Author Archives: Dpinsen

A New Approach For A New Year

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A New Approach To Portfolio Construction

Happy New Year, fellow Slopers. I know most of you are active traders, but for those of you managing money for loved ones who aren’t, this might be of interest.

With the New Year, it’s time to consider a new approach to portfolio construction. Unlike most forms of portfolio construction, Portfolio Armor‘s hedged portfolio method eschews diversification. It looks radical at first glance: instead of allocating your investor’s assets among dozens of individual securities, you put their money in up to 8 names, some of which may even belong to the same sector.

In a nutshell, you buy and hedge a handful of securities that have high potential returns net of their hedging costs. (more…)

Hedged Portfolio Performance

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Fellow Slopers may recall I wrote about the hedged portfolio method a few years back. The basic idea was to find securities that had high expected returns over the next six months and were also relatively cheap to hedge, and then to buy and hedge a handful of those names every six months.

I backtested the approach a couple of years ago, and wrote it about here at the time (Does Hedged Investing Work?). You can also find interactive versions of those backtests on the Portfolio Armor website. Since April though, I’ve been tracking the performance of portfolios posted in real time. I wrote about the performance of some of those early portfolios here. Since June the beginning of June, I’ve been creating a few portfolios each week. Here’s how the first cohort of them performed from June 1st to December 1st. (more…)

Our Top Names Versus The Market

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Each week since June 8th, we’ve been presenting the top 10 names in Portfolio Armor‘s daily ranking to subscribers of a service we run on another site. The performance of our top 10 names from June 8th and eight subsequent weekly cohorts exemplifies the alpha our security selection delivers, as we elaborate below.

How Our Security Selection Method Works

In a nutshell, here’s how our method works. First, we apply our 2 screens to avoid bad investments. Then, for the securities that pass both screens, we start with the assumption that securities will begin to revert to their long term average returns over the next several months, and then we use our gauge of option market sentiment as a “sanity check” on that to arrive at a potential return estimate. We then subtract the cost of hedging from each potential return, and rank every name by potential return, net of hedging cost. The top 10 names each week refer to the top 10 names on that ranking. (more…)

Testing The Hedged Portfolio Method In Real Time

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Fellow Slopers may recall I wrote about the hedged portfolio method a few years back. The basic idea was to find securities that had high expected returns over the next six months and were also relatively cheap to hedge, and then to buy and hedge a handful of those names every six months.

I backtested the approach a couple of years ago, and wrote it about here at the time (Does Hedged Investing Work?). You can also find interactive versions of those backtests on the Portfolio Armor website. Since April though, I’ve been tracking the performance of portfolios posted in real time. Out of the 6 portfolios created in late April / early May, 5 were beating the market as of Friday’s close. Here’s a look at the first one. (more…)