BA), Energy Recovery (ERII), First Solar (FSLR), At Home Group (HOME), PayPal (PYPL), Tilly's (TLYS), and Visteon (VC). Ionis Pharmaceuticals (IONS) was added in a fine-tuning step, 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 5.85%, the best-case scenario was a gain of 16.74%, and the ballpark estimate of an expected return was 5.42%.

Portfolio 2 Performance

Here's the performance chart for Portfolio 2:

Chart via PA. Image via PA. This portfolio returned 1.27%, which underperformed its expected return and the market.

Here is how all of the 6% threshold portfolios I've presented since June have performed over the next 6 months:

PORTFOLIOS HEDGED AGAINST > 6.0% DECLINES

Starting Date Expected Return Actual Return SPY Return
June 8, 2017 4.67% 3.85% 9.99%
July 27, 2017 5.78% 7.40% 17.10%
August 10, 2017 5.91% 1.45% 8.36%
August 31, 2017 4.91% 0.25% 10.87%
September 22, 2017 5.32% 4.98% 6.67%
September 22, 2017 5.74% 7.63% 6.67%
September 28, 2017 4.81% 7.81% 4.73%
October 5, 2017 5.84% 10.40% 5.26%
October 12, 2017 5.68% 9.83% 5.38%
November 22, 2017 5.48% 3.29% 5.90%
November 30, 2017 5.42% 1.27% 3.80%
November 30, 2017 5.27% -5.39% 3.80%
Average 5.40% 4.40% 7.38%

Portfolio 3

This was the aggressive portfolio originally presented here at the time. This one had Alnylam Pharmaceuticals (ALNY), Assembly Biosciences (ASMB), Myriad Genetics (MYGN), Universal Display (OLED), PayPal (PYPL), and Sangamo Therapeutics (SGMO). Churchill Downs (CHDN) was added to absorb leftover cash from rounding down dollar amounts of those names to round lots.

The Max Drawdown here was 19.78%. The best-case scenario was a gain of 23.95%, and the expected return was 8.55%.

Portfolio 3 Performance

Here's how it did:

Chart via PA. Image via PA. This portfolio did poorly as well.

Here's how all of the portfolios I've presented since last June that were hedged against 20% declines have performed.

PORTFOLIOS HEDGED AGAINST > 20.0% DECLINES

Starting Date Expected Return Actual Return SPY Return
June 22, 2017 8.43% 20.00% 11.27%
August 31, 2017 8.03% 9.38% 10.87%
October 12, 2017 9.00% 1.81% 5.38%
October 19, 2017 10.07% 13.06% 6.08%
October 26, 2017 8.57% 9.68% 5.13%
November 2, 2017 9.77% 11.11% 3.11%
November 9, 2017 9.59% 4.46% 5.34%
November 16, 2017 8.95% 1.73% 6.22%
November 22, 2017 9.39% 7.25% 5.90%
November 30, 2017 8.55% -4.37% 3.80%
Average 9.04% 7.41% 6.31%

Portfolio 4

This was the top names portfolio originally presented here, along with the list of top names.

The worst case scenario for this one was a drawdown of 8.62%; the best case scenario was a return of 19.95%, and the expected return was 6.53%.

Portfolio 4 Performance

Here's how it did.

Chart via PA.

Chart via PA.

This one returned -2.01%, thanks in part to the inclusion of OLED. You can see how other portfolios hedged against >9% declines since June have performed in the table below.

PORTFOLIOS HEDGED AGAINST > 9.0% DECLINES

Starting Date Expected Return Actual Return SPY Return
June 8, 2017 6.11% 9.24% 9.99%
June 16, 2017 5.13% 11.56% 10.94%
July 7, 2017 6.29% 8.47% 14.07%
July 13, 2017 6.70% 13.02% 14.85%
July 20, 2017 6.57% 10.36% 14.62%
August 3, 2017 8.46% 16.52% 12.66%
August 3, 2017 8.84% 14.00% 12.66%
August 10, 2017 6.15% 1.99% 8.36%
August 17, 2017 7.06% 9.38% 13.48%
August 17, 2017 8.11% 9.11% 13.48%
August 24, 2017 6.79% 8.88% 13.72%
August 31, 2017 7.43% 4.67% 10.87%
September 7, 2017 6.33% 9.54% 11.61%
September 14, 2017 7.25% 11.28% 11.19%
September 22, 2017 6.41% 10.64% 6.67%
September 28, 2017 6.27% 8.36% 4.73%
October 5, 2017 7.33% 4.67% 5.26%
October 5, 2017 8.36% 8.73% 5.26%
October 12, 2017 6.58% 5.03% 5.38%
October 19, 2017 7.91% 9.66% 6.08%
October 26, 2017 7.63% 9.43% 5.13%
November 2, 2017 6.15% 4.72% 3.11%
November 9, 2017 7.09% -1.49% 5.34%
November 16, 2017 7.13% 3.20% 6.22%
November 22, 2017 6.76% -0.87% 5.90%
November 30, 2017 6.53% -2.01% 3.80%
Average 6.98% 7.62% 9.05%

Hedged Portfolio Performance Roundup

You can bookmark this page if you want to see updated hedged portfolio performance in one place. New portfolios are added each week, six months after they were created.

Top Names

These were Portfolio Armor's top 10 names as of November 30th: Sangamo Therapeutics (SGMO), Scientific Games (SGMS), Align Technology (ALGN), Alnylam Pharmaceuticals (ALNY), Interactive Brokers (IBKR), Assembly Biosciences (ASMB), Trex (TREX), Myriad Genetics (MYGN), Universal Display (OLED), PayPal (PYPL).



Top Names Performance

Image via PA. The top names returned -0.19% on average vs. 3.8% for SPY. The performance for SPY is slightly different, because this chart goes to 5/23. This is the 5th cohort out of 26 since June 8th that has underperformed SPY over the next 6 months, and the first that posted a negative return.

The table below shows the performance all of the 26 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 24.46% 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 29.19% 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 15.46% 5.38%
October 19, 2017 20.73% 6.08%
October 26, 2017 18.10% 5.13%
November 2, 2017 12.64% 3.11%
November 9, 2017 5.41% 5.34%
November 16, 2017 6.11% 6.22%
November 23, 2017 5.18% 6.19%
November 30, 2017 -0.19% 3.80%
Average 16.41% 9.53%

So Portfolio Armor's top ten names averaged 16.41% over the average of these 26 6-month periods, versus SPY's average of 9.53%, an average outperformance of 6.88% 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 27 Assessment

This was the worst week yet. None of the portfolios outperformed their expected returns this week, three out of four of them posted negative returns, as did the top names, which underperformed SPY for the 6th time out of 26.

One interesting thing is that the two portfolios hedged against >6% declines had unusually low hedging cost, particularly given how tightly they were hedged, and still performed poorly. This was due to unusually low hedging cost for TLYS. We generally optimize primarily for potential return and then secondarily for low hedging cost, because when you optimize for low hedging cost primarily, you generally get lower returns.

No investment method generates great results all the time, and November 9th began a streak of weak performance for this one. This is one reason I suggest that subscribers who can afford to do so put half of their money in one hedged portfolio now, and then the other half in another hedged portfolio in 3 months. That way, they'll have 4 entry points per year (since each portfolio last for 6 months), and will be unlikely to put all of their money to work during a weak performance period.

Also, as you can see from the average performance of each portfolio by risk tolerance in the tables above, actual returns, on average, tend to be pretty close to the expected returns. With 4 entries per year, your actual returns will likely come close to your average expected returns as well.

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.