Saturday, September 17, 2016

Tracking My Stock Portfolio with an iPad and Excel

I have tried everything from Quicken to Morningstar Portfolios to Apple Numbers to Google Sheets, yet I always tend to come back to good old Microsoft Excel to monitor my investment portfolio. 

In addition to the above, I have also looked high and low around the web for solutions; people who have set up Excel or Google Sheets versions of portfolio trackers I could copy.  There is a lot of great portfolio trackers out there done by individual bloggers.  Check out this one by Old School Value or Portfolio Slicer or No More Waffles Dividend Tracker.

Those are all awesome options for tracking a portfolio.  However, for my own personal needs none of them gave me exactly what I wanted to track myself.

In the end, I realized that the only way to get exactly what I wanted would be to create a portfolio tracker myself. 

Things I Knew I Wanted To Include


My first step was to figure out exactly what I wanted my portfolio tracker to include.   Here are the things that I wanted to make sure were available in the tool I created:
  • Super simple to use
  • Microsoft Excel based due to more advanced charting and look of Excel versus Google Sheets
  • Track performance against the S&P 500 and S&P/TSX Composite Index (Canadian index) from a simple return perspective
  • Track the portfolio and individual holding book and market values
  • Graphically see the performance for each allocation element in my portfolio
  • Organize the portfolio in accordance with the well-research strategies I use
  • Track my pension and employer accounts, which do not all have tickers associated with the investment holdings
  • Track asset allocation percentages against asset allocation targets
  • Track cash balances
  • Ability to use the Excel spreadsheet on both a desktop and iPad
  • Automatically update stock prices, both on the desktop version and my iPad
Most of these requirements are pretty basic and don't require any special skills.  In fact, most of it only requires an organization solution; how I set up the spreadsheet to display the information will solve most of these problems.

The trickiest one to solve is the ability to use this on an iPad and desktop and update stock prices automatically across both systems.  The desktop version of Excel allows users to automatically update stock prices with the "Webservice" function, however because of the permissions in the iPad, Excel for the iPad is not allowed to get external date.

I found a solution which I will talk about in a minute. 

Things I Knew I Didn't Want


The second step was noting what I didn't want, or need, the Excel portfolio tracker to do.
  • Calculate the compound annual growth rate (CAGR)
  • Track the inflows and outflows (only worry about book and market values)
  • Tax recording - brokers help with this anyway, and most is in tax protected accounts
  • Track each individual transaction (this takes way too much time)
The one that may surprise people is that I didn't want to track the CAGR.  The reason is not that I don't care what my CAGR is, but more that with wanting to keep things simple.  CAGR requires an input of all the deposits and withdrawals and I have found in the past that I am not great at staying on top of that.

I found that by simply keeping track of each account's book value, I can calculate my return and get a good sense of how portfolio is doing.  In addition, by including the market prices for the S&P 500 and S&P/TSX I can also compare how I am doing against the market.

The Portfolio Tracker Design

With all the wants and not-wants incorporated, here is what I came up with to track my portfolio.  I will show each section and explain what it is showing.  Please note that I have changed the values to protect my actual portfolio values so some of the numbers may not make sense!

Portfolio Graphs

The portfolio graphs provide a visual for the two types of metrics I wanted to track in my excel portfolio tracker. The first was tracking my asset allocation.

I track asset allocation with cash and without cash.  My portfolio is broken down into Canada, Global, and US buckets.  In each of these buckets I hold cash.  As a result of this, I show two graphs related to asset allocation: a cash-based allocation which includes this cash amount and a pure asset allocation which shows the cash allocation separately.

Here is what the asset allocation graphs look like:

Performance Graphs

The performance graphs show how each of the strategies I use in my portfolio are performing.  I like to track performance like this as from time to time each part of the portfolio will perform better than the others.  This allows me to review this over time.

The performance graphs are also broken down into percentage return and dollar return.  I like to show both just out of interest.  The strategy performance view will show me on a dollar basis how that investment strategy is performing on a dollar value basis.

