Robotic Investing Rules-Based Investing Portfolio

Robotic Investing Rules-Based Investing Portfolio




 

Updated: August 7, 2018

The chart and table below is a visual representation of my own personal portfolio.  Each strategy is thoroughly researched and analyzed.  This portfolio has a long-term focus and uses diversified strategies to allocate capital.   You can find more information and details about each of the components in the details below, and other articles on this site.

Strategy NameAssets UsedRulesLink
Supercharged Index Investing
  1. MDY - S&P Mid-Cap ETF
  2. RSP - S&P500 Equal Weight ETF
  1. Hold 50/50 in MDY & RSP
  2. Sell MDY & RSP if SPY closes below 10-month moving average on monthly chart
  3. Re-buy MDY & RSP if SPY closes above 10-month moving average on monthly chart

Supercharged Index Investing
Accelerating Dual Momentum
  1. SPY - S&P500 ETF
  2. VSS - Vanguard FTSE All-World ex-US ETF
  3. TLT - Barclays 20+ Year Treasury
  1. Compute 1, 3, and 6 Month Returns for SPY, VSS, and TLT
  2. If SPY Combined Return > VSS, and SPY Combined Return > 0, Buy SPY
  3. If SPY Combined Return < VSS, and VSS Combined Return > 0, Buy VSS
  4. IF VSS Combined Return < 0 and SPY Combined Return < 0, Buy TLT
Accelerating Dual Momentum
TQQQ Trend Following (Personally Traded Version)TQQQ - Proshares UltraPro 3x QQQ
  1. TQQQ must be in a positive uptrend to trade. It must be trading above its 200 and 50 day simple moving average. If not, then TQQQ is not purchased.
  2. TQQQ is purchased at the Open following two consecutive days trading above the 200 day simple moving average.
  3. Set a trailing stop at the 50 day simple moving average.
  4. If TQQQ closes below the 50 day simple moving average, then sell next day at the Open.
  5. As long as TQQQ continues to trade above the 200 day simple moving average, then repurchase TQQQ at the open on the third day after the two previous closes were above the 50 day simple moving average.
For the version tracked on this site:TQQQ Trend Following

The rules to the left are what I personally trade, which is different than the link above, and is not tracked on this site.
ETF Swing Trading SystemMultiple ETFs
  1. ETF traded must be in an uptrend: must be trading above its 200 day simple moving average and has been heading higher over the past 50 days.
  2. ETF traded must be in an uptrend: must be trading above its 50 day simple moving average and has been heading higher over the past 30 days.
  3. The ETF must trade at least 250,000 shares per day.
  4. The 2-period Wilder's RSI [RSI(2)] of the ETF closes below 5.
  5. Set position size as 1% of account equity and 3 * ATR(20).
  6. Set abort stop at appropriate support level.
  7. Buy the ETF at the open on the next day.
  8. Hold the ETF until the [RSI(2)] closes above 90.
  9. If the ETF is above the 8 day simple moving average after RSI(2) closes above 90, continue to hold.
  10. Exit at the open following a previous day close below the 8 day simple moving average.
Stay Tuned...
S&P Weekly RotationStocks from the S&P 500
  1. SPY must be in a positive uptrend: SPY price is trading above the 200 day simple moving average.
  2. Filter S&P 500 stocks with minimum average volume over the past 20 days of 1,000,000 shares per day.
  3. Filter S&P 500 stocks with a minimum price greater than $1.
  4. Filter S&P 500 stocks with that have had a gap up or down in price greater than 15% in past 90 days.
  5. Calculate RSI(3) for each remaining stock. Filter out any stocks that do not meet this criteria.
  6. For remaining stocks, calculate the 200 day Rate of Change and sort from highest to lowest.
  7. Position size is account equity divided by number of positions held, which will always be ten positions.
  8. On Monday of each week, buy the 10 filtered stocks with the largest rate of change.
  9. Hold until position is out of the top ten.
  10. Replace sold positions with next highest ranked stock.
Stay Tuned...
(*Note: Based off of Laurens Bensdorp's book)
Daily BreakoutAll U.S. Stocks
  1. SPY must be in a positive uptrend: SPY is above both the 65 and 195 simple moving average AND 65 day simple moving average is above 195 day simple moving average.
  2. Filter stocks where 40 day simple moving average is above the 120 simple moving average.
  3. Filter stocks where 40 day simple moving average is up 3% over past 15 days.
  4. Filter stocks where 120 day simple moving average is up 5% over past 90 days.
  5. Filter stocks where 90 day daily volume is greater than 250,000 shares.
  6. Filter stocks where volume is above the 20 day moving average for volume with an offset of 2.
  7. Filter stocks where the price is greater than $5.
  8. Filter stocks where the price is crossing up over the top channel in a 40 day Donchian channel.
  9. Set position size as 1% of account equity and 3 * ATR(20).
  10. Buy any stocks at the open when all criteria above is met.
  11. Set stop using 20 period Volatility Stop with a 2 period True Range Multiplier.
Stay Tuned...
Market Long/ShortDYLS
  1. ETF long/short ETF fund held as a buy and hold.
  2. Used as a hedge for when bear markets start. Fund goes short when market turns bearish.
  3. Used to add diversify U.S. Equity exposure by combining growth and value scores, while simultaneously hedging market risk in both rising and falling markets and managing volatility.
  4. Long biased portfolio allows one to capture equity performance over the long run while mitigating market risk during bear markets.
Stay Tuned...
Lending LoopPeer-to-Peer Lending
  1. Invest in higher-risk loans with a rating of B, C+, C, D+, D, E+, and E.
  2. Reinvest all interest into additional loans as per auto-lend criteria (#1 above).
Lending Loop

