Rent a strategy for a sub 300k portfolio!
1 Strategy = 1 Subscriber!
Big thank you to my subscribers on my ready to go portfolios at www.portfolio123.com!!!
https://www.portfolio123.com/app/r2g [filter for judgetrade!] —>
All models are fully booked! Due to liquidity constraints of small cap models, there can be only one sub for one strategy.
First of all, those strategies need to be hedged in an inflation and deflation regime.
Only hedge the long amount, not the cash amount.
E.g., if the port is long 60k and is in cash 40K then add an 33%-40% IWM short only for the long part (e.g., 60k * 0,33 or 0,44) of the port.
Second, I cannot open them for more subscribers, that would mean that slippage costs for the subscribers could get too high.
Third I got more strategies that I can rent out but not via portfolio123.com because their liquidity constraints are pretty high (AvgDailyTot(20) > 300000). I have strategies with AvgDailyTot(20) > 100000 (100k dollar amount traded in the last 20 days on average per day) which are great for smaller accounts (sub 200k-500k, depending on the number of stocks the strategy trades).
For example, stuff like that:
If you hedge the above model in inflation or deflation regimes, you can lower the drawdowns without giving up much upside. You basically follow this blog in order to find out in which regime we are, or you can contact me and mirror my hedge positions.
The model has a very simple ranking system which is over 10 Years old (e.g. 10 Years of out of sample!!!).
This is another one, out of sample since 2015.
All my strategies have a very conservative slippage calculation, they are real, e.g., can be traded with an optimal portfolio size. I beat all my slippage calculations in real trading.
Let me know if you are interested.
If yes, I put together a deep dive on the design rules of the strategy (factors, out of sample time, design rules to avoid overfitting, buy and sell rules, optimal account size etc.).
Renting out means you get the signals, the whole capital allocation every monday morning.
Monthly rent fee is high (300-x$) and they will be exclusive for 1 subscriber. Otherwise, I would not be able to make sure that subscribers trip over each other demanding too much liquidity and put other subscribers in vain. Also, if there is only one subscriber and he or she trades the model with too much capital, the subscriber could dial back being sure that no other subscriber sucks in all the liquidity of the model.
The subscriber would need to assure me, that the strategy will be traded with an optimal amount of port size, so that the calculated slippage is easily beaten in your real trading. I do not need anything in writing but within a skype call I lay out the optimal capital and stress the fact that it is important to not overload a strategy with too much capital. After that call it’s the subscribers responsibility to not overload the strategy with too much capital (though you can always consult me!).
Relative illiquid small cap strategies work because the illiquidity effect alone gives you 18% ann. performance with a yearly (!!!) rebalance (everything else being random!).
So, it is a thin line, but it’s the best bet for a small account.
I get a ton of questions what I will be doing if I hit, let’s say 3-5 Million and I cannot trade illiquid small cap value momentum.
First of all, that is a luxury problem.
Second, what I will do is, I will take out capital of the strategies (I am trading 5 Strategies in one book!) and put it to other strategies (that yield less), buy gold or real estate or whatever.
Just do the math. If I can squeeze out 30% out of a 3-5 Million portfolio that is a ton of money.
Again, if small caps are too small for my account: I then take that money out of my strategy book put it to more liquid strategies, cost average into the SP500, real estate, buy small unlisted firms and let my capital run with the optimal capital amount and keep milking the illiquidity effect combined with other factors.
Why would I trade SP500 names in the first place just because I could trade them with 100 Million? I do not have 100 Million, so I trade stuff, that gives a small account a monster edge.
I never got that whole argument to buy hyper liquid stocks competing with portfolios run by 1000s of very smart people.
Yes, it feels much cooler to buy Facebook or Bitcoin and tell the neighbors all about it.
(Just look at the bitcoin performance when there was not institutions trading it. That game is over because competition is too high! There might be value generated thinly traded crypto in the future, but for this the bust needs to happen first and it needs to be uncool to buy crypto just like buying tech stocks in 2003).
Is this a status game or do we want to make money? Yep, its more work to put in a bid order for a small cap and wait until it gets hit instead of putting in a market order on a big name like Facebook. But work (and status) is always the catch ;-)
I rather live with the fact that most people think I am weird and sticking to what works for a small account.
Yes, not everybody has the time to make (lets say) 5 trades a week. That is 100% fine, for this my QuantStrike ETF Portfolio is here.
Furthermore, all the big names in investing and trading started with smaller cap names. If Buffett could buy small caps, he would print performance north of >50% per year regularly. But that is simply not possible with bigger caps, the competition is fierce, and markets are more efficient when competition is fierce. The more capital, the harder this game gets.
Why are all super successful hedge funds closed to new capital? Because they know a strategy book cannot be scaled to the sky.
And why are bigger hedge funds not beating the SP500? Because the SP500 is the best managed index (it’s not passive, people managing it are extremely smart!!!) in the world.
And the hedge funds playing the big game (100s of Billions) and telling you that they can beat the SP500 believe it themselves. But do they beat the SP500? From what I can see: NO!
Also, I believe there are 5-10 Years good performance into the future (do not forget to hedge in an inflation or deflation regime) for small cap value momentum, simply because secular inflation developments (but that is a different post!).
You get the picture, sorry for the rant.
Contact me if you are interested.
Best Regards!
Disclaimer: For educational purpose only. Not investment advice. Seek professional advice from a financial advisor before making any investing decisions.