Bulletproof Investing Performance Update: Week 54

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Includes: ADBE, AMZN, ATVI, AZPN, BURL, CHK, CMG, DPZ, FCN, FTNT, GDDY, JAZZ, LGND, LNG, NFLX, PLT, SPY, TROX, VLO, ZBRA
by: David Pinsen
Summary

It has been six months since I presented five hedged portfolios and 10 top names in week 54 of my Marketplace service (June 7). Here's how everything did.

None of the five hedged portfolios outperformed its expected return (unlike week 48 when three out of four did) and none beat SPY (unlike week 48 when all did).

The top 10 names (unhedged) underperformed SPY. So far, their record vs. SPY is 40-12-1.

McKenna Haase

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

Bulletproof Investing: Week 54 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 five hedged portfolios and the top 10 names (unhedged) that I presented in the 54th week I offered my service. Let's look at what I presented in week 54 and how it did.

Portfolio 1

This was the $30,000 portfolio. The primary securities here were FTI Consulting (FCN) and GoDaddy (GDDY). They were selected because they had the highest potential return estimates, net of hedging costs when hedging against a >13% decline, and they had share prices low enough that you could buy a round lot of one of them for less than $10,000. Chesapeake (CHK) was added in a fine-tuning step to absorb leftover cash from rounding down to round lots of the first four names.

The image above was generated by Portfolio Armor on June 7th and presented in this Marketplace post at the time.

The worst-case scenario for this portfolio was a decline of 12.65% (the "Max Drawdown") and the best-case scenario was a gain of 19.64% (the "Net Potential Return" or aggregate potential return net of hedging cost). The "Expected Return" of 8.18% 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 did, net of hedging and trading costs.

This portfolio was down 8.9%%, underperforming its expected return and the SPDR S&P 500 Trust ETF (SPY). So far, we have six-month performance data for 2 portfolios I've presented hedged against >13% declines. Here's how all of them have done (click on a starting date to go to an interactive version of that chart).

PORTFOLIOS HEDGED AGAINST > 13.0% DECLINES

Starting Date Expected Return Actual Return SPY Return
February 8, 2018 6.57% 5.29% 11.75%
June 7, 2018 8.18% -8.90% -4.12%
Average 7.37% -1.81% 3.82%

Table via Portfolio Armor

Portfolio 2

This was the $100k portfolio. This one included Burlington Stores (BURL), Fortinet (FTNT), GDDY, and Cheniere Energy (LNG) as primary securities. CHK was added in the fine-tuning step to absorb cash left over from the process of rounding down to round lots of the primary securities.

The image above was generated by Portfolio Armor on May 31st and presented in this Marketplace post at the time.

The worst-case scenario for this one was a decline of 13.6%, the best-case scenario was a gain of 19.4%, and the ballpark estimate of an expected return was 7.11%.

Portfolio 2 Performance

Here's how the portfolio did, net of hedging and trading costs.

This one was down 4.27%. So far, we have six-month performance data for 9 portfolios I've presented hedged against >14% declines. Here's how all of them have done (click on a starting date to go to an interactive version of that chart).

PORTFOLIOS HEDGED AGAINST > 14.0% DECLINES

Starting Date Expected Return Actual Return SPY Return
December 28, 2017 9.33% 9.95% 1.99%
January 18, 2018 9.32% 9.65% 1.55%
January 25, 2018 9.33% 5.65% 1.10%
February 8, 2018 6.21% 6.58% 11.75%
February 15, 2018 6.95% -8.55% 4.08%
February 15, 2018 8.37% -6.65% 4.08%
May 24, 2018 11.16% -7.08% -2.63%
May 24, 2018 10.19% -3.39% -2.63%
May 31, 2018 6.97% -1.57% 2.66%
June 7, 2018 7.11% -4.27% -4.12%
Average 8.49% 0.03% 1.78%

Table via Portfolio Armor

Portfolio 3

This was the $1 million portfolio. It included Aspen Technology (AZPN), Chipotle (CMG), Domino's (DPZ), GDDY, Ligand Pharmaceuticals (LGND), LNG, and Netflix (NFLX) as primary positions. CHK was added again to absorb the leftover cash from the process of rounding down the primary positions to round lots.

The image above was generated by Portfolio Armor on May 31st and presented in this Marketplace post at the time.

