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Twitter Many of us continually scour the markets for the best mix of investment strategies.
I know I am doing so. But my approach is far different from the average investor.
You see, I am a quantitative investor. I rely on a systematic investment approach, an approach that is based on mathematical models and analysis to calculate the optimal probability for each and every investment decision I make.
So far, so good.
I’ve been doing this for two decades now. Over that time, I’ve managed to find a few, go-to strategies . . . investment strategies that I can rely on during any type of market environment . . . bullish, bearish or neutral.
But I tend to overcomplicate the application of the investment strategies . . . at least I did until about five years ago.
Early on in my investment career I wanted to build my own portfolios. I took pride in it. But it also took lots of work . . . lots of it. More importantly, all that time spent poring over potential investments never amounted to a significant increase over the benchmarks.
So, I decided to alter my approach a bit.
I wanted a strictly systematic approach . . . an approach that did the stock-picking for me yet allowed me to use my own alternative investment techniques to enhance my returns.
I started my quest with a strategy I learned at Oppenheimer. I had a colleague there who started out every new client with a strategy known as the Dogs of the Dow.
It was a simple idea, incredibly consistent and outperformed the market on a long-term basis. Since the year 2000 the Dogs have outperformed the S&P by roughly 4%, the Dow by 3% and the Fidelity Magellan fund by 4%.
But I knew I could enhance those gains . . . using my proven “poor man’s covered calls” system as my foundation.
So, I thought OK, I’m sold. Let me carve out a small percentage of my investment capital to dedicate to the Dogs of the Dow strategy.
Admittedly, it was an exceptional year for the stock-based strategy as it made 19.4%. However, the return didn’t come close to my return, which was 41.2%. That’s right: 41.2%.
I had more than doubled the returns of the basic Dogs of the Dow strategy!
So, I decided to use the same approach the following year.
The following year the Dow closed the year with a -5.6% return. Our return was -4.3%. So even during a down year the strategy outperformed the market. OK, now I was really sold.
The next year my gains were even better. Just look at a few of the individual gains using my alternative investment approach.
My third year I started to dig deeper into other stock-based investment strategies using my same systematic approach. Again, it had to be a simple, mechanical approach that outperformed the market over the long haul. That’s all I cared about.
So, I tried numerous others.
After much trial and error, I found that Ray Dalio’s All-Weather portfolio and James O’Shaughnessy’s Growth/Value portfolio were my favorites.
Dalio’s All-Weather portfolio performed well in both inflationary and deflationary environments. It had a long-term, proven track record and it was easy to use. It was a great fit with the Dogs of the Dow portfolio that I was already using.
I also wanted to add a growth/value portfolio as well. I wanted a stock-based portfolio that could really ramp up my gains even more than the 42% I could make on a good year with the Dogs.
The O’Shaughnessy portfolio has an incredible track record. Since 2003 the portfolio has outperformed the market by 79.8%.
With my alternative investment approach for enhancing stock-only profits, the same one I used for the Dogs of the Dow, we can beat those returns by 2X-5X.
The proof is in the pudding.
In all, I now use five stock-based, quantitative strategies as the foundation for my alternative investment approach and I could not be more pleased with the results.
I’ve scheduled an educational webinar on how to put these investment strategies into your portfolio. Click here to get a free online pass.