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On 10/1/2017 at 4:57 AM, explo said:

The portfolio performance stats are updated for Q3 now.

Performance, 2017-09-30

  • Inception 2016-01-01
  • Total return -6.98%
  • Annualized total return -4.06%
    • Stocks -0.24%
      • Active 3.27%
      • Passive  -3.51%
    • Funds -3.82%
  • Annualized daily volatility 21.35%
    • Stocks 8.96%
      • Active 5.40%
      • Passive 6.55%
    • Funds 17.27%
  • Maximum drawdown 19.96%
    • Stocks 9.43%
      • Active 3.94%
      • Passive 11.90%
    • Funds 20.55%
  • Longest drawdown 218 days
    • Stocks 571 days
      • Active 413 days
      • Passive 633 days
    • Funds 218 days
  • Beta 1.55
    • Stocks 1.08
      • Active 0.11
      • Passive 1.00
    • Funds 0.45

The stocks return is divided into two parts - active and passive. The active return, also known as alpha, is the part of the return achieved by optimizing the stock weights differently than a benchmark. The passive part of the return comes from 2% risk-free return plus the market risk return. Alpha is considered valuable because its risk, unlike the market risk, can be reduced by diversification. Beta describes how large the market risk is compared to a benchmark. 

The benchmark consists of a stock index from which the portfolio stocks are picked. Prior to 2017-08-08 the solar ETF TAN is used as the "index" and after that the ^SP500TR is used. Performance details are shown in the charts below.

2017Q3_return.thumb.PNG.6f3d0f98ea596a8a641fe242b67083cf.PNG

Explo,  I remember that you did very well recently with the FSLR, JKS and DQ trades.  Even with those profitable trades, you are still down almost 7% since 1/1/2016?  Which sectors (investment funds) contributed to this loss?  Had you just left your money in S&P500, you would have gotten +25% return on your money in that time span.  Do you think going forward, this is the good strategy?  I am a bit cautious of the general market at this point (especially the US market).  Also, not knowing the detail of your investments, it seems risky to have such a high margin leverage in your investment.  Good luck.

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27 minutes ago, Jetmoney said:

Explo,  I remember that you did very well recently with the FSLR, JKS and DQ trades.  Even with those profitable trades, you are still down almost 7% since 1/1/2016?  Which sectors (investment funds) contributed to this loss?  Had you just left your money in S&P500, you would have gotten +25% return on your money in that time span.  Do you think going forward, this is the good strategy?  I am a bit cautious of the general market at this point (especially the US market).  Also, not knowing the detail of your investments, it seems risky to have such a high margin leverage in your investment.  Good luck.

Almost everything has done well. It is one hedge fund strategy that has had its worst performance in 20 years that is pulling everything down and short-term I'm hurt by USD weakness too. I think my allocation revision done in Q3 (increasing stocks exposure five fold at expense of funds exposure) will improve the expected long-term performance and I hope to see some short-term example of it soon.

I've still done much better than the TAN the past two years so I don't regret not staying highly exposed to solars as I did up until 2015.

Edited by explo

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3 minutes ago, explo said:

Almost everything has done well. It is one hedge fund strategy that has had its worst performance in 20 years that is pulling everything down and short-term I'm hurt by USD weakness too. I think my allocation revision done in Q3 will improve the expected long-term performance and I hope to see some short-term example of it soon.

I've still done much better than the TAN the past two years so I don't regret not staying highly exposed to solars as I did up until 2015.

I see that you have 0% in solar at present.  What risks do you see in solar at this point and which one has the worst risk among FSLR, JKS and CSIQ?  Was it just the matter of valuations or there are other factors that concern you regarding solar investment now?  Thank you for your inputs.

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6 minutes ago, Jetmoney said:

I see that you have 0% in solar at present.  What risks do you see in solar at this point and which one has the worst risk among FSLR, JKS and CSIQ?  Was it just the matter of valuations or there are other factors that concern you regarding solar investment now?  Thank you for your inputs.

