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EGPAR

(Explosive Growth Portfolio Annual Report)

growth2018EGPAR.thumb.png.a27905d95a6cc61f963aa8e49e957d91.pngsources2018EGPAR.thumb.png.709365b6787702fd53cbff623cc97c17.png

Return

The return during the inception year was -6.5% which is 21.5 percent units below the 15.0% annual return target. With a volatility target of 20.0% its not a rare outcome although not a very pleasant one. The Alpha, Beta and Risk-Free sources contributed with -0.8%, -5.0% and -0.7% respectively. The benchmark - the US stock market - returned -7.4%.

The Alpha return was 8.8 percent units below its annual target of 8.0%. This equals -0.55 standard deviations based on its 16.0% volatility target. The Beta return was 9.5 percent units below its annual target of 4.5%. This equals -0.79 standard deviations based on its 12.0% volatility target.

The Risk-Free return was 3.4 percent units below the 2.7% inflation which is 3.9 percent units below the 0.5% long-term inflation outperformance expectation.

The relative real return target is to be twice as good as that of the benchmark. The real return was -9.2% for the portfolio and -10.1% for the benchmark. The return was therefore 4.2 percent units below the level required to beat the relative real return target. Excluding one-time portfolio restructuring charges (discussed later in the income statement and outlook) the relative return target was met.

The benchmark used prior to the 2018 re-inception - the Solar ETF TAN - returned -25.7%, which indicates that the decision to broaden the stock exposure from the solar industry only to cover all sectors of the global economy had a fortunate short-term timing.

Volatility

The annualized daily volatility during the inception year was 21.5% which is 1.5 percent units above the 20.0% long-term target. The Alpha and Beta volatility were 16.5% and 12.6% respectively. The benchmark volatility was 16.9%.

The Alpha volatility was 0.5 percent units above its long-term target of 16.0%. The Beta volatility was 0.6 percent units above its long-term target of 12.0%.

The volatilities, both on component basis and in total, has been very in line with targets. The Beta component is expected vary quite a lot, while the Alpha component is expected to be much more consistent and also to help the total to be more consistent than the Beta component. 

The TAN volatility was 24.8%.

Drawdown

The maximum drawdown recorded during the year was 25.2%. The longest drawdown recorded during the year lasted 150 days. The maximum benchmark drawdown recorded during the year was 20.1%. The longest benchmark drawdown recorded during the year lasted 210 days.

The maximum Alpha drawdown recorded during the year was 13.6%. The longest Alpha drawdown recorded during the year lasted 122 days. The maximum Beta drawdown recorded during the year was 15.2%. The longest Beta drawdown recorded during the year lasted 210 days. 

The Alpha source having shorter and less deep drawdowns relative to its volatility compared to the Beta source is what is expected over the long-term since the Alpha volatility is expected to be more normal than the more, well, volatile Beta volatility. Already during this inception year the Beta source showed its more ugly side of short-term volatility spikes, while the Alpha source showed its expected lack of such ugly behaviour. 

The maximum drawdown of TAN was 34.3% and lasted 224 days.

 

Income Statement

Asset Value Growth: 0.5%

Dividends: 2.4%

----------------------------------------

Fees: -2.5%

Interest: -4.5%

Tax: -2.4%

====================

Result: -6.5%

 

This inception year included one-time restructuring charges as asset and capital structure went through a major makeover. All three types of expenses were all massively impacted by this. These charges totalled more than half of the total expenses.

 

Outlook

The total expenses are expected to be cut in half during 2019 as no more restructuring charges are expected. The dividend contribution will likely go down to around 2.0%. The minimum asset value growth required for a positive result in 2019 is therefore around 3%. A positive 2019 result is expected. To reach the 15.0% compounded annual growth rate (CAGR) since inception target an asset value growth of 45% during 2019 will be required. This is not expected as the market recovery time might not be long enough during 2019 depending on when it bottoms. One more year is therefore expected to be needed to reach the CAGR target.

 

Edited by explo

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On ‎1‎/‎1‎/‎2019 at 11:38 AM, explo said:

This is not expected as the market recovery time might not be long enough during 2019 depending on when it bottoms. One more year is therefore expected to be needed to reach the CAGR target.

Heading into this week the market seems to be at a crossroads on whether to confirm or reject the Christmas Eve low as the bottom of this correction. Looking just at the portfolio is seems to have confirmed that low as its bottom already. The stubbornly green start of the year has already sent both Alpha and Beta YTD returns above their annual return targets.

growth.thumb.png.7eb8a01f97db9364a6b39eff4f4081ee.pngsources.thumb.png.72c558cf9c3a165ef231c8d84dc47a63.png

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I'm upgrading the portfolio today. 10 stocks in, 5 stocks out. In total the stock count increases from 97 to 102. Fund count stands at 59. That is 161 Alpha soldiers in total.