The Robotic Investing Portfolio

This page reflects my personal rules-based investing and trading portfolio and I strive to update it whenever I can.  I am an investor with a high tolerance for risk and long time horizon, and my portfolio reflects that.  My portfolio is 100% equities, unless the strategies tell me to shift to cash or bonds, and volatility can be high.  If you want to know when I make trades, make sure you subscribe to my newsletter (click here to do that).

There are a few specific posts I should also refer you to with respect to my overall investing and trading “business plan”.  You can get at them from the sidebar under “Trading Plan” or just click below.  These posts covers my trading beliefs, objectives, and other pertinent details related to my trading business (I treat it like a business, although it is my own personal accounts.

I separate my portfolio into four sections.  The first section is my employee accounts through my employer.  This account includes a defined contribution pension plan.

The second section is an RSP account I have with a robo-advisor called Wealthsimple.  This account is fully automated by the robo-advisor and is pretty much hands off by me.  As this is becoming a popular way to invest, I wanted to put some of my money to this strategy to get experience with is as well as see how it performs.

The third section, which is the smallest, is a small peer-to-peer lending account I hold.  I use Lending Loop to manage this account.

The forth section is my rules-based investment portfolio.  These are the truly my “do-it-yourself” investment account.  These are retirement accounts and are tax protected, but completely discretionary.  It is in these accounts where my rules-based investment strategies are implemented.

Let’s cover what goes into all three accounts.

Employee Account

As with most employee accounts, the ability to put in place a rules-based investing portfolio are limited.  Investing systematically is difficult as the investment choices are limited.  However, I try to make the best of it and invest simply and with low costs in mind.

Here are the rules I use to manage my employee accounts:

  1. Keep costs low.  Switching between funds and moving money is expensive so I limit that.
  2. Use index funds where possible.  Actively managed mutual funds are expensive and often do not perform better than the index.
  3. Be more conservative with my pension account.  I am aggressive with the rest of my portfolio, so I want to be a bit more conservative with this account.

Defined Contribution Pension Plan

I am fortunate that the employer I work for contributes 8% of my salary to my defined contribution (DC) pension plan.  This is a massive benefit and is worth a lot of money in the future.

There are limited choices with respect to what I can invest in.  There are a number of mutual funds, and expensive ones at that.  However, my approach with my DC is a bit more conservative.  I have chosen to go with a Fidelity ClearPath® 2035 Portfolio.

The fund uses a dynamic asset allocation strategy and invests primarily in a mix of money market, fixed-income and equity securities.  As the target date gets closer – my retirement date – the fund dynamically adjusts to be more conservative by changing the mix of stocks to bonds.

Here is the breakdown of how the money in my DC plan is allocated, as of March 31, 2018:

Robotic Investing rules-based investing portfolioAs you can see, the portfolio has only 6.4% in fixed income, and the rest is split between Canadian equity, US equity, International equity, and other.  I have a question into the account providers about what is in that “Other” category and will update that when I learn more.

The real question is performance – how has this done. I am impressed with the returns.

Robotic Investing rules-based investing portfolio pension performanceIt has been able to beat the benchmark and has seen around 8% CAGR over the past 10-years.

Wealthsimple Robo-Advisor Account

Above all, an RRSP is like a 401k but for Canadians.  All the money we have in an RRSP grows tax-free.  Therefore, as part of my employee account, I also have a Group RRSP where I hold a piece of my investment account.

