Is 19.6% a good return in 6 months?
They say that it doesn't matter how much you earn, you'll only be happy with it if you feel that you're earning more than your friends or colleagues. I'd like to believe that this is not true, but I was just wondering the other day: 'how is my weekly trading portfolio performing'? Furthermore, when I do know how it is performing, how will I know if that performance is any good?
Well, the only way for me to do this is, when I have calculated the performance of my portfolio, to compare it to something that I could have invested in instead.
My weekly trading portfolio made a 19.6% return over the past 6 months. I think that this was pretty good. It is certainly better than the 8.2% return made by Personal Assets Investment Trust, which has a spread of investments in UK and North American equities, gold, bonds and cash. This made me pat myself on my back and congratulate myself on being the next Warren Buffet. However, I then decided to compare it to the return that I would have had if I had all my investments in a global investment trust like Scottish Mortgage (SMT). SMT managed to create an amazing 25% return over the past six months. I would have been better off having all my money invested with Scottish Mortgage!
But would this have been a good thing? Could I have stomached the ups and downs that are associated with the 'buy and hold' approach that I used to take when I simply bought investment trusts and held them.
You can see from the above 10-yr graph above that it looks like Scottish Mortgage would have been the best bet over that decade. Yet for much of the decade the mixed-asset holding of Personal Assets Investment Trust was better, sometimes way better.
One of the problems of holding shares is that they sometimes plummet in value, and private investors are then tempted to sell, often at a loss. What I like about my, more active, style of asset allocation, using timing, is that I think I will get the rises in value in different asset classes, but without the massive drops in price, that occur, at some point, to all asset classes.
If you are interested in learning more about my system of asset allocation, using timing, then have a look at this video about how I saw the performance of different asset classes last week. If you are interested in learning exactly what I buy and when I buy it, you will need to become a member of my website for a modest membership fee. This is all done via a private members Facebook page. Members can learn about all of my trading systems:
So, I'm pretty happy with a 19.6% return in 6 months, mainly because I believe that by following my plan, I will not get the same gut-wrenching losses that require years to recover from! By the way, the 19.6% return is tax-free! In my next blog post I'll tell you more about my asset rebalancing portfolio, because it is now time for me to rebalance it. This portfolio has had an even better performance than my weekly strategy! (Interesting point to note: the combined return on these two portfolios has earned me more in the past six months, than I earned from my 'day job' last year. Wow!)
Well, the only way for me to do this is, when I have calculated the performance of my portfolio, to compare it to something that I could have invested in instead.
My weekly trading portfolio made a 19.6% return over the past 6 months. I think that this was pretty good. It is certainly better than the 8.2% return made by Personal Assets Investment Trust, which has a spread of investments in UK and North American equities, gold, bonds and cash. This made me pat myself on my back and congratulate myself on being the next Warren Buffet. However, I then decided to compare it to the return that I would have had if I had all my investments in a global investment trust like Scottish Mortgage (SMT). SMT managed to create an amazing 25% return over the past six months. I would have been better off having all my money invested with Scottish Mortgage!
But would this have been a good thing? Could I have stomached the ups and downs that are associated with the 'buy and hold' approach that I used to take when I simply bought investment trusts and held them.
You can see from the above 10-yr graph above that it looks like Scottish Mortgage would have been the best bet over that decade. Yet for much of the decade the mixed-asset holding of Personal Assets Investment Trust was better, sometimes way better.
One of the problems of holding shares is that they sometimes plummet in value, and private investors are then tempted to sell, often at a loss. What I like about my, more active, style of asset allocation, using timing, is that I think I will get the rises in value in different asset classes, but without the massive drops in price, that occur, at some point, to all asset classes.
If you are interested in learning more about my system of asset allocation, using timing, then have a look at this video about how I saw the performance of different asset classes last week. If you are interested in learning exactly what I buy and when I buy it, you will need to become a member of my website for a modest membership fee. This is all done via a private members Facebook page. Members can learn about all of my trading systems:
- Asset allocation with timing (weekly) - what I have shown in the video
- Spreadbetting (weekly)
- Asset rebalancing (6 monthly)
- QVM share buying strategy (annual)
So, I'm pretty happy with a 19.6% return in 6 months, mainly because I believe that by following my plan, I will not get the same gut-wrenching losses that require years to recover from! By the way, the 19.6% return is tax-free! In my next blog post I'll tell you more about my asset rebalancing portfolio, because it is now time for me to rebalance it. This portfolio has had an even better performance than my weekly strategy! (Interesting point to note: the combined return on these two portfolios has earned me more in the past six months, than I earned from my 'day job' last year. Wow!)
I left a question about the portfolio risk you had to endure to achieve this reward, but it appears to have been deleted?
ReplyDeleteHi Jack. Sorry, your question got pushed to one side during a site alteration.My apologies! With regard to the portfolio risk. I think this is almost impossible to quantify. One might be forgiven for thinking that having everything in cash is a no-risk position, however, the GBP devaluation in recent months would demonstrate that this is certainly not the case. I hope you are not hoping to go on holiday to Australia soon, because it will seem way more expensive than a year or so ago. Furthermore, if one hides cash under the bed, it might get stolen, or eaten by the dog. There is risk here too. I use different asset classes in order to attempt to mitigate risk. I do not know what asset class is going to perform best, so I have a look at each of them (equities, property, gold, commodities, and bonds) in order to attempt to reduce risk. I then decide whether to be in or out of an asset class, using a very simple end of week chart set-up. This works well when the asset class is trending (equities, gold, commodities recently) and badly when the asset class is not-trending (my property investment trust during 2016). When the price of an asset class falls below a certain point, I will exit that asset class in an attempt to avoid further losses. Sometimes this will be a good move (in a large and prolonged down-turn), and sometimes it will work against me (a short market down-spike). This process will sometimes generate losses, and it should be emphasised that this is, for me a long-term approach, and inevitably I will have losses. My approach is based on the works of Harry Browne and Mebane Faber. Other risks to consider are: broker risk: will my broker exist next year? What will happen to my investments if not? Also operator risk: do I have the confidence to use my system? It can be scary when buying and selling. Can I pull the trigger? In summary, I cannot truly answer your question. Everything has risk, including doing nothing!
ReplyDeleteI was referring to your combined portfolio risk for all positions taken over the six-month period.
ReplyDeleteI presume you are using some way to limit the downside of your trades in the event the trend does not play out after your entry. Either a hard or mental stop or possibly something more sophisticated like options?
For example, if you placed ten entries each with the downside capped at 1% of capital per trade to generate the 19.6% of six months then the portfolio risk would be 10% for the period in order to generate 19.6%.
Hi Jack. This portfolio holds investment trusts and ETFs. These are not leveraged investments. I do not place a stop-loss order. I simply review chart each weekend and decide whether I want to be 'in' or 'out' of the investment. If the value of one of the investment trusts or ETFs fell to zero, then that would be a 100% loss. So, theoretically, my trades have 100% risk. Can you imagine a physical gold ETF becoming worth zero? I can't. If this were to happen, we would be in a financial zombie apocalypse. I don't see this happening (yet)!
ReplyDeleteI think your question perhaps has more relevance if someone were to try this strategy with spread-betting, where one is foolhardy not to have a stop-loss. I do not use spread-betting for this portfolio. I do however have a spread-betting strategy, which I will tell you about in due course. In that strategy I risk only 2% per trade, using a multiple of the ATR to calculate the stop-distance. Hope this helps!