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On ‎1‎/‎20‎/‎2019 at 7:32 PM, explo said:

Heading into this week the market seems to be at a crossroads on whether to confirm or reject the Christmas Eve low as the bottom of this correction.

The action today suggests that it got to work on that immediately.

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On 1/20/2019 at 1:32 PM, explo said:

Heading into this week the market seems to be at a crossroads on whether to confirm or reject the Christmas Eve low as the bottom of this correction. Looking just at the portfolio is seems to have confirmed that low as its bottom already. The stubbornly green start of the year has already sent both Alpha and Beta YTD returns above their annual return targets.

growth.thumb.png.7eb8a01f97db9364a6b39eff4f4081ee.pngsources.thumb.png.72c558cf9c3a165ef231c8d84dc47a63.png

I had 5 different accounts last year I manage. 3 of them lost money. The 2 that made money were my kids accounts. They made 4% and 6%.  To bad they are small $$$ values. They consist  of MSFT,CMCSA,INTC,PG,VZ,WM. There was a trade into solar 1 time for them.

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3 hours ago, explo said:

The action today suggests that it got to work on that immediately.

A pull back is probably in the cards. The DOW was up over 13% since Xmas lows. That is about half way to the peak of 2018. That is a big move.

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9 hours ago, SCSolar said:

I had 5 different accounts last year I manage. 3 of them lost money. The 2 that made money were my kids accounts. They made 4% and 6%.  To bad they are small $$$ values. They consist  of MSFT,CMCSA,INTC,PG,VZ,WM. There was a trade into solar 1 time for them.

Last year was the first year with broad sector coverage stocks instead of all solar stocks (this change was made in August 2017). The portfolio still had two faces in 2018. Before August it had a dozen stocks and a handful very leveraged funds and after September it had around one hundred stocks and around 60 funds at equal leverage. I think 2018 opposite 2017 was still quite representative of the current portfolio, but it will be interesting to follow 2019 as that is the first year with my new strategy in place from the start. The ambition is to produce long-term real return that is twice that of the stock market without experiencing deeper or longer drawdowns than the stock market.

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11 hours ago, SCSolar said:

A pull back is probably in the cards. The DOW was up over 13% since Xmas lows. That is about half way to the peak of 2018. That is a big move.

Yes a pull back will come. To me the big question is if we will have a new high before a new low after that. If this week is significantly net red I fear the market is looking for a new low before recovery. If this week is net green I think the market is looking for a new high (after a pull back coming weeks) in this late bull market and that this correction was just a warning sign before a larger one that might be more than a year out. That is, will the next pullback be the start of the right shoulder or the head in a typical IHS correction formation, i.e. was the Christmas Eve low the left shoulder in a big set back or the head in a minor set back?

It is nice to now have an all weather strategy without any market timing component, so it doesn't really matter for my portfolio trading what my market direction speculation conclusions are. I'm more of a speculative spectator enjoying the game than a tactical participant with a direction stake now.

Edited by explo

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19 hours ago, solarpete said:

Holy cow!!  You ARE your own fund at this point.

Yes and I really have to say that it has fundamentally changed my feeling of uncertainty about my portfolio positions. Even though a focused portfolio can invest with conviction, when the storm arrives there will be an inner battle to stay truly confident in the positions. Loss of confidence lead to bad trades. I felt free from that now during the Q4 volatility. Having many investment enables high diversification which I utilize to not worry about any single investments having a big influence on the total. No stock has larger weight than 1% and no fund has larger weight than 3%. It also enables higher resolution of the balance. Picking investments become a larger effort, but with my systematic approach, the ongoing effort declines quickly after initial construction.

Below sector distribution is an example of the stock allocation balance:

sectors.thumb.png.0aa4b26c7a761e8c00e904f48dd5b3ba.png

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On ‎1‎/‎23‎/‎2019 at 8:48 AM, explo said:

Yes a pull back will come. To me the big question is if we will have a new high before a new low after that. If this week is significantly net red I fear the market is looking for a new low before recovery. If this week is net green I think the market is looking for a new high (after a pull back coming weeks) in this late bull market and that this correction was just a warning sign before a larger one that might be more than a year out. That is, will the next pullback be the start of the right shoulder or the head in a typical IHS correction formation, i.e. was the Christmas Eve low the left shoulder in a big set back or the head in a minor set back?