As mentioned above, I have set up a part of my RSP with a robo-advisor available to Canadian investor.  You can read more about that account set-up here.   This is money I will not be touching for a long time, and I wanted to be aggressive to maximize returns.

Wealthsimple invests this money for me – I am 100% hands-off.  I like them as they do use very specific rules to set up their portfolios, so it fits well with my overall rules-based approach.

Based on the strategy, and my growth profile, my money will be invested in the following allocation:

Wealthsimple Growth Portfolio

Rules-Based Investing Portfolio

Let’s move on to my non-employer investment accounts.  This is where I my rules based approach is applied. My portfolio is broken down into four pillars, each with a different objective.  Let me run down each one:

Pillar #1: Accelerated Dual Momentum

The first pillar in my portfolio is my rules-based application of Accelerated Dual Momentum.  This strategy uses the Dual Momentum strategy as a background but has made some strong improvements that have made the system even more robust.

Improvement #1: Improved Performance with Similar Drawdowns

Obtaining a strong compound annual growth rate is what most investors are after.  However, many people take on too much risk chasing those returns.

When the inevitable happens and a large paper losses start to happen during down markets, this causes people to bail on the strategy.  They key is finding a strategy where the returns are strong, but the risk profile is better.

Based on my own personal experience, I can endure larger than average losses in my portfolio.  I have trained myself to trust my systems and therefore use them through the good times and the bad.  However, I have learned that understanding how my system handled previous down periods at least as well or better than a standard buy and hold or even a classic 60/40 is important.

Here is the data (see the results for yourself here) I often refer to as a reminder of the robustness, return potential, and how it has handled rough market periods in the past (backtest run from Jan 1998 – Jun 2018).

Portfolio NameFinal BalanceCAGRStdevBest YearWorst YearMax. DrawdownSharpe RatioSortino Ratio
S&P 500 Buy and Hold$40,3927.05%14.79% 32.18%-37.02%-50.97%0.410.58
Dual Momentum$79,42610.64% 11.73%29.87%-18.27%-19.70%0.761.18
Accelerated Dual Momentum$436,50120.23%14.49%77.49%0.15%-20.63%1.222.34

A couple of the data pieces really stand out for me.

First, the CAGR is very strong.  Since 1998 this rules-based strategy has achieved a 20.23% CAGR.  This is through the internet bubble in the late 90’s and the 2008 global meltdown.

Second, the maximum drawdown is much better than a buy and hold in the S&P500 and only slightly worst than the classic Dual Momentum strategy.  I am ok with the slightly higher drawdown given the return provided.

Third, the Sharpe Ratio is stronger compared to both portfolios.  This ratio tells me how much excess return I am receiving for the extra volatility that I endure for holding this portfolio.  The higher Sharpe Ratio indicates that I am getting more return for the risk I am taking than the other portfolios.

Finally, the Sortino Ratio is also stronger.  With the Sortino Ratio, like the Sharpe Ratio, the higher ratio, the better the risk-adjusted performance.  As you can see the Sortino Ratio for the Accelerated Dual Momentum portfolio is a lot strong.

Improvement #2: A Small-Cap Bent to Accelerated Dual Momentum

The second reason I use this strategy in my own account is due to the correlation benefits.  Small-cap ex-US stocks are less correlated than large-cap stocks, and I want to take advantage of that.

In addition, small-cap stocks have provided additional returns historically and I also want to take advantage of that effect.

Overall, this is a good strategy and I am committed to it.

Pillar #2: TQQQ Trend Following

This is a part of the portfolio I get the most questions on.  It is a very aggressive part of the portfolio, with potential for big drawdowns.  It is also aggressive because the backtest data is so short.

This portfolio uses very specific risk management principles.  As learned by Van Tharp in books like Super Trader and Trade Your Way to Financial Freedom, money is made with proper position sizing and the exits.  Any setup can make an investor money, but it is how the trade is managed that makes all the difference.

In this strategy, my rules are simple: buy TQQQ and use trend following principles to protect capital on the downside.  You can read more about the strategy that I track on this site here: TQQQ Trend Following.

Keep in mind, that for my personal portfolio, the rules I follow are different than the tracking portfolio (the link above).  The version of the TQQQ Trend Following strategy I personally use has slightly different rules to help manage the risk and not giving up the solid gains that I can earn when the trend is strong.

The version of the TQQQ Trend following that I use in my own portfolio has the following rules:

  1. TQQQ must be in a positive uptrend to trade.  It must be trading above its 200 day simple moving average.  If not, then TQQQ is not purchased.
  2. TQQQ is purchased at the Open following two consecutive days trading above the 200 day simple moving average.
  3. Set a trailing stop at the 15 day simple moving average.
  4. If TQQQ closes below the 15 day simple moving average, then sell next day at the Open.
  5. As long as TQQQ continues to trade above the 200 day simple moving average, then repurchase TQQQ at the open on the third day after the two previous closes were above the 15 day simple moving average.