Here are what the two performance graphs look like:

Investment Strategy Excel Performance Graphs

Comparison to Market Performance

It is important to me that the portfolio beat the stock market.  Otherwise, I would be better off just buying an index ETF like SPY and saving myself a lot of time.

I track my performance based on the two currenct types I hold in my portfolio: Canadian and U.S.

My U.S. holdings include all investments made in U.S. dollars, including my Global allocation.  As a result, I compare the result of my U.S. and Global holding against the U.S. market performance.

This may seem funny - why don't I compare my Global portfolio results to a global benchmark.  The first reason is simplicity and the added value that would provide.  With the U.S. being the largest market in the world, I better make sure I at least keep up with that market.  The added value I get by being global diversified is important, but at the end of the day I want to beat the SPY.

I also compare my Canadian holdings - which is based on the Beat the TSX methodology - to the Canadian S&P/TSX Composite index.  Again, I want to make sure I am beating the Canadian market over the long term so tracking the performance of this strategy against that benchmark is important.

Here is what this table looks like.  The last column shows if I am beating the market (over) or if the market is beating me (under).

excel portfolio tracking market performance

Individual Holdings

The individual holdings section of the spreadsheet lists all of the individual holdings, divided up into each strategy I use and includes the following details:
  • Holding Name
  • Current Price
  • # of Shares
  • Market Value
  • Book Value
  • $ Return
  • Simple Return
  • % of Portfolio
  • % of Portfolio - Non-Cash
All I need to do when holdings are added or removed is update the cash balance, update the number of shares, and enter the book value.  Since I have the stock prices updated automatically, the market value is calculated when I open the Excel portfolio tracker.

Here is what the individual holding section looks like:

Company Investment Plans

The trouble with company sponsored investment plans, at least here in Canada, is that often the investment choices are only available to the plan holders and therefore there is not a way to automatically update the market prices.  For example, the defined contribution pension plan uses a target date segregated fund which is not available to the public.

The solution is actually simple.  I keep these holdings separate and simply enter the actual account value twice a month when the transactions are completed within the accounts.  I am also able to get good performance statistics right from within the accounts so I always know how they are performing.

Here is what this section looks like, which is not much - only the current values are used:

Getting Stock Quotes with Excel Using an iPad 

As mentioned earlier, getting stock prices to automatically update in the iPad version of Excel is difficult.  Apple, with all the control they love to keep, make it hard for apps to get external data.

The solution I found was to not actually use a formula based call to external web sites to get the data (like most people do from Yahoo! Finance).   Instead I use a free Excel Add-In called Stock Connector.

Granted it is a bit buggy on the desktop side, it works nicely on the iPad.  The set up is easy; enter the ticker and select a cell where the price needs to be updated.  Once you open the Excel portfolio tracker on the iPad, you simply open the Stock Connector add-in and it refreshes all the prices in your sheet.

The one downside is I am having is the desktop version can have difficult connecting to Yahoo.  However, since I am using this more and more on my iPad it has not been an issue.


This excel spreadsheet is not going to work for everyone.  As I said earlier, I think that because everyone has slightly different needs, most of the options available out there are not going to work for everyone.

So instead, I created my own using the sections above.  It works for me and does everything I need it to do.

Monday, August 29, 2016

Maximizing Returns with Index Investing

Alpha, or excessive returns greater than the market average, is extremely hard to obtain over long periods of time.  If you are getting suckered into marketing tactics that market 20% returns over long periods of time, you need to READ THIS IMMEDIATELY.

That is why I look to hold a large portion of my portfolio in index ETFs that simply provide the returns of the market.

That said, I have done some research with AmiBroker recently and have identified how I am going to approach the market.  Here was/is my objective as it relates to the indexing portion of my portfolio:

Objective: To beat the returns of the S&P500 (SPY) by combing index funds that have provided returns greater than those obtained by simply holding SPY.

It is important to note a subtle point here.  I am not trying beat the market.  I accept that beating the market is very hard and I am competing against the best of the best professional money managers (who have trouble with this too).