The worst-case scenario here was a drawdown of 14.56%, the best-case scenario was a gain of 23.85% (the net potential return), and the expected return was 8.11%.

Portfolio 3 Performance

Here's how the portfolio did, net of hedging and trading costs.

This one was down 9.65%. So far, we have six-month performance data for 27 portfolios I've presented hedged against >15% declines. Here's how all of them have done (click on a starting date to go to an interactive version of that chart).

PORTFOLIOS HEDGED AGAINST > 15.0% DECLINES

Starting Date Expected Return Actual Return SPY Return
April 23, 2017 6.74% 15.41% 10.25%
December 31, 2017 8.90% 13.07% 2.52%
January 29, 2018 8.52% 9.88% -0.30%
February 1, 2018 7.30% -5.69% 0.59%
February 1, 2018 8.70% 0.87% 0.59%
February 22, 2018 7.91% 5.74% 6.73%
March 1, 2018 7.45% 5.80% 9.37%
March 8, 2018 7.73% -4.26% 5.82%
March 8, 2018 7.47% -1.77% 5.82%
March 15, 2018 7.21% -4.70% 6.68%
March 15, 2018 7.80% 1.73% 6.68%
March 22, 2018 7.40% 5.89% 11.74%
March 22, 2018 7.41% 3.20% 11.74%
March 29, 2018 8.07% 5.03% 11.48%
March 29, 2018 7.57% 4.47% 11.48%
March 31, 2018 8.04% 9.06% 11.48%
April 5, 2018 10.88% -3.70% 9.33%
April 5, 2018 10.57% -1.33% 9.33%
April 12, 2018 9.02% 3.66% 4.71%
April 26, 2018 10.16% 14.99% 0.53%
April 26, 2018 9.78% 5.01% 0.53%
May 3, 2018 9.57% 2.47% 4.47%
May 10, 2018 8.74% -2.96% 3.03%
May 17, 2018 12.15% 4.72% 1.54%
May 17, 2018 11.00% -0.74% 1.54%
May 31, 2018 7.44% -2.33% 2.66%
June 7, 2018 8.11% -9.65% -4.12%
Average 8.58% 2.74% 5.42%

Table via Portfolio Armor

Portfolio 4

This was the $2 million aggressive portfolio. This one included Amazon (AMZN), CMG, DPZ, GDDY, LGND, LNG, and NFLX. Activision Blizzard (ATVI) was added to absorb leftover cash in the fine-tuning step.

The image above was generated by Portfolio Armor on May 31st and presented in this Marketplace post at the time.

The worst-case scenario here was the Max Drawdown of 19.67%, the best-case scenario was the net potential return of 25.44%, and the expected return was 8.62%.

Portfolio 4 Performance

Here's how the portfolio did, net of hedging and trading costs.

This one was down 11.51%. So far, we have six-month performance data for 37 portfolios I've presented hedged against >20% declines. Here's how all of them have done (click on a starting date to go to an interactive version of that chart).

PORTFOLIOS HEDGED AGAINST > 20.0% DECLINES

Starting Date Expected Return Actual Return SPY Return
June 22, 2017 8.43% 20.08% 11.27%
August 31, 2017 8.03% 9.10% 10.87%
October 12, 2017 9.00% 2.12% 5.38%
October 19, 2017 10.07% 13.05% 6.08%
October 26, 2017 8.57% 9.39% 5.13%
November 2, 2017 9.77% 10.67% 3.11%
November 9, 2017 9.59% 4.45% 5.34%
November 16, 2017 8.95% 5.18% 6.22%
November 22, 2017 9.39% 7.31% 5.90%
November 30, 2017 8.55% -4.74% 3.80%
December 8, 2017 8.34% 4.50% 5.73%
December 14, 2017 7.75% 17.49% 5.87%
December 21, 2017 9.33% 12.33% 3.36%
December 28, 2017 9.92% 9.45% 1.99%
January 4, 2018 9.65% 12.92% 0.59%
January 11, 2018 8.93% 9.14% 1.12%
January 18, 2018 9.40% 7.89% 1.55%
January 25, 2018 9.82% 6.19% 1.10%
January 29, 2018 9.29% 10.48% -0.30%
February 1, 2018 9.00% 0.84% 0.59%
February 8, 2018 7.35% 12.49% 11.75%
February 15, 2018 8.19% -6.14% 4.08%
February 22, 2018 8.54% 6.90% 6.73%
March 1, 2018 7.98% 6.66% 9.37%
March 8, 2018 8.32% -3.20% 5.82%
March 15, 2018 7.90% 2.50% 6.68%
March 22, 2018 7.65% 8.82% 11.74%
March 29, 2018 8.26% 7.72% 11.48%
April 5, 2018 10.59% 0.20% 9.33%
April 12, 2018 9.36% 4.63% 4.71%
April 19, 2018 11.04% 17.36% 3.67%
April 26, 2018 10.32% 17.44% 0.53%
May 3, 2018 10.08% 7.54% 4.47%
May 10, 2018 8.64% 2.61% 3.03%
May 17, 2018 11.53% -4.37% 1.54%
May 24, 2018 11.74% -6.80% -2.63%
May 31, 2018 7.76% -4.70% 2.66%
June 7, 2018 8.62% -11.51% -4.12%
Average 9.10% 5.95% 4.62%