It actually had nothing to do with my view of solars. I wanted to change my allocation strategy from 70% funds + 5% stocks to something more like 50% funds + 25% stocks with retained risk parity (see the "About me" in my profile for risk parity strategy description). This meant I had to pick a stocks basket that was 7 times less risky than the one I had. The solars simply did not qualify for the new strategy. I also started to do more exact marginal contribution analysis of each stock in the same way I do for funds. Stocks that offer high long-term return at low risk and market correlation tend to contribute well. Solar stocks to be honest have so far offered negative long-term return at high risk. Basically only JKS have positive return trend  since inception but its risk is still too high. My view of them now is that I'll wait for them to grow up and pick the ones that grew strongest if/when they qualify.

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2 hours ago, explo said:

It actually had nothing to do with my view of solars. I wanted to change my allocation strategy from 70% funds + 5% stocks to something more like 50% funds + 25% stocks with retained risk parity (see the "About me" in my profile for risk parity strategy description). This meant I had to pick a stocks basket that was 7 times less risky than the one I had. The solars simply did not qualify for the new strategy. I also started to do more exact marginal contribution analysis of each stock in the same way I do for funds. Stocks that offer high long-term return at low risk and market correlation tend to contribute well. Solar stocks to be honest have so far offered negative long-term return at high risk. Basically only JKS have positive return trend  since inception but its risk is still too high. My view of them now is that I'll wait for them to grow up and pick the ones that grew strongest if/when they qualify.

I have my  investments in 3 different account structures since retirement 4 years ago. These are an  IRA in index funds 100% invested. A static brokerage account that is  invested in dividend paying giants of their respective industry. A trading account that is 10-40% cash and is  distributed in and out dividend investing companies and solars.

 

The IRA is in 4 funds currently, of small mid cap, health and  SnP. The returns this year is 11.75% including commissions and fees. In 2016 and 2015 the account was up 9.6 and  1.39%. The average 3 year return is 7.56%.

 

The static account  is made up all are dividend investments stocks. I t consists of  2 Tech Giants, 2 Oil/Gas/Specialty fluids,  2 Telco, 1 CPG and 1 Pharma. The returns this year on the portfolio is 9.2% on the total account and 14% on just the invested monies. In 2016 and  2015 the static account was up 11.6% and 3.8%. The average 3 year return in 9.7%.

 

My trading account gets re-balanced periodically with stocks bought and sold weekly to monthly. This portfolio is primarily invested in dividend stocks and solar is traded regularly. The portfolio keeps 10-40% in cash and is broken out to be 2 or 3 Tech Giants, 2-3 Oil/Gas/Specialty fluids, 2 Telco, 1-2 CPG, 1-3 Pharma/Medical suppliers, 1-2 Health Insurance, 1-2 Energy Companies, 1-2 Transportation , 1 Garbage and 1-3 solar companies.  The return this year on the portfolio is 11% with a return of 14.5% on the actual average invested. Last year this portfolio lost 3% primarily from the initial crash and going to 50% cash. in 2015 the account grew buy 9.5%.  The 3 year average return is just over 6%.

 

It is clear to me that from the 3 types of portfolios I have used for the past 3 years, Index funds, static individual stocks and actively traded,  the 3 years of returns suggest that staying in a diversified sector portfolio of industry leaders  will yield the most consistent returns with the lowest volatility. The 9.7% 3 year average with partial invested exceeds the S&P 500  3 year average of 8.4% fully invested.

Edited by SCSolar
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SCSolar it sounds like you are well diversified within the equity asset class. One safe and cheap diversified pure beta part, one income (dividend) part to help diversify investment timing and with likely lower beta without sacrifizing return and finally one alpha generation focused part trying to tactically time exposures.

We've been in a period where concentration on equities has paid off. Over time I believe asset class diversification allocated at risk parity will have the highest risk-adjusted return.

In terms of which equity strategy is bestif opting for one I agree with your last part about blue chips focus.

