Throwing in the towel, kind of

Investing Strategies Mechanical Investing
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Hi All,

So, after continuing underperformance of my MI portfolio, I have decided to throw in the towel and change the way I invest my portfolio. Some background:

I stumbled upon this board back in 1998 as a young graduate student, and have been doing MI pretty much ever since. I was in the library with Elan and others photocopying VL pages. I have suffered 50% drops in my portfolio (and subsequent recoveries) multiple times; I have kept following the screens. Over 24 years of doing this, my portfolio has grown approximately 18x (though it was rather small to begin with), with a CAGR of around 13% (undoubtedly less because of additions and withdrawls but not that substantial).

For the past 8 years, not only have I underperformed the broad market (SPY, DIA, QQQ), but I seem to have not just a high beta, but a negative alpha (I fall more in a down market and gain less in an up). All of this leads me to believe that our MI advantage has been arbitraged out of existance, and that I need to adjust my investment style.

My current thinking is to split my portfolio in 1/2, with half being divided into BRK, RSP, QQQE and the other half split between the ROE_LtCash screen (Top 40 HTD 45) and the medical devices screen (SOE of the two 15 deep each).

In a very very small corner I will continue to do NegFCF 2/0 options, RRS126-2s DH10 6/3 options, and various cash secured puts or DITM call on stocks that I believe can return well. This last part is simply a psychological crutch to keep me from trying to tweak my main investments as it gives me something active to play with.

As always, comments and ideas are very welcome.

–Gabriel

PS: There is the strong possibility that my moving out of MI screens will trigger a strong rally in MI, as is per my usual timing.

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In a very very small corner I will continue to do NegFCF 2/0 options, RRS126-2s DH10 6/3 options, and various cash secured puts or DITM call on stocks that I believe can return well. This last part is simply a psychological crutch to keep me from trying to tweak my main investments as it gives me something active to play with.

I have also found over the years that it helps to have an ‘action’ segment to play with and tweak. Sometimes it is Net-Nets, sometimes options. By the way, thanks for a reminder to update NegFCF call results.

DB2

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This last part is simply a psychological crutch to keep me from trying to tweak my main investments as it gives me something active to play with.

I have also found over the years that it helps to have an ‘action’ segment to play with and tweak.

Nice to know that others need “an ‘action’ segment to play with and tweak”. This was my reason for creating a WWL screen.

GD_

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I think of having an 80:20 split between equities and cash. I might not stick to it exactly, but it gives me something to watch, and occasionally prods me to sell a bit or buy a bit, and I like having at least some cash sitting around in case there’s a big drop at some point. Hopefully the total return is similar to 100% equities, but much easier to handle mentally.

SA

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I think of having an 80:20 split between equities and cash. I might not stick to it exactly, but it gives me something to watch, and occasionally prods me to sell a bit or buy a bit, and I like having at least some cash sitting around in case there’s a big drop at some point. Hopefully the total return is similar to 100% equities, but much easier to handle mentally.

Hope springs eternal, but in reality you should expect 80% of the return of equities, in good times and in bad times. By rebalancing periodically you may earn a tiny advantage because you’ll be selling high and buying low.

Elan

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Hope springs eternal, but in reality you should expect 80% of the return of equities, in good times and in bad times. By rebalancing periodically you may earn a tiny advantage because you’ll be selling high and buying low.

Tiny advantage never seems to occur. I’ve tried this and selling high seems to violate “momentum” &“let your winners run.”

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Hi Gabriel,

My journey has been somewhat similar. After playing around with a lot of screens, I found myself ‘doubting’ the wisdom of screen at the worst possible time.

So, I discovered that just like exercise program, the most important quality for a screen is whether you can stick with it.

Over last year, i have migrated to using Whalewisdom screens. They are still mechanical - which means i don’t have to worry about due diligence and buy/sell decisions. The picks are more in line with what i would choose for myself using fundamental analysis etc. Historical returns are quite respectable.

Best,

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