What I am trying to do it maximize my returns - get the highest return I can without taking on too much extra risk.


I made a great investment a few years ago and that was by buying a copy of AmiBroker.   AmiBroker allows investors to set up trading/investing systems and backtest them to see how they would have done in the past.

Of course, we have no idea what the future holds and just because a system I put together in AmiBroker looked good in the past does not mean it is going to do well in the future.

However, if done properly it can increase the chances of seeing similar behaviour in the systems.

Using AmiBroker, here is the approach I took to develop the index investment system I currently am using:

  • Use consistent dates of the backtest to generate the appropriate baselines.  I used 2007-01-01 to 2016-08-26 as my standard dates for the test.
  • All tests will be compared to a simple buy and hold investment in SPY.  In other words, I buy SPY on 2007-01-01 and see what the value is on 2016-08-26.  If any systems generated do not beat that benchmark, then why bother?
  • The index products I will use are general market index funds, that track different parts of the market.  The sky is the limit in terms of which products I could have test with, however I chose the following four as they were the ones I would be comfortable holding for years to come:
    • SPY:  Pretty self-explanatory.  Tracks the S&P500 as a market-weighted index ETF.
    • RSP: Similar to SPY, except that it tracks the S&P500 with an equal-weighted approach.  In other words, every stock in the S&P500 is held as an equal-weight holding.  The SPY is market-weighted meaning that stocks like Apple and Google tend to skew the returns based on how those stocks do.  RSP simply buys the whole market in an equal-weight.  There are caveats to RSP, however this article is what got me thinking about including it in my portfolio.
    • MDY: MDY tracks a market-cap-weighted index of midcap US companies.  Mid-caps have performed better than large-caps historically, so I wanted to see if adding these to my portfolio would help get better returns.
    • QQQ:  The Q's includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization.  In other words it tracks a lot of technology stocks.  The Q's has done better than SPY for years, so again I wanted to see if I could add returns by diversifying using this ETF as well.  In fact, it has done so well, it is the only ETF that I included in all test portfolios.
  • Standard testing settings will be applied, including commission costs of $0.005/share, buying at the open, and starting with an equity position of $75,000.  The equity is dividend into equal parts of each holding.
  • So as to not get sucked in by better returns, I am going to use the Sharpe Ratio, Maximum System Drawdown (MDD), and Recovery Factors as my key performance indicators.  Everything else being equal, the portfolio with the best combination of these three will be called the "winner".
Hope that all makes sense.  Let's get to the results.

Results: SPY, MDY, RSP, and QQQ Buy and Hold Performance

To start, I tested simply holding each one on of these ETF's separately to see how they would do compared to each other, as well as set a benchmark for a buy and hold of the SPY.

This chart provides a summary of a simple buy and hold of each of these ETFs:

The chart is self-explanatory, however just to be clear I will explain the results using the SPY as an example.  The portfolio started on Jan 3, 2007 with $75,000 and ended on July 26, 2016 with $139,514 for a 86% gain or 6.64% annual return.

That is a pretty good run and solid returns any investor who chooses the easy task of just buying and holding without doing anything stupid (like trading on emotions) could easy achieve.

As you can now see from the chart, an investor could have beat the SPY simply buy buying any of the other 3 ETFs; the MDY,  RSP, and QQQ's all beat the SPY over the same period.  In fact, a simple investment in the Q's destroyed an investment in SPY and earned 11.77% per year for a total return of 193%.

The task now is to see if I can beat these returns on a risk adjusted basis.

Results - Basket Buy and Hold Analysis

Now that we can see how just buying the SPY would have done for us, and that even better returns could have been had by investing in either the mid-cap portion of the S&P (MDY), the equal-weighted representation of the S&P 500 (RSP), or the technology heavy Q's (QQQ), we can now look at how combining them would have done.

The reason that an investor might want to hold more than one of these ETFs is due to diversification.  Holding just one of these at a time means we are putting all our eggs in that one index basket.  Since I have chosen four indexes that trade slightly different markets, the theory is that we can get better returns even with an even less concentrated portfolio.