So, why the heck would I invest my money in this strategy?  Simple, the returns can be very dramatic and when combined with the risk management tools above, I can capture the trends and keep the drawdowns limited.

Pillar 3: Supercharged Index Investing

With the Supercharged Index investing portfolio, I invest in both MDY (S&P Mid-Caps) and RSP (S&P500 Equal Weighted Index).  Both of these funds provide exposure to the U.S. market, but have backtest results that have shown better risk-adjusted returns than just holding the S&P500.

Here is the results from Portfolio Visualizer – Portfolio 1 (blue) is a portfolio with 100% in SPY and Portfolio 2 (red) is a portfolio with 50% in MDY and 50% in RSP:

SPY versus MDY and RSPHowever, what I didn’t like about holding either just the S&P500 or MDY/RSP was the drawdowns.  So I tested using a market filter: buying MDY/RSP when the S&P500 was trading above its 10-month moving average, and selling MDY/RSP when the S&P500 was trading below its 10-month moving average.  The results were stronger, reducing drawdowns substantially.

SPY versus MDY and RSP with Market Filter StatisticsIf this strategy peaks your interest, then I would encourage you to head over to the summary post on the strategy.  In addition, if you sign up for the newsletter, you will get updates on how the portfolio is performing.

Pillar 4: ETF Swing Trading System

One of my market beliefs is trending markets will have pullbacks, and that can be an opportunity to capture shorter term profits.  This system I use capitalizes on those pullbacks in order to capture the short-term swings that can occur in ETFs from time to time.

When not in a trade, this system stays in cash.  That is one way that risk is managed; it only trades when there is a higher probability of a return.

Here are the rules of the ETF Swing Trading System:

  1. ETF traded must be in an uptrend: must be trading above its 200 day simple moving average.
  2. The ETF must trade at least 250,000 shares per day.
  3. The 2-period Wilder’s RSI [RSI(2)] of the ETF closes below 5.
  4. Buy the ETF at the open on the next day.
  5. Set abort stop at 2% of equity.
  6. Hold the ETF until the [RSI(2)] closes above 90.
  7. If the ETF is above the 8 day simple moving average after RSI(2) closes above 90, continue to hold.
  8. Exit at the open following a previous day close below the 8 day simple moving average.

I use TC2000 to run the system.  I have a specific tab set up just for this screen, and it will alert me at the end of the day if an ETF hits RSI(2) < 5.  You can see how this looks in the image below – the circles are where the rules triggered a buy and a sell, making short-term profits.

ETF Swing Trading Straetgy SPY Example

Summary of the Robotic Investing Rules-Based Investing Portfolio

I spend a lot of time putting my portfolio together – analyzing strategies and working to meet my mission and objectives:

Mission:

  1. To create enough passive income from my investment accounts to cover all my expenses (living + fun) in retirement.

Objectives:

  1. To grow my investment account to +$2,000,000 by age 55 (2039).
  2. To achieve a rate of return that is better than the S&P while having a peak-to-trough drawdowns no larger than 15%.

Each pillar has been chosen because it has the ability to do that, over the long-term.  None of these strategies I use are short-term trading systems.  Each one requires a commitment to using them for at least 10-years AND following the rules religiously.

The enemy of investors is emotions and “gut level” decisions.  I have learned that after years of mistakes, and is why I only use rules-based investing in each one of the pillars.

If you want to follow along with the progress of this portfolio, as well as all of the rules-based strategies I track on this site, then please consider subscribing.  All you will get is updates when articles are posted.  Please do me a solid and sign-up today.

In the meantime, here is a summary of the strategies I personally use:

Strategy NameAssets UsedRulesLink
Supercharged Index Investing
  1. MDY - S&P Mid-Cap ETF
  2. RSP - S&P500 Equal Weight ETF
  1. Hold 50/50 in MDY & RSP
  2. Sell MDY & RSP if SPY closes below 10-month moving average on monthly chart
  3. Re-buy MDY & RSP if SPY closes above 10-month moving average on monthly chart