Table via Portfolio Armor

Portfolio 5

This was the $2 million top names portfolio. Names that didn't appear in the previous June 7th portfolios were Adobe Systems (ADBE), Jazz Pharmaceuticals (JAZZ), Tronox (TROX), and Valero (VLO).

The image above was generated by Portfolio Armor on May 31st and presented in this Marketplace post at the time.

The worst-case scenario was a drawdown of 8.52%, the best-case scenario was a gain of 21.45%, and the expected return was 7.23%.

Portfolio 5 Performance

Here's how the portfolio did, net of hedging and trading costs.

This portfolio was down 6.52%. So far, we have full six-month performance for 57 portfolios I've presented hedged against >9% declines. Here's how each of them did (click on a starting date to go to an interactive version of that chart).

PORTFOLIOS HEDGED AGAINST > 9.0% DECLINES

Starting Date Expected Return Actual Return SPY Return
June 8, 2017 6.11% 9.25% 9.99%
June 16, 2017 5.13% 11.59% 10.94%
July 7, 2017 6.29% 8.40% 14.07%
July 13, 2017 6.70% 12.96% 14.85%
July 20, 2017 6.57% 10.34% 14.62%
July 27, 2017 5.61% 8.20% 17.10%
August 3, 2017 8.46% 16.52% 12.66%
August 3, 2017 8.84% 13.98% 12.66%
August 10, 2017 6.15% 4.05% 8.36%
August 17, 2017 8.11% 9.12% 13.48%
August 17, 2017 7.06% 9.41% 13.48%
August 24, 2017 6.79% 8.97% 13.72%
August 31, 2017 7.43% 4.65% 10.87%
September 7, 2017 6.33% 9.51% 11.61%
September 14, 2017 7.25% 11.27% 11.19%
September 22, 2017 6.41% 10.55% 6.67%
September 28, 2017 6.27% 8.35% 4.73%
October 5, 2017 8.36% 8.68% 5.26%
October 5, 2017 7.33% 4.62% 5.26%
October 12, 2017 6.58% 5.10% 5.38%
October 19, 2017 7.91% 9.63% 6.08%
October 26, 2017 7.63% 9.34% 5.13%
November 2, 2017 6.15% 4.72% 3.11%
November 9, 2017 7.09% -1.48% 5.34%
November 16, 2017 7.13% 8.93% 6.22%
November 22, 2017 6.76% -0.85% 5.90%
November 30, 2017 6.53% -1.80% 3.80%
December 8, 2017 5.10% 4.88% 5.73%
December 14, 2017 6.75% 13.47% 5.87%
December 14, 2017 6.15% 12.47% 5.87%
December 21, 2017 6.70% 0.83% 3.36%
December 28, 2017 7.70% 14.94% 1.99%
December 28, 2017 7.88% 6.19% 1.99%
January 4, 2018 9.30% 15.12% 0.59%
January 4, 2018 8.65% 10.83% 0.59%
January 11, 2018 7.59% -2.69% 1.12%
January 18, 2018 6.81% -0.21% 1.55%
January 25, 2018 8.66% 3.47% 1.10%
February 1, 2018 6.59% 1.69% 0.59%
February 8, 2018 4.74% 8.07% 11.75%
February 15, 2018 6.37% -2.10% 4.08%
February 22, 2018 5.44% 1.72% 6.73%
March 1, 2018 5.05% 4.68% 9.37%
March 8, 2018 6.39% -3.81% 5.82%
March 15, 2018 5.23% 1.31% 6.68%
March 22, 2018 5.98% 4.01% 11.74%
March 29, 2018 5.93% 4.77% 11.48%
April 5, 2018 6.91% 3.35% 9.33%
April 12, 2018 9.09% -2.72% 4.71%
April 12, 2018 8.35% -0.64% 4.71%
April 19, 2018 9.66% -4.07% 3.67%
April 19, 2018 8.86% 1.04% 3.67%
April 26, 2018 7.72% 7.56% 0.53%
April 26, 2018 7.33% 5.67% 0.53%
May 3, 2018 10.67% -1.73% 4.47%
May 3, 2018 8.33% 1.96% 4.47%
May 10, 2018 7.96% 2.84% 3.03%
May 17, 2018 7.87% 0.60% 1.54%
May 24, 2018 8.65% -5.27% -2.63%
May 31, 2018 6.22% -0.19% 2.66%
June 7, 2018 7.23% -6.52% -4.12%
Average 7.13% 5.17% 6.34%