For example, a portfolio of SPY, MDY, and QQQ means that an investor gets the returns of the S&P 500, the S&P mid-cap market, and the technology (non-financial) portion of the market.  Since indexing is all about diversification while capturing the returns of the market, why not see if even broader diversification can be had while getting better returns.

Using the same methodology as above, here is how the performance stacked up, in four combinations of portfolios:

You can read this chart the same way as the last one.  For example, a portfolio that buys an equal dollar amount of SPY, MDY, RSP, and QQQ would have turned $75,000 into $168,234.  That is a 124% return or 8.73% CAR.

It is interesting that this initial portfolio, which is super-diversified does better than a simple SPY portfolio.  It provides an extra $28,710 of return.

All four portfolios do progressively better, ending with the best portfolio being a combination of MDY, RSP, and QQQ.  This portfolio, which holds the mid-cap market, an equal-weighted S&P500 portfolio, and the non-financial portfolio of the market via the Q's, returns 136% or 9.31% per year.

That is nicely above the SPY's 6.64%.  But it gets better when I had a look at some other key metrics like the Sharpe Ratio, MDD, and Recovery Factor.  Have a look at how these portfolios do - and keep in mind that a simple SPY portfolio has a MDD = -55.18% and a Recovery Factor of 1.40.
Sharpe Ratio: The sharpe ratio is a tool to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return of a trading strategy.  The higher the better.

Recovery Factor: The ratio of net profit and maximum system drawdown. The higher the score the better.

As you can see the "MDY RSP QQQ" portfolio does well compared to the other three portfolios with a higher sharpe ratio, similar MDD (although it is not the lowest), and strong Recovery Factor.  Based on these results, it would have been the portfolio to hold.

To be more specific, an investor gets similar drawdowns, but better recovery and a higher sharpe ratio to go along with the higher returns.  I am going to be using this combination of index funds in my portfolio.


Although I am not very good at predicting the future, I feel that this analysis has provided me with a solid foundation that could allow me to earn returns that are better than simply an investment in SPY.

An investment in three index funds - MDY, RSP, and QQQ - has provided better returns with a better risk profile.  The drawdowns are similar, but the returns we get in return are good making the 

There are going to be times when the market goes down and this portfolio will go down with it.  However, I will be holding this portfolio for in excess of 10-15 years so will be able to weather whatever the market throws at me.

And although nothing has beaten an investment in just QQQ,  the added diversification of this portfolio will allow me to sleep better at night.

Monday, August 22, 2016

Global Investing Based on Valuation

Avoiding Home (or Continent) Country Bias

On an earlier post, I wrote about one of principles being global diversification.  As a Canadian, I know a lot of investors who either invest primarily in the Canadian stock market, or a blend of Canada and the U.S.

I also used to be that way.

However, research made me very aware of the problem with doing this.  The issue is that by investing in only Canada and the U.S., I was missing out on approximately 44% of the stock markets around the world.  This pie chart from the document references earlier, shows the breakdown of country stock market size.

There are a number of other great stock markets around the world that can provide opportunities for increasing my wealth, and I wanted to make sure I took advantage of that.

Arguements FOR Global Diversification

There are a number of solid reasons I decided to invest outside of the U.S. and Canada.  The first was mentioned above:

  • Opportunity to invest in the remaining 44% of the world's markets, outside of the U.S. and Canada

In addition, there are a number of other reasons that highlighted to me that global diversification was a good idea:
  • Less than Perfect Correlation with U.S. Markets.  As the chart from Vanguard highlights below, "...investors should realize a diversification benefit from investing globally because the equity markets of other developed economies are  less-than-perfectly correlated with the U.S. equity market."

  • Adding global diversification has reduced the volatility of a portfolio.  The benefit of this is that I can get better gains, with less volatility.  In other words, better returns with less wild swings in my portfolio value (which can lead to stupid emotional decisions).  This chart from Vanguard gain, show that by adding non-U.S. stocks to a portfolio volatility is reduced.

