Seeking Alpha

Momentum Portfolio: 2017-2019 Review

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Includes: BRZU, CSIQ, RRC, SOXL, SWN
by: Lejun James Shao
Lejun James Shao
Growth, long only, newsletter provider, portfolio strategy
Summary

Momentum Portfolio completed its first round of run. The run lasted a little more than 32 months (2 years and 8 months) with a 763.48% total return.

Review of our Portfolio’s run: the good, the bad, and the best.

Our goal for the next round of run is discussed.

Our service manages two model Portfolios: Momentum Portfolio and Core Portfolio.

Our Core Portfolio's year I review was published two weeks ago. This article will give our review for Momentum Portfolio's round one run.

Momentum Portfolio

The Momentum Portfolio is designated to run from $30,000 seed money and to grow the money to $300,000 in four years. The Portfolio is also called Short-Term-Play Portfolio. The maximum holding period for each pick is one month and may involve day-trading. The Portfolio's run started on April 11, 2017, and has grown $259,044.67, or up 763.48%, by the end of 2019. During the same time frame, the S&P 500 was up 36.44%. See its monthly performance chart below:

Review Our Run - The Good, The Bad, and The Best

The Portfolio is not diversified.

When the Momentum Portfolio started its run in April 2017, we set the following Investment Strategy:

  • Can hold a maximum number of two stocks/ETFs at a time when the Portfolio size is below $100,000, three when the balance is in the $100,000-200,000 range; four when the Portfolio balance is in the $200,000-250,000 range, and five when it grows greater than $250,000. The picks will be evenly weighted. That is, we will use $15,000 for each pick to start with.
  • The maximum holding period for each pick is one month, but most are within one week and may do day-trading.
  • Stop-loss is set at 10% in general.
  • Etc.

The problem for the Strategy is that we did not pay much attention to risk control. As the Portfolio is not a diversified one, one bad trade may cost the Portfolio's big drawdown, which will need many small wins to recover.

The Good

We had a good start to run the Portfolio. The Portfolio gained 35.44% in the first two months and up 141.37% in its year I run.

But the lack of risk control cost us a big drawdown in its month 3-4 run, 17.71%, pretty huge one. The problem became more serious in the Portfolio's next few months of run.

The Bad

The Portfolio ran into its dark period, down 24.56% from March 2018 to October 2018. It incurred three big drawdowns: 14.00% in April-May period, 21.52% in July-August period and 17.65% in October. All the big drawdowns were from only a very few big trade losses.

For example, the Portfolio's big drop in April-June period was mainly due to three big trade losses, each was down far more than 10% allowed:

  • Southwestern Energy Company (SWN) -16.65%;
  • Smart Sand, Inc. (SND) -18.01%; and
  • Fibrocell Science (FCSC)* -24.06%.

*FCSC was acquired later.

The Portfolio's loss in the July-August period was from our bad trade on Emerge Energy Services LP (EMES), which happened to be our Core Portfolio's worst pick. The company is traded in the over-the-counter market now.

The Portfolio's big drawdown in October 2018 was due to one bad trade on the Direxion Daily Semiconductor 3x Bull Shares ETF (SOXL).

SOXL - $279.19. It was one of the hottest leveraged ETF last year. But it was not the case in October 2018: down more than 50% from its April 2018 high, and we picked it at its local support, but did not exit it quickly when it broke down from its support and resulted in an over 34% loss: bought at $142.67 on October 5, 2018, and sold at $93.61 on October 26, 2018. See its weekly chart:

This showed that as an investor, one should never fall in love with any stock/ETF. Not being a disciplined investor will eventually cost one big.

The Best

After carefully reviewing the bad trades during the last seven months, we made the following modification for our Investment Strategy:

  • The maximum holding period reduced from 1 month to 1 week;
  • the maximum loss per trade is limited to 3% from the previous 10%;
  • if a pick gained over 2% after our buy, we will not allow it to turn to a loss; and
  • if a pick gained over 10% after our buy, we consider it as a jackpot win and will put a tight trailing stop.

The modification of our Investment Strategy greatly improved the Portfolio's performance. Since 2018's October's low, the Portfolio has run up 14 months in a row with zero drawdowns no matter the market was up or down. See its monthly performance table below:

The Portfolio gained 279.58% while the S&P 500 was up 29.97% in 2019:

What Is Our Goal for the Portfolio's Round Two Run

Per many investors' requests, we decided to reset our Portfolio back to $30,000 by the end of this year and start its next round of run from January 2, 2020.

We reviewed our Investment Strategy once again and found out that limiting the maximum holding period to five days cost us many stocks' big short-term runs.

This includes Cigna Corporation (CI), a healthcare plan provider, $150 -> $205 run (+36.66%) in 1 1/2 month; Direxion Daily Brazil Bull 3x Shares ETF (BRZU), $25.00 -> $37.00 run (+48.00%) in one month; Canadian Solar (CSIQ) in solar energy sector, $15 -> $22 run (+46.66%) in one month; and Range Resources Corp (RRC), a natural gas producer, $3.32 -> $5.00 run (+50.60%) in 12 sessions, etc.

All of them were our Core Portfolio picks, but we did not buy and hold any of them for our Momentum Portfolio.

We decided to extend the maximum holding period for our Momentum Portfolio second round of run from one week to one month.

Because our Portfolio is not a diversified one, risk control is still the number one concern. When the market becomes very volatile, we may avoid holding our picks overnight to get rid of system risks.

Our goal: In this round of run, we want to set our bar higher: try to grow our Portfolio into a $300,000 mark in three years (not in four years).

This requires us to make the Portfolio at least a consistent 6.70% monthly return for the next 36 months:

1.067^36 = 10.32 or

a consistent 117% yearly return for the next three years

2.17^3 = 10.21

$30,000 -> $65,100 -> $141,267 -> $306,549.

Can we make it? Only time can tell. We have done it much better in 2019. We also made this happen in previous years. But past performance can never be used to indicate future performance. Investment is never an easy game.

Conclusion

We made a very successfully run for our Momentum Portfolio: gained 763.48% in less than three years. The Momentum Portfolio was reset back to $30,000 and already started its next round of run on January 2, 2020 - up 2.18% in two sessions last week.

We have set our bar much higher in this round of run, hope to grow our Portfolio to 10 times large in three years.

We invite growth-oriented investors to join us to see whether we can make this happen and to grow your money with us.

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.