So far the bulls haven't had the power to follow through this week to fully scare away the bears to confirm the Christmas Eve low.  Looking at short-term trading I'd say it's still more likely than not that we haven't seen the bottom before a new high yet. That perception can change quickly.

International markets are trading encouragingly today, but I'd really like to see the US stock market end the week in green in order to pave way for the bulls and we have some distance to cover today to achieve that. If not I think bears are back in town for a big red week next week with the target set on a new much deeper low.

From an economy perspective it would make more sense to extend the bull market before entering a full blown bear market, but markets can behave prematurely and I think this week (or very shortly) is where the stand is made before a swift move in the winning direction.

In a long-term perspective I don't think the market it is too extended to not support 3-5 years of continued bull market even though its been a historically long one, which is why the bulls will likely step in in the eleventh hour to confirm the Christmas Eve low as the correction bottom.

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On ‎1‎/‎23‎/‎2019 at 8:48 AM, explo said:

To me the big question is if we will have a new high before a new low after that. If this week is significantly net red I fear the market is looking for a new low before recovery. If this week is net green I think the market is looking for a new high (after a pull back coming weeks) in this late bull market and that this correction was just a warning sign before a larger one that might be more than a year out.

S&P 500 returned -0.22% for the week. I'll take it after the Tuesday plunge. The bulls regained and stood the ground in the end. The bears might have missed the opportunity to reject the Christmas Eve low as the bottom before a new high. Without such a set back the outlook for the 2019 return is considerably brighter.

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13 hours ago, explo said:

S&P 500 returned -0.22% for the week. I'll take it after the Tuesday plunge. The bulls regained and stood the ground in the end. The bears might have missed the opportunity to reject the Christmas Eve low as the bottom before a new high. Without such a set back the outlook for the 2019 return is considerably brighter.

Due to the mute week the window of opportunity is technically not closed for the bears, but it seems less likely that they will be able to use it when they failed to do it so far. There are near-term upside risks on trade resolution and earnings.

Meanwhile my Alpha return just got back above its long-term CAGR target.

growth.thumb.png.8ad4b8340f4d201b93d7e88a66a5659b.pngsources.thumb.png.444d8440d9eb7ec626b83b4a3a82a468.png

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Thank FED!

Looks like a big bear scare have set the direction at this crossroads. Let's hope that the market down trend is broken now and that Christmas Eve was its low.

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On 1/23/2019 at 6:08 AM, explo said:

 Even though a focused portfolio can invest with conviction, when the storm arrives there will be an inner battle to stay truly confident in the positions. Loss of confidence lead to bad trades.

 

Yes that is very true. Last year I fell into that trap and why I have changed my investment strategy.  I abandoned my stock holdings when the market crashed(saved on some downside early). I did not re-invest much, when I did it was market timed wrong and pulled back out as fears of further drops in a crash like in 2009ish period. I made some real bad trades due to timings and market sector collapses. Because of this, last years losses were close to 12.5% compared to the overall markets 4.5% drop. The loss amounted to half the gains made the prior year in 2017.

 

Because of the mental aspect, I have done the opposite of you based on last years implosions and the convictions of the investments. I have moved from a 30+ stock ownership and mutual funds which was 70/30  to  an appx 20/80% stock to Funds. The  funds are invested in  broader market funds and ETFs and  sector targeted funds.

 

My Kids accounts are maintained as they were last year which were profitable by 4-6%. These are the same stocks mentioned above(MSFT, INTC,PG, CMCST,VZ,WM).

 

My retirement account was reduced to 2 funds down from 4. The money invested is split 80% to a SnP500  and 20% to Healthcare. There are no stocks. There is 20% in cash currently.

 

The second account which was my active trading account and worst performer last year(best in 2017) is now predominately static. The monies are divided 66% to funds and ETF and 34% to stocks. 95% of the monies are in the market and 5% are in cash. The stocks monies ratios are 70% into my core INTC and MSFT and 30% into Canibus. The Mutual Fundsand ETFs are spread 5% into Checmicals. 10% into Healthcare , 10% into Technology, 20% into a Nasdaq ETF, 20% in a double Dow track, 30% into a SnP500 ETF, 5% into an Asia PAC fund.

 

My Third account has 17% invested in stocks and 79% into Funds and 3% cash. Of the 17% invested in stock, it is invested 46% in JPM, 25% INTC and 29% MSFT. The 79% invested in Funds/ETF are 15% Mid Cap growth, 17% Healthcare, 34% Biotech and 36% China tracking Fund.

 

Since the start of the year the Overall markets(NASD+DOW+SNP) is up 6.6% and up 11% since Dec 21 close.