Arguements AGAINST Global Diversification

The primary argument against investing globally for U.S. and Canadian investors is that by investing in products like the S&P 500 you are essentially owning massive multi-national organizations that give you more than enough exposure to the global markets.

Fair argument, however there are a couple of problems with this line of thinking:
  1. No exposure to companies that are based in other countries.  You miss on huge companies like Samsung, Nestle, or even Alibaba.
  2. Less diversification across industries; focusing on just the U.S. means you are limiting yourself to the sectors that make up a large part of the U.S. markets (like technology or biotech).  Going global allows you to diversify yourself better across global sectors.

So How Much Global Diversification?

Personally, I have 40% of my portfolio allocated to global markets, with the rest in the U.S. and Canada.

The reason it is not higher, is that there is a point where there is no additional diversification benefits from going over a certain percentage in my portfolio. 

Specifically, research has shown that the approximate "right" number is around 30% dedicated to non U.S. equities.  Have a look at this chart, again from Vanguard, which presents the research backing this up:

My 40% allocation is higher, however I am comfortable with the added risk as my chosen investment strategy hos shown to provide solid returns over long periods of time (and my investment horizon is 20+ years).

My Chosen Global Investment Strategy - Countries with the Lowest Valuation 

There are a lot of different ways to invest in global markets.   The easiest, and probably best option for most people, is to head over to Vanguard and buy the Vanguard FTSE All-World ex-US ETF (VEU). 

VEU seeks to track the performance of the FTSE All-World ex US Index and gets you broad exposure across developed and emerging non-U.S. equity markets around the world.

I however take a different tact.  My method is systematic, and is once again based on solid research done by folks like Meb Faber, Alpha Architects,  and Research Affiliates.

It is based on buying countries that exhibit low CAPE ratios.  What is the CAPE ratio you ask.  For a detailed description read this and this.  Here is a quick summary for the purposes of this article:
... it is principally used to assess likely future returns from equities over timescales of 10 to 20 years, with higher than average CAPE values implying lower than average long-term annual average returns. It is not intended as an indicator of impending market crashes, although high CAPE values have been associated with such events. Source

When applied to global markets, research done by Star Capital has shown that: the “All Countries” group based on 4889 observation periods, attractive  CAPE  levels  of  below  10  were  followed  by average capital growth of 11.7% p.a. over the following 10 to 15 years....The majority of the subsequent returns ranged  from  9.9%  to  13.9%, and even  in  the  least favourable  case  (Canada)  real  subsequent  returns  of 4.9% p.a. were measured. Source
In simple terms: buy countries that are cheap relative to their historical CAPE ratios and hold them.

My application of this strategy was outline in Meb Faber's Global Asset Allocation book.  In a nutshell, here it is:
  1. Identify the world's cheapest stock markets based on the Shiller P/E, or CAPE ratio.  These ratios can easily be identified here and here.
  2. Sort the list from lowest to largest CAPE ratio, or expected return.
  3. Buy the 10 cheapest countries using ETFs that track the associated country.
  4. Hold for one year, rinse and repeat.
As of today, my portfolio is holding the following countries (index ETFs in brackets):
  • Russia (ERUS)
  • Poland (EPOL)
  • Brazil (EWZ)
  • Italy (EWI)
  • Turkey (TUR)
  • Spain (EWP)
  • China (MCHI)
  • South Korea (EWY)
  • UK (EWU)
  • France (EWQ) 
I started this portfolio a few weeks ago and will update its progress over the years to come.  If the results turn out like the research, then it should perform well.  It is going to be volatile for sure (I own Russia and Turkey for fucks sake!)