When tuning my equities basket I found that the utilities and healthcare sectors are very strong and complementary and those two can form a sizable base. They sort of act like fixed income assets. The utilities have stable principal value and income with some bonus growth. The healthcare stocks resists stock market weakness and make occational surges similar to fixed income assets when interest rates are falling quickly. Mix this with normal stocks and you get a stocks basket that has quasi asset class diversified behavior (good risk adjusted return). I think the trick is simply to focus on blue chips and overweight the utilities and healthcare sectors.

Edited by explo

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3 hours ago, explo said:

SCSolar it sounds like you are well diversified within the equity asset class. One safe and cheap diversified pure beta part, one income (dividend) part to help diversify investment timing and with likely lower beta without sacrifizing return and finally one alpha generation focused part trying to tactically time exposures.

When I was talking Garbage, I was talking Waste Management (WM). They are a nationwide trash and recycling company in the US. When I bought them back at 45 the dividend was near 3.5%. The dividend is now 2.14 while the stock is up 77% in 3 years. It  is up 4 fold since 2008 which exceeds the DOW. That is a stable income with growth with limited exposure outside of Gas pricing.

 

I used to dabble heavier with a larger percentage in solars but as I approached retirement the volatility was to high for my risk exposure. I loved the home runs but hated the drops in value. I sleep much better now and worry far less.  I still trade  solars but only in the 5% range of my total portfolio which is down significantly as a percentage and raw dollar value.

Edited by SCSolar

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6 hours ago, SCSolar said:

When I was talking Garbage, I was talking Waste Management (WM). They are a nationwide trash and recycling company in the US. When I bought them back at 45 the dividend was near 3.5%. The dividend is now 2.14 while the stock is up 77% in 3 years. It  is up 4 fold since 2008 which exceeds the DOW. That is a stable income with growth with limited exposure outside of Gas pricing.

Thanks. I will take a look a them. These are the type of things I look for in search of marginal contribution. I need to find quality to add new names, but it must be novel quality, something that differs (e.g. different sector that reacts differently to market and economy state).

6 hours ago, SCSolar said:

I used to dabble heavier with a larger percentage in solars but as I approached retirement the volatility was to high for my risk exposure. I loved the home runs but hated the drops in value. I sleep much better now and worry far less.  I still trade  solars but only in the 5% range of my total portfolio which is down significantly as a percentage and raw dollar value.

I share the sentiment. I have tried to be more strategical in using hedge funds to preserve capital since 2010, but solar stocks always had a free role that couldn't be modeled well. Two years ago when I started to develop the risk parity strategy I at least realized that their exposure had to be much lower. The hedges never allowed me to avoid big losses before only to have a reserve to boldly tap and win some back on the rebound. In total over 7 year this has much caused higher risk and much lower returns than overall market.  After changing to stocks that are much more stable in their properties I can build a model that considers everything and I can continuously verify it. This makes me sleep much better. I might come up with some model in the future that allows some small mad money again, like you have, without giving up too much of the modeling ability.

I've spent 10 years as an analyzing investor of solar stocks with the insight back then that I needed to know the sector I invest in very well by thoroughly analyze all leading companies in it in order to always buy the best companies of a sector. Now I've simple become a portfolio managing investor that don't look at fundamentals at all. It's sort of a long-term (20-30 years) TA, but from a marginal contribution perspective. "This stock has had this behavior consistently over 3 decades. It is a stable behavior and it complements the behaviors of existing portfolio stocks and thus contributes and get allocated." The company of the stocks picked are great companies, but it is just a result of picking great stocks. I bet I will miss the fundamental analysis of companies. I think I've acquired and eye for quick BS assessment etc.

Some would say I've gone from a strategy of trying to buy future performance to simply buy past performance. And while it is true I think this is the easier way to buy future performance and it certainly helps sleep to not bet on that I'm a better predictor of the future than Mr Market is and I get more time for other things. I don't need to deal with solar crashes on vacation travels anymore. To still get the foresight component some of my funds serve the role of trying to beat the market and some of them have 50+ highly qualified employees working full-time on that task.

 

Edited by explo

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