Post by Admin on Aug 22, 2021 18:19:02 GMT -5
I based my system loosely on 3 Buffet’s rules but adapted it to funds: Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1 and Rule 3: Diversification is a protection against ignorance. I added a fourth rule: momentum. I also liked Bogles' ideas of owning just 2-3 funds but changed it to 5 funds. My system was born in early 2000. I didn't want to own stocks so I used funds.
Basically: my generic system looks for the best 5 wide range funds with good risk-adjusted performance, keeps changing them using momentum, and each fund must perform well. You do that 2-3 times annually. The idea is to be mostly in the right category + achieve better risk-adjusted performance by looking at performance first and then selecting the best SD + Sharpe ratio funds. In 2017, I changed it from owning 5 funds to just 2-3 funds, back to Bogle's idea. BTW, Buffett said many times that most investors should use just one fund, the SP500, again, concentration and not over-diversification.
Own only 5 funds(7 max); get used to own the best choices. Nobody has 10-15 great ideas. Usually, fewer funds mean fewer trading and fewer trading mean less mistakes and better performance.
- First, I look at all equity funds, but I usually prefer to be mainly in the US. For bonds, I prefer core-plus, HY Munis, Multi sector. Start looking at the highest Sharpe ratio. Sort by Sharp, look at SD then select highest performance
- I don’t pay attention to diversification too much, but I typically don’t own category/country/region funds. I don’t care how the manager does it. I just want a great risk/reward funds. In the past (2000-2010), I owned SGIIX(global allocation), FAIRX(very limited stocks, mostly financial), OAKBX(great stocks+higher-rated bonds). After 2011(preparing for retirement and switching gradually to more bonds) I owned PIMIX, PRWCX(flexible manager) for years but also had PRBLX, AMAGX and JAVLX(Janus twenty moved to JACTX.
Diversification has not been working for almost 30 years, since I started investing in 1995.
1995-2000: US LC (SPY,QQQ)
2000-2010: The SP500+QQQ lost money for 10 years. See (link). My portfolio was mainly in Value, SC, International.
2010-2021: US LC were the best and growth was better. See 11 years of performance+risk attributes from 2010/12 to 2021/12(www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=4pgu1ey3uOKSDOly2Ke3Vm) ...SP500 made 15.55% annually...Growth(VOOG)=18.05%...Value(VOOV)=12.5...EM=3%. My stocks in 2011-2017 were mainly in LC growth.
Both times you made less money if you were diversified.
2022: Both stocks and bonds lost money
2023: LC growth exploded, especially QQQ
- The key is to find best of breed, have a preferred list of 20-25 funds and keep switching every 6 or 12 months by setting a date, do your research at that time, and switch for best funds. After several years, I learned how to switch better with different periods for core and explore funds, where I could stay years in my core funds.
- I have been looking mainly for a good risk/reward funds which have higher performance and lower SD(volatility) and good track record for 1-3-5 years.
- Be flexible: a fund with much higher performance with a bit higher SD is also a good choice and so are allocation funds, depending on age and goals.
Conclusions after more than 20 years:
1) All the funds I own must be in the top 20-30% of performance in their category, and most times for all categories.
2) Since I don't fully diversify, I don't have to own lagging categories. Examples: 2000-2010: the SP500 lost money, while my portfolio made about 9% annually. In 2010-2017 my stocks were mainly in US large cap growth stocks.
3) Switching guarantees your funds not to lag too long, after all they are top funds and there is evidence that good funds in the last 6-12 months tend to do well in the next 6-12 months. Switching doesn't guarantee the best performance, but at least you don't get stuck with a lagging fund for 2-3 years and even more (see 10 years 2000-2010 and 2011-2021) where EM was terrible and US value trailed growth by a lot, see above).
See my portfolio performance since I started investing in 1995 (fd1000.freeforums.net/thread/3/portfolio-performance-over-years)
Below is an example for stocks.
- Know the SP500 performance (YTD, 1,3,5 years) + SD + Sharp in the last 3 years. You can get it at Fidelity(FXAIX), Morningstar (VFIAX). Looking at Fidelity (link) and see AS OF 9/30/2021: performance..YTD+17.44%..one year=30%..3 year=16%. SD=18.8 + Sharp=0.8. I want to beat these numbers on both performance + SD + Sharpe.