Tuesday, August 16, 2016

A Simple Market Timing Rule Based on the 200 Day Moving Average

$100,000 Education for Free

This post can probably be written entirely based off of Tony Robbin's interview with legendary hedge fund dude Paul Tudor Jones in the book, Money: Master the Money Game.  Here is an excerpt from that book that sums up Paul Tudor Jones' market timing approach (with some editing used to pull together the thought into one paragraph):
I’m going to save you from going to business school.  Here, you’re getting a $100,000 class, and I’m going to give it to you in two thoughts, okay?  You don’t need to go to business school; you’ve only got to remember two things.  The first is, you always want to be with whatever the predominate trend is...My metric for everything I look at is the 200-day moving average of closing prices.  I’ve seen too many things go to zero, stocks and commodities.  The whole trick in investing is: “How do I keep from losing everything?”  If you use the 200-day moving average rule, then you get out.  You play defense, and you get out.
To summarize, good investors trade with the predominant trend.  That trend is determined by where the SPY, or whatever market you are investing in, is in relation to that 200 day moving average.
  • If the market is trading above the 200 day moving average, you are free to buy assets and hold on to them.
  • If the market drops below the 200 day moving average, you see your holdings and wait that downtrend out. 
Keep in mind, in this definition of market timing you are not trying to predict which way the market is going to go.  Instead, you determine the trend and invest with that trend.  Buy and hold when the market is going up.  Get defensive when the market is heading down.

Here are a couple of images, presented in an earlier post on this blog, about what this looks like:

Market Uptrend: Invest and Hold



Market Downtrend: Get Out and Wait 


Is This Better than Buy and Hold?

People who dismiss market timing outright usually say that a simple buy and hold portfolio performs just as well or better than a portfolio that uses market timing.  They are not wrong.  A portfolio that uses a market timing system like this one does not see a huge increase in percentage gains compared to the returns of the general market.

However, what it does provide is a way to limit the drawdown (or maximum loss) your portfolio experiences.

The issue becomes behavioural.  It is proven that investors have a real nasty habit of selling at exactly the wrong time; when things are at their worst.  When the shit is hitting the fan and the market is at its most pessimistic and prices have dropped huge, people panic and sell everything.

If we as humans are prone to this behaviour, a better strategy is to put in place a process that protects you from these stupid-ass mistakes and guides you to take action when it is required.

For example, sell when the market drops below the 200 day moving average before the real massive sell-off happens.  Sure you might miss out on some of the future upside, but at least you have not thrown out the baby with the bathwater.

At the end of the day, research has shown that portfolio performance is better when a market timing tools is used, as opposed to buy and hold.  A great piece of research on this topic can be found in Meb Faber's "A Quantitative Approach to Tactical Asset Allocation"

Here are couple of images that demonstrate the power of the system.  Notice in the first table that performance is better, but more importantly the MaxDD (maximum drawdown) is a lot lower.  With our human tendency to avoid loss, which often means selling at exactly the wrong time, this simple market timing tool can help you manage that risk.

In the graph, pay attention those flat periods on the red line - that is the period of time the portfolios went to cash and protected investors from the larger drawdowns shown on the blue line.  They are small periods of time in the scheme of things, but if you look closely you will see them (ex. ~1926, ~1946, 2008).

Want More Research?

If that is not enough to convince you that my use of a market timing system is a good idea, then that is good.  You are thinking for yourself (although you are going against the wisdom of Paul Tudor Jones)!

If you want to check out more research on this topic then here are few resources for you to check out:

Alpha Architect

How To Time The Market Like Warren Buffett, Part 2, Part 3

Why Market Timing Is So Hard

Market Timing is Back in the Hunt for Investors

Bad Timing Costs Investors 2.5% a Year  - highlights that people do the wrong things at the wrong times

Sunday, August 14, 2016

Robotic Investing Principles

Every hedge fund around has a philosophy in terms of how they approach earning excessive returns from the market.  Some do it through excessive leverage when making plays, some do it by going both long and short, and others through equity arbitrage (i.e. takeovers).

My approach is not too complicated; in fact I have attempted to make it as simple as possible.  Well, simple in terms of the strategies I use as opposed to complex finance tactics such as debit/credit spreads or index arbitrage.

