Bulletproof Investing Performance Update: Week 35

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Includes: ADSK, ALGN, AMBA, ANET, BA, CAT, CLR, CMG, DLTR, H, HD, HFC, IPGP, OC, SPY, TSCO
by: David Pinsen
Summary

It's been six months since I presented 4 hedged portfolios and 10 top names in week 35 of my Marketplace service (January 25th). Here's how everything did.

The top names (unhedged) were up 1.73% on average, versus 1.1% for SPY.

Interestingly, all of the 4 hedged portfolios outperformed the top names as well as SPY. None outperformed its expected return, but this was still competitive performance in a flat market.

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

Bulletproof Investing: Week 35 Performance

Each week since the beginning of June 2017, 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. As with any investment method, the returns with this approach will vary, but, in the interests of transparency and accountability, I have promised to publicly share the final performance of everything I present, regardless of how it does.

Here, I update the final performance of the 4 hedged portfolios and the top 10 names (unhedged) that I presented in the 35th Week I offered my service. Let's look at what I presented in Week 35 and how it did.

Portfolio 1

This was the $100,000 portfolio presented here initially. The data below was as of January 25th. The primary securities here were Caterpillar (CAT), Dollar Tree (DLTR), Hyatt (H), and HollyFrontier (HFC). They were selected because they had the highest potential return estimates, net of hedging costs when hedging against a >12% decline, and they had share prices low enough that you could buy a round lot of one of them for less than $25,000. Ambarella (AMBA) 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 11.3% (the "Max Drawdown"), and the best-case scenario was a gain of 26.27% (the "Net Potential Return" or aggregate potential return net of hedging cost). The "Expected Return" of 9.18% 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.

Chart via PA. This portfolio returned 2.61%, which underperformed its expected return but outreturned SPDR S&P 500 ETF (SPY). So far, we have full 6-month performance for 3 portfolios I've presented hedged against >12% declines. Here's how each of them did.

PORTFOLIOS HEDGED AGAINST > 12.0% DECLINES

Starting Date Expected Return Actual Return SPY Return
January 4, 2018 9.71% 13.64% 0.59%
January 11, 2018 9.00% 1.48% 1.12%
January 25, 2018 9.18% 2.61% 1.10%
Average 9.30% 5.91% 0.94%

Portfolio 2

This was the $1,000,000 portfolio presented here initially. This portfolio had Align Technology (ALGN), Arista Networks (ANET), Caterpillar (NYSE:CAT), Dollar Tree (NASDAQ:DLTR), HollyFrontier (NYSE:HFC), IPG Photonics (IPGP), and Tractor Supply (TSCO). Chipotle (CMG) 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 13.06%, the best-case scenario was a gain of 28.4%, and the ballpark estimate of an expected return was 9.33%.

Portfolio 2 Performance

Here's the performance chart for Portfolio 2:

Chart via PA. This one was up 5.76%, underperforming its expected return but outperforming SPY. This was the 3rd portfolio I presented hedged against a >14% decline. As you can see below, the previous one did similarly.

PORTFOLIOS HEDGED AGAINST > 14.0% DECLINES

Starting Date Expected Return Actual Return SPY Return
December 28, 2017 9.33% 10.12% 1.99%
January 18, 2018 9.32% 9.74% 1.55%
January 25, 2018 9.33% 5.76% 1.10%
Average 9.33% 8.54% 1.55%

Portfolio 3

This was the aggressive portfolio originally presented here at the time. This one had Align Technology (ALGN), Arista Networks (ANET), Caterpillar (CAT), Dollar Tree (DLTR), HollyFrontier (HFC), IPG Photonics (NASDAQ:IPGP), and Tractor Supply (NASDAQ:TSCO). Autodesk (ADSK) was added after to absorb the leftover cash from the rounding down process.

The Max Drawdown here was 19.43%. The best-case scenario was a gain of 29.65%, and the expected return was 9.82%.

