It helps immensely to start using a new (to me) tool successfully, and Portfolio123 has delivered.
Over the past 30+ years I’ve been reasonably successful in beating the market indexes by analyzing individual stocks for fundamental quality and value and long term holding (1 year or more). However, I did not have any way to judge when to sell and rebalance, and my method of stock selection meant spending a week or more (20+ hours) evaluating what stocks to sell and which ones to buy while working overtime in my day job. Consequently, I rebalanced very infrequently, held many stocks well beyond the time I should have sold them (in retrospect), and rolled with the ups and downs of all market cycles.
Recently retired, I did not look forward to using my old methods more frequently but needed to manage these funds more actively. I’m Scotch-Irish. The Scotch in me is cheap, not willing to pay someone else to do something if I can do it for less. The Irish in me is da–ed proud of that! The tools I used before for basic screening were free, but over the years each of them either disappeared or began charging subscription fees, and none of them gave me all the data and tools that Portfolio123 does. I needed a way to reduce the mental effort and semi-automate the process so that I would be forced to rebalance. I also wanted a routine method to use that I could easily train someone else to follow, in case I was no longer around to manage assets my wife would depend on.
Enter Portfolio123. I hesitated at first due to the cost of a basic membership but after the trial period felt there was a reasonable chance of it paying for itself many times over. I still consider myself basically a buy-and-hold type of quality/value investor and don’t want to rebalance more than once a month or consider microcaps. For my purposes, a modified version of the Piotroski ranking, average daily total trades of $5 million or more, and the All Fundamentals universe except OTC form the basis from which to find the quality/value stocks I targeted for my first test portfolio of 10 stocks. After six months of actual investing, the portfolio is up 21.07% after trading costs (about $10 per trade) compared to the SPY ETF return of 8.31%. The Sharpe ratio is 2.1 and Sortino is 3.89. You probably won’t see my portfolio(s) in the weekly highlights email for highest returns, but it is accomplishing what I want and need. Aside: I was initially confused when the portfolio’s first rebalance happened, because it called for fewer stock trades than the same model as a screen, so I sold and bought based on the screen. Had I followed the portfolio advice (hold until a sell rule is triggered, versus the screen’s always hold the top ranked), my return would have been 15.1%, Sharpe 2.38, Sortino 3.63, and turnover would have been less. In the long run, holding until my sell rules are triggered seem to work at least as well as holding only the top ranked stocks.
I look forward to the next six months and possibly a chance to test a market timing rule I hope will act reasonably well.
The ability to semi-automate the process, and perhaps automate it in the future, is very helpful for me. Philosophically, I don’t believe in attempting market timing with technical analysis approaches but do believe it is possible to some extent using fundamental macro-economic data. The Fed Model is a start, but not the final word. Using macro-economic data should allow for better in/out of market decisions and to that end I would love to see more of that type data, or a way to include it within Portfolio123 analysis from our personally maintained data series.
Again, thanks Portfolio123 for a very nice platform that has allowed, and hopefully will continue to allow, me to beat the market at minimal cost!
Bob Galloway