If I went with a super simple strategy, I would buy a total market index funds, a long-term bond fund and be done with it.  That is not a bad strategy.

However, analysis of my behavioral makeup suggests I am not suited to a set it and forget it investing strategy.  I want more, and I am not happy unless I am trying to squeeze additional return from my portfolio.  That is what it is, and I have structured my portfolio to allow for that.

For example, I do use index funds where appropriate, however I use them within specific strategies I will write about on this blog.  I also trade volatility with the help of another site to capture some of the long term gains many have been able to achieve by trading XIV or VXX.

So what are the guiding principles that I use to run My Personal Hedge Fund?  The following are the key ones I use to guide all decisions I make withing my portfolio:

Principle #1: Use a Market Timing (gasp!) Rule

If you follow any type of mainstream investment advice, you will no doubt have heard that market timing is a fool's errand. From a short-term perspective that is 100% correct.  If anyone tells you they know what is going to happen in the market at any time, walk away because they are about to sell you some witchcraft.

My approach to market timing is only used to manage drawdowns, or excessive loss of capital when the general market goes down a lot.  I do not want to to be stuck in my investments when they are dropping 50-90%.

This means that I will from time-to-time sacrifice larger gains for reduced volatility in my portfolio.

How I do this is really simple.  If the S&P 500 (ticker = SPY) is trading above its 200 day simple moving average I will hold on to whatever positions I have, or invest more.  As of today, we are in an uptrend.  You can see how SPY is trading above its 200 day moving average (yellow line) in this chart:

Market Timing: SPY Trading Above 200 Day Moving Average (Yellow Line)

However, if the S&P 500 is trading below its 200 day simple moving average (i.e. in a down trend) then I sell and won't buy anything else.  This is what it would have looked like this past winter when all hell broke loose.  Using this simple rule would have had you sell when the SPY broke below the 200 day moving average.

This simple tool has saved me a lot of money as markets have been stuck in downtrends, like this past winter or worse in 2008.  If you want to learn more about this market timing method, be sure to check out Meb Faber's book Global Value or simply refer to Paul Todor Jones' comments about how he did this in 1987 and ended up making like 60% in one of the largest market declines in history.

Principle #2: Utilize Low Cost Index ETFs

One of the hardest thing to do is get returns greater than the market.  Ray Dalio says it best in Tony Robbin's book Money: Master the Money Game when he talks about his staff of hundreds and $millions$ of dollars spent on research in order to generate the types of returns he gets.

His advice is to invest in a solid asset allocation and stop trying to compete with the millions spent by the pros.  In other words, don't try to play hockey against Wayne Gretzky - you will lose.

That is essentially why I want to make sure I give my portfolio the best chance possible to at least get market returns at a very low cost.

A large portion of my portfolio is allocated to low cost index ETFs so that I get the returns the market is generating.

Even in the global portion of my portfolio where I invest in low-valuation countries around the world, I use index ETFs to give me the market returns.

Don't get me wrong, I do use individual stocks to grow my wealth, however that is only via specific strategies that buy a basket of stocks based on trend following methodologies.

Principle #3: Use Well-Research Strategies

I am pretty bad at picking individual stocks or knowing where the market is going to be tomorrow.  Actually I am terrible at it. Although I dabble in some very short-term trading (more on that in future posts) by picking strongly trending stocks, I try to stay away from the fundamental game of individual stock picking.

My approach to building My Personal Hedge Fund is to put together a number of very specific investment strategies that have been proven through well researched studies.  Studies from investment researchers like Meb Faber, Alpha Architect, and Research Affiliates.

It is not via the various FURUs (definition is here) on twitter or their stock picking services that offer their opinions on what works in the market.