Supercharged Index Investing
Accelerating Dual Momentum
  1. SPY - S&P500 ETF
  2. VSS - Vanguard FTSE All-World ex-US ETF
  3. TLT - Barclays 20+ Year Treasury
  1. Compute 1, 3, and 6 Month Returns for SPY, VSS, and TLT
  2. If SPY Combined Return > VSS, and SPY Combined Return > 0, Buy SPY
  3. If SPY Combined Return < VSS, and VSS Combined Return > 0, Buy VSS
  4. IF VSS Combined Return < 0 and SPY Combined Return < 0, Buy TLT
Accelerating Dual Momentum
TQQQ Trend Following (Personally Traded Version)TQQQ - Proshares UltraPro 3x QQQ
  1. TQQQ must be in a positive uptrend to trade. It must be trading above its 200 and 50 day simple moving average. If not, then TQQQ is not purchased.
  2. TQQQ is purchased at the Open following two consecutive days trading above the 200 day simple moving average.
  3. Set a trailing stop at the 50 day simple moving average.
  4. If TQQQ closes below the 50 day simple moving average, then sell next day at the Open.
  5. As long as TQQQ continues to trade above the 200 day simple moving average, then repurchase TQQQ at the open on the third day after the two previous closes were above the 50 day simple moving average.
For the version tracked on this site:TQQQ Trend Following

The rules to the left are what I personally trade, which is different than the link above, and is not tracked on this site.
ETF Swing Trading SystemMultiple ETFs
  1. ETF traded must be in an uptrend: must be trading above its 200 day simple moving average and has been heading higher over the past 50 days.
  2. ETF traded must be in an uptrend: must be trading above its 50 day simple moving average and has been heading higher over the past 30 days.
  3. The ETF must trade at least 250,000 shares per day.
  4. The 2-period Wilder's RSI [RSI(2)] of the ETF closes below 5.
  5. Set position size as 1% of account equity and 3 * ATR(20).
  6. Set abort stop at appropriate support level.
  7. Buy the ETF at the open on the next day.
  8. Hold the ETF until the [RSI(2)] closes above 90.
  9. If the ETF is above the 8 day simple moving average after RSI(2) closes above 90, continue to hold.
  10. Exit at the open following a previous day close below the 8 day simple moving average.
Stay Tuned...
S&P Weekly RotationStocks from the S&P 500
  1. SPY must be in a positive uptrend: SPY price is trading above the 200 day simple moving average.
  2. Filter S&P 500 stocks with minimum average volume over the past 20 days of 1,000,000 shares per day.
  3. Filter S&P 500 stocks with a minimum price greater than $1.
  4. Filter S&P 500 stocks with that have had a gap up or down in price greater than 15% in past 90 days.
  5. Calculate RSI(3) for each remaining stock. Filter out any stocks that do not meet this criteria.
  6. For remaining stocks, calculate the 200 day Rate of Change and sort from highest to lowest.
  7. Position size is account equity divided by number of positions held, which will always be ten positions.
  8. On Monday of each week, buy the 10 filtered stocks with the largest rate of change.
  9. Hold until position is out of the top ten.
  10. Replace sold positions with next highest ranked stock.
Stay Tuned...
(*Note: Based off of Laurens Bensdorp's book)
Daily BreakoutAll U.S. Stocks
  1. SPY must be in a positive uptrend: SPY is above both the 65 and 195 simple moving average AND 65 day simple moving average is above 195 day simple moving average.
  2. Filter stocks where 40 day simple moving average is above the 120 simple moving average.
  3. Filter stocks where 40 day simple moving average is up 3% over past 15 days.
  4. Filter stocks where 120 day simple moving average is up 5% over past 90 days.
  5. Filter stocks where 90 day daily volume is greater than 250,000 shares.
  6. Filter stocks where volume is above the 20 day moving average for volume with an offset of 2.
  7. Filter stocks where the price is greater than $5.
  8. Filter stocks where the price is crossing up over the top channel in a 40 day Donchian channel.
  9. Set position size as 1% of account equity and 3 * ATR(20).
  10. Buy any stocks at the open when all criteria above is met.
  11. Set stop using 20 period Volatility Stop with a 2 period True Range Multiplier.
Stay Tuned...
Market Long/ShortDYLS
  1. ETF long/short ETF fund held as a buy and hold.
  2. Used as a hedge for when bear markets start. Fund goes short when market turns bearish.
  3. Used to add diversify U.S. Equity exposure by combining growth and value scores, while simultaneously hedging market risk in both rising and falling markets and managing volatility.
  4. Long biased portfolio allows one to capture equity performance over the long run while mitigating market risk during bear markets.
Stay Tuned...
Lending LoopPeer-to-Peer Lending
  1. Invest in higher-risk loans with a rating of B, C+, C, D+, D, E+, and E.
  2. Reinvest all interest into additional loans as per auto-lend criteria (#1 above).
Lending Loop

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