For monies invested, my accounts are as follows.

Kids accounts are up 3%(did not track them by week last year)

Retirement is up 6.75% since Jan1  and 11% for invested funds since Dec 21

Account 2 is up 8.59% and 14% respectively

Account 3 is up 9.29% and 14% since Dec 21

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On ‎2‎/‎1‎/‎2019 at 1:34 PM, SCSolar said:

Yes that is very true. Last year I fell into that trap and why I have changed my investment strategy.  I abandoned my stock holdings when the market crashed(saved on some downside early). I did not re-invest much, when I did it was market timed wrong and pulled back out as fears of further drops in a crash like in 2009ish period. I made some real bad trades due to timings and market sector collapses. Because of this, last years losses were close to 12.5% compared to the overall markets 4.5% drop. The loss amounted to half the gains made the prior year in 2017.

I'm viewing my strategy more and more as an enabler of maximum "time in the market" rather than savvy "timing the market". It's said that the former is how to achieve good long-term return and the latter how to risk missing out of the long-term market return. The strategy purpose is a bit more complicated than that, but it is something worth remembering, that a strategy that helps maximize time in the market (by risk management) will do a job building long-term wealth.

On ‎2‎/‎1‎/‎2019 at 1:34 PM, SCSolar said:

Because of the mental aspect, I have done the opposite of you based on last years implosions and the convictions of the investments. I have moved from a 30+ stock ownership and mutual funds which was 70/30  to  an appx 20/80% stock to Funds. The  funds are invested in  broader market funds and ETFs and  sector targeted funds.

That's understandable. It's a massive exercise to keep a well diversified portfolio when it's stocks heavy. I have 50/50 stocks/funds but the stocks are still more than 70% of the risk. Low fee funds are excellent diversification tools.

On ‎2‎/‎1‎/‎2019 at 1:34 PM, SCSolar said:

Since the start of the year the Overall markets(NASD+DOW+SNP) is up 6.6% and up 11% since Dec 21 close.

For monies invested, my accounts are as follows.

Kids accounts are up 3%(did not track them by week last year)

Retirement is up 6.75% since Jan1  and 11% for invested funds since Dec 21

Account 2 is up 8.59% and 14% respectively

Account 3 is up 9.29% and 14% since Dec 21

Good job. At least I only have one account to track and maintain..

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On ‎1‎/‎22‎/‎2019 at 12:52 PM, explo said:

I'm upgrading the portfolio today. 10 stocks in, 5 stocks out. In total the stock count increases from 97 to 102. Fund count stands at 59. That is 161 Alpha soldiers in total.

During this process I started to suspect that the Yahoo! Finance data that I use for prices, splits and dividends might be incorrect. I did an investigation and it turns out it is and it was during the period when I went into massive diversification increasing the number of analysed stocks from 35 to 275. Some of my oldest downloaded data seem to be correct though. I spent a week correcting the data and redoing the allocation optimization. It resulted in some pruning with the number of investments being reduced from 161 to 153 of which 96 are stocks and 57 are funds. In total around 15 stocks were dropped and 9 were taken in. Two funds were dropped. 15 investments were weight adjusted. In total the restructuring will have a cost of less than -0.2% and will thus not greatly impact the 2019 return.

Since the asset allocation is strategic with the purpose of providing long-term return the cost to base the allocation result on correct data seemed motivated. Hopefully this was the last restructuring (it was minor compared to some restructuring during the strategy development last year). The sector distribution changed quite a lot. The defensive sectors share was reduced from 30% to 25%.

sectors.png

Edited by explo

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2 hours ago, explo said:

During this process I started to suspect that the Yahoo! Finance data that I use for prices, splits and dividends might be incorrect. I did an investigation and it turns out it is and it was during the period when I went into massive diversification increasing the number of analysed stocks from 35 to 275. Some of my oldest downloaded data seem to be correct though. I spent a week correcting the data and redoing the allocation optimization. It resulted in some pruning with the number of investments being reduced from 161 to 153 of which 96 are stocks and 57 are funds. In total around 15 stocks were dropped and 9 were taken in. Two funds were dropped. 15 investments were weight adjusted. In total the restructuring will have a cost of less than -0.2% and will thus not greatly impact the 2019 return.

Since the asset allocation is strategic with the purpose of providing long-term return the cost to base the allocation result on correct data seemed motivated. Hopefully this was the last restructuring (it was minor compared to some restructuring during the strategy development last year). The sector distribution changed quite a lot. The defensive sectors share was reduced from 30% to 25%.

sectors.png

Interesting chart with segment breakouts. You have 25% in what I view as the growth segments of Tech and Healthcare. These segments have outperformed the markets for the past several decades. They are my 2 primary segments that I look to to aid in outperforming the overall markets.