As of today, my portfolio is built around some very specific strategies, including the following which you will gain insight to as I talk about them on this blog:
  1. Beat the TSX - a strategy that buys the highest yielding stocks on the S&P/TSX 60 (I'm Canadian so some of my investing is done up here!).  I use a spin on this by only buying a specific breakdown of the various business sectors to make sure I am diversified.  This strategy has been proven to beat the Canadian market over the years (not necessarily every year, but long term)
  2. Global CAPE - A large part of my portfolio buys index ETFs for countries that have a historically low valuation based on CAPE (Cyclically Adjusted Price-Earnings) ratios.  This strategy has proven to be very powerful in buying low priced countries that are in turmoil at their lows and riding them up as they recover.  This strategy has been proven to beat the S&P 500 over the years.
  3. US Index ETFs - I buy the US market by buying shares of SPY to get the S&P 500 and shares of QQQ, to get the NASDAQ market.
  4. Volatility - This is a very risky portion of my portfolio, however it can be very lucrative. This is the only strategy I use via a web site.  With this strategy I trade XIV/VXX to try to capture huge gains.  This is a very small portion of my portfolio.
  5. Trading - Although this is a very very small part of my portfolio, I have some funds set aside that I use to appease my urge to swing trade.  With this money I buy individual stocks from time to time using strict risk management principles.
Principle #4: Diversification via Global Allocation

Home country bias is a huge problem for investors.  That means that you probably invest the most of your portfolio in the country that you are from.  Here is a chart that demonstrates this fact:

If you couple that with the size of the various markets around the world, then you more than likely have your asset allocation all wrong (source).

The takeaway here, and how I structure my portfolio, is that I want to make sure that I don't focus too much on the US or Canada, but instead put a large percentage of my portfolio in markets outside of my local market.  Here is my asset allocation as it stands today (as of August 14, 2016):

Actual Allocation is >100% due to rounding!

Principle #5: Long-Term Focus

At the top of my portfolio tracking spreadsheet, I have the following words posted as a reminder that I am in this for the long-term. In other words, My Personal Hedge Fund is going to go up and down in the short-term but that will not let me waver from my approach.

It is so easy to read the FURUs on Twitter or get sucked into the slick sales messages from the hundreds of people on the web selling their own methods to getting rich.  A lot of these approaches will only transfer your wealth over to them through monthly fees.

Remember when I talked earlier about keeping your fees low; same thing applies here.  Don't go for short term performance at the expense of higher fees.  You will more likely end up poorer.


Well that sums up my approach, sorry it was so long.  I highly anticipate that I am going to refer back to this post a lot in the future.

Keep in mind, these principles may change from time to time, depending on life events.  As I get older, I have found my needs and principles required to run my hedge fund change.  Specifically, as new research is uncovered then I may apply that to my portfolio.  I would suggest that everyone does that, while at the same time being very careful not to get schizophrenic.  Nothing can kill gains faster (other than fees) than not sticking to an investment strategy.

Welcome to Robotic Investing

There is this sort of investing fork lore that out there that hedge funds are a means to get rich. See returns of over 20% per year and grow your wealth beyond your wildest dreams! The reality is that most hedge of the 10,000 or so funds suck.

Unless you have the means to getting into funds like Ray Dalio's Bridgewater Associates fund, or Paul Tudor Jones' Tudor Investment Corporation, which you actually can't because they are not accepting new money, then you are left to pick from the other 9,998 funds.

And if you can find one, then have fun paying the standard 2 and 20; pay 2% of your assets that are with the fund plus 20% of any profits.  I like to think like Jack Bogle of Vanguard when it comes to fees:
“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.” -- John Bogle
Just like compounding creates wealth in our portfolios, high fees can compound against us to rob us of our gains, and worse capital.

So due to accessibility and high fees, I thought why not just treat my own portfolio like a hedge fund and manage it accordingly.

That is what this blog is all about.

Here are my OBJECTIVES for this blog: 
  • To provide a way for people to see exactly how a 40-something investor invests their portfolio, using both traditional methods as well as methods based on research-backed studies to generate additional alpha.  This blog is not necessarily about how to invest, but how I invest.
  • To be totally transparent with my portfolio; although I am not going to show you how much, I am going to show exactly what I am invested in at any one time. 
So please consider following me on Twitter to follow along and see how things go.