Portfolio 3 Performance

Here's how it did:

Chart via PA. This one returned 6.21%, underperforming its expected return but outperforming SPY. So far, we have full 6-month performance for 18 portfolios I've presented hedged against >20% declines. Here's how each of them have done.

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%
December 8, 2017 8.34% 4.48% 5.73%
December 14, 2017 7.75% 17.49% 5.87%
December 21, 2017 9.33% 12.82% 3.36%
December 28, 2017 9.92% 9.59% 1.99%
January 4, 2018 9.65% 12.96% 0.59%
January 11, 2018 8.93% 8.96% 1.12%
January 18, 2018 9.40% 7.97% 1.55%
January 25, 2018 9.82% 6.21% 1.10%
Average 9.08% 8.59% 4.69%

In this table you can see that there's variation in returns, but the average actual return is quite close to the average expected return. That seems to be the case in general once we get 10+ portfolios in a sample.

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 8.51%; the best case scenario was a return of 26.77%, and the expected return was 8.66%.

Portfolio 4 Performance

Here's how it did.

Chart via PA. This one returned 3.47%, underperforming its expected return but outperforming SPY. So far, we have full 6-month performance for 37 portfolios I've presented hedged against >9% declines. Here's how each of them did.

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 8.84% 14.00% 12.66%
August 3, 2017 8.46% 16.52% 12.66%
August 10, 2017 6.15% 1.99% 8.36%
August 17, 2017 8.11% 9.11% 13.48%
August 17, 2017 7.06% 9.38% 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%
December 8, 2017 5.10% 4.84% 5.73%
December 14, 2017 6.15% 12.48% 5.87%
December 14, 2017 6.75% 13.48% 5.87%
December 21, 2017 6.70% 0.81% 3.36%
December 28, 2017 7.70% 15.10% 1.99%
December 28, 2017 7.88% 6.22% 1.99%
January 4, 2018 8.65% 10.87% 0.59%
January 4, 2018 9.30% 15.19% 0.59%
January 11, 2018 7.59% -3.05% 1.12%
January 18, 2018 6.81% -0.23% 1.55%
January 25, 2018 8.66% 3.47% 1.10%
Average 7.10% 7.49% 7.17%

Top Names

These were Portfolio Armor's top 10 names as of January 25th: Boeing (BA), Dollar Tree (DLTR), IPG Photonics (IPGP), Align Technology (NASDAQ:ALGN), HollyFrontier (HFC), Continental Resources (CLR), Owens Corning (OC), Hyatt (NYSE:H), Home Depot (HD), and Caterpillar (CAT).

Top Names Performance

Chart via PA. The top names returned 1.73% on average vs. 1.1% for SPY. Not a spectacular return this time, but this was the 28th cohort out of 34 since June 8th that has outperformed SPY over the next 6 months. You can see the performance for all of the top names cohorts I've presented so far in the table below.

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%
December 7, 2017 11.51% 5.99%
December 14, 2017 29.80% 5.87%
December 21, 2017 17.11% 3.36%
December 28, 2017 13.78% 1.99%
January 4, 2018 30.22% 0.59%
January 11, 2018 -2.06% 1.12%
January 18, 2018 7% 1.55%
January 25, 2018 1.73% 1.1%
Average 15.76% 7.92%

So Portfolio Armor's top ten names averaged 15.76% over the average of these 34 6-month periods, versus SPY's average of 7.92%, an average outperformance of 7.84% over 6 months.

Top Names Time Stamped

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 35 Assessment

The interesting thing this week is how all of the hedged portfolios not only outperformed SPY but outperformed Portfolio Armor's top names (unhedged). That may seem counterintuitive at first: you might expect that, after the drag of hedging costs, the hedged portfolios would underperform the top names when the top names have outperformed the market. In a broad bull market, when most stocks have gone up, that would generally be the case. But in a flat market, when three of the top names were down double digits, the hedging more than paid for itself.

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.