Table via Portfolio Armor

One note about the table above: it includes both $100k portfolios and $1mm portfolios. Starting with the May 24th cohort, I began presenting $100k portfolios hedged against >14% declines, so they'll appear in a different table from that point forward. My guess is that will slightly improve the average performance of the portfolios hedged against >9% declines.

Top Names

These were Portfolio Armor's top 10 names as of June 7th. Names that didn't appear in the portfolios above include Plantronics (PLT) and Zebra Technologies (ZBRA).

The image above was generated by Portfolio Armor on June 7th and was included in the same Marketplace post as the top names portfolio above.

For this cohort, as of June 7th:

  • Average 36M Beta = 1.15
  • Average 20% threshold optimal put hedging cost: 2.83%

Top Names Performance

Here's how the top names did.

The top names (unhedged) were down 14.13%, on average versus down 4.12% for SPY. So far, 40 top names cohorts have beaten SPY, one has tied SPY, and 12 have underperformed SPY over the next six months. You can see the performance for all of the top names cohorts I've presented so far in the table below (click on a starting date to go to an interactive version of that chart).

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 7.00% 1.55%
January 25, 2018 1.73% 1.10%
February 1, 2018 11.02% 0.59%
February 8, 2018 25.21% 11.75%
February 15, 2018 4.31% 4.08%
February 22, 2018 19.48% 6.73%
March 1, 2018 10.64% 9.37%
March 8, 2018 5.82% 5.82%
March 15, 2018 6.99% 6.68%
March 22, 2018 8.64% 11.74%
March 29, 2018 14.68% 11.48%
April 5, 2018 9.76% 9.33%
April 12, 2018 -2.29% 4.71%
April 19, 2018 4.67% 3.67%
April 26, 2018 2.30% 0.53%
May 3, 2018 11.01% 4.47%
May 10, 2018 7.01% 3.03%
May 17, 2018 -6.70% 1.54%
May 24, 2018 -5.60% -2.63%
May 31, 2018 -7.91% 2.66%
June 7, 2018 -14.13% -4.12%
Average 12.09% 6.81%

Table via Portfolio Armor

So Portfolio Armor's top ten names averaged 12.09% over the average of these 53 6-month periods, versus SPY's average of 6.81%, an average outperformance of 5.28% 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 54 Assessment

As you can see, we're in a period of underperformance, as the market has trended down and rotated out of the tech and energy names our system was picking up 6 months ago. None of the hedged portfolios this week outperformed its expected return, and none outperformed SPY. The top 10 names (unhedged) underperformed SPY for the 12th time out of 53 weeks (we didn't post the top 10 in week 1), and for the 4th week in a row. This sort of streak is to be expected in a security selection method that's based in part on momentum though, as sectors rotate. The nice thing about momentum, though, is that it's self-correcting: eventually, the former top names slide down the rankings. Contrast that with a value approach, where, as the top names become cheaper, they rise in the rankings.

We still see the potential variability of hedged portfolio returns from week to week, but the proximity between the average expected returns and average actual returns in some of the tables above remains encouraging (particularly with the portfolios hedged against >9% declines) because it suggests that with four entries per year (putting half of your money in a hedged portfolio now, half in three months, and repeating the process when those portfolios end), your actual returns will likely come close to your average expected returns.

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.