 

You have consumer discretionary as your largest market segment holding. Consumer discretionary does well when consumer confidence is good and under performs when confidence is week. Does this mean you are bullish on the overall economies going forward? Some of the market sentiment is weakening with higher interest rates and global economic growth slowing.

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1 hour ago, SCSolar said:

Interesting chart with segment breakouts. You have 25% in what I view as the growth segments of Tech and Healthcare. These segments have outperformed the markets for the past several decades. They are my 2 primary segments that I look to to aid in outperforming the overall markets.

 

You have consumer discretionary as your largest market segment holding. Consumer discretionary does well when consumer confidence is good and under performs when confidence is week. Does this mean you are bullish on the overall economies going forward? Some of the market sentiment is weakening with higher interest rates and global economic growth slowing.

The allocation is strategic by which I mean it is optimized to perform best over full economic cycles. A tactical allocation would probably shift some consumption exposure from discretionary to staples now. Note that consumer discretionary is a stock pickers sector. It's broad. AMZN and TSLA belongs to it for example. Experts are saying that we are entering a stock pickers market. This should serve my strategy which focuses on picking longterm winners and the consumer discretionary sector might not be "all" bad for that reason.

That the sector gets a high allocation in my optimization is probably because it is a "picking"  sector where many longterm successful stocks can be found. The sector allocation is just a result of the strategic mandate of the allocation not a frame for it. Some strategic allocators allocate asset classes first, then sectors and last individual names within sectors. I let all that be a result of the allocation optimization based on the end purpose. 

Edited by explo

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On ‎2‎/‎4‎/‎2019 at 10:32 AM, explo said:

It resulted in some pruning with the number of investments being reduced from 161 to 153 of which 96 are stocks and 57 are funds. In total around 15 stocks were dropped and 9 were taken in. Two funds were dropped. 15 investments were weight adjusted. In total the restructuring will have a cost of less than -0.2% and will thus not greatly impact the 2019 return.

One more stock was added after further verification review (97 stocks, 57 funds, totalling 154 Alpha soldiers now). In total the minor corrective restructuring led to 38 transactions. The transaction cost is concluded now as 0.15% in total, 0.09% in forex and 0.06 % in commissions this compares to the monthly strategy maintenance cost of January which totalled 0.08% (0.05% forex and 0.03% commissions).

Edited by explo

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My Alpha stream hit a new high yesterday capping its longest drawdown to 158 days. It's been interesting to watch how the stream behaved during the test of the December volatility strike. When the strike hit it was not more immune than Beta in terms of getting derailed to the downside from its target. The response on the other hand has been to quickly go above and beyond its target while Beta is fighting its way back to its target more slowly. In total the Alpha stream has gone the extra miles to carry the portfolio back to its target ahead of its benchmark. This has played out as one would hope and expect from its Alpha stream. Alpha's daily correlation spiked during the strike but on a monthly or quarterly basis its derailment from target differ positively from Beta in the aftermath of the volatility strike.

 

growth.pngsources.png

Edited by explo

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On ‎2‎/‎4‎/‎2019 at 2:16 PM, explo said:

Experts are saying that we are entering a stock pickers market.

Here's an article talking about 2019 starting off as a stock picker's market.

https://www.investopedia.com/why-stock-pickers-are-beating-the-market-in-2019-4586786

It also notes the following:

The late John Bogle, founder of the Vanguard Group, was a key promoter of passive investing through index funds, based on decades of research revealing that few active managers, or stock pickers, ever have been able to beat the market averages on a sustained basis.

This slashes my objective of sustainably achieving double the real return of the market. Time will tell if I'm fooling myself with my strategy to long-term beat the market in this massive way. Key to track this is the separation of Alpha and study the adolescent behaviour of this enabler of the objective.

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On ‎2‎/‎4‎/‎2019 at 10:32 AM, explo said:

The sector distribution changed quite a lot. 

sectors.png

While the sector concentration is not insignificant considering the largest sector of the 11 existing sectors has a 26.5% weight the industry weights has less concentration with the largest one having a 7.5% weight. I have now compiled the industry weights chart.

industries.thumb.png.2bad5699a16f1ea47233e8b389c1da45.png 

While all 11 existing sectors are covered only 36 of the 69 existing industries are covered.

Edited by explo

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Back on target much faster than expected.

growth.thumb.png.b891b30e2e45ce78ad42b7ffe2ef097f.pngsources.png

Edited by explo

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