Fidelity is a good source to do your searches, and you don't have to be a client. I go to fundresearch.fidelity.com/fund-screener/picks
Basically: my generic system looks for the best 5 wide range funds with good risk-adjusted performance, keeps changing them using momentum, and each fund must perform well. You do that 2-3 times annually. The idea is to be mostly in the right category + achieve better risk-adjusted performance by looking at performance first and then selecting the best SD + Sharpe ratio funds. In 2017, I changed it from owning 5 funds to just 2-3 funds, back to Bogle's idea. BTW, Buffett said many times that most investors should use just one fund, the SP500, again, concentration and not over-diversification.
Own only 5 funds(7 max); get used to own the best choices. Nobody has 10-15 great ideas. Usually, fewer funds mean fewer trading and fewer trading mean less mistakes and better performance.
- First, I look at all equity funds, but I usually prefer to be mainly in the US. For bonds, I prefer core-plus, HY Munis, Multi sector. Start looking at the highest Sharpe ratio. Sort by Sharp, look at SD then select highest performance
- I don’t pay attention to diversification too much, but I typically don’t own category/country/region funds. I don’t care how the manager does it. I just want a great risk/reward funds. In the past (2000-2010), I owned SGIIX(global allocation), FAIRX(very limited stocks, mostly financial), OAKBX(great stocks+higher-rated bonds). After 2011(preparing for retirement and switching gradually to more bonds) I owned PIMIX, PRWCX(flexible manager) for years but also had PRBLX, AMAGX and JAVLX(Janus twenty moved to JACTX.
Diversification has not been working for almost 30 years, since I started investing in 1995.
1995-2000: US LC (SPY,QQQ)
2000-2010: The SP500+QQQ lost money for 10 years. See (link). My portfolio was mainly in Value, SC, International.
2010-2021: US LC were the best and growth was better. See 11 years of performance+risk attributes from 2010/12 to 2021/12(www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=4pgu1ey3uOKSDOly2Ke3Vm) ...SP500 made 15.55% annually...Growth(VOOG)=18.05%...Value(VOOV)=12.5...EM=3%. My stocks in 2011-2017 were mainly in LC growth.
Both times you made less money if you were diversified.
2022: Both stocks and bonds lost money
2023: LC growth exploded, especially QQQ
- The key is to find best of breed, have a preferred list of 20-25 funds and keep switching every 6 or 12 months by setting a date, do your research at that time, and switch for best funds. After several years, I learned how to switch better with different periods for core and explore funds, where I could stay years in my core funds.
- I have been looking mainly for a good risk/reward funds which have higher performance and lower SD(volatility) and good track record for 1-3-5 years.
- Be flexible: a fund with much higher performance with a bit higher SD is also a good choice and so are allocation funds, depending on age and goals.
Conclusions after more than 20 years:
1) All the funds I own must be in the top 20-30% of performance in their category, and most times for all categories.
2) Since I don't fully diversify, I don't have to own lagging categories. Examples: 2000-2010: the SP500 lost money, while my portfolio made about 9% annually. In 2010-2017 my stocks were mainly in US large cap growth stocks.
3) Switching guarantees your funds not to lag too long, after all they are top funds and there is evidence that good funds in the last 6-12 months tend to do well in the next 6-12 months. Switching doesn't guarantee the best performance, but at least you don't get stuck with a lagging fund for 2-3 years and even more (see 10 years 2000-2010 and 2011-2021) where EM was terrible and US value trailed growth by a lot, see above).
See my portfolio performance since I started investing in 1995 (fd1000.freeforums.net/thread/3/portfolio-performance-over-years)
Below is an example for stocks.
- Know the SP500 performance (YTD, 1,3,5 years) + SD + Sharp in the last 3 years. You can get it at Fidelity(FXAIX), Morningstar (VFIAX). Looking at Fidelity (link) and see AS OF 9/30/2021: performance..YTD+17.44%..one year=30%..3 year=16%. SD=18.8 + Sharp=0.8. I want to beat these numbers on both performance + SD + Sharpe.
Fidelity is a good source to do your searches, and you don't have to be a client. I go to fundresearch.fidelity.com/fund-screener/picks
