Last week I was reading the Hulbert Letter at the library where he ranks investment newsletters. The highest ranking newsletters had Monthly Sharpe ratios of around 0.24.
At first I was impressed because I thought you would multiply the monthly Sharpe ratio by 12 to annualize it, but it turns out you only multiply it by the square root of 12 and even that could overstate the return if the monthly returns are serially correlated.
So the best financial newsletters had Sharpe ratios of only around 0.83.
Many portfolio123 models are far superior to that assuming slippage/commissions can be kept to a minimum.
Here is a link to an interesting paper by Andrew Lo that describes sharpe ratio calculations in more detail.
That is right. Most of the newsletters out there are no good. Big time no good.
There has often been a question whether the real portfolios of p123 members resemble the sims and the ports.
A few of us have shared real account results - Marco, Denny I believe.
I already have more than 12 months of trading P123 ideas in an account that does not trade anything else - so that results are not biased in any way. For the last 9-10 months the trading has been based on my Port CCC NG S15 W1 R98 port (used to be S10 - 10 stocks now 15).
The port does not correspond to the account trades because I do not go and update the real trade prices in the port. (I hope P123 will implement next open prices for ports too). I do not have the time.
So, since I have more than 12 months now, to avoid the need to annualize, for the last 12 trailing months today I have 63% return. I do trade on margin with a leverage between 1.2 to 1.9. I also hedge with options from time to time (most of the time I am hedged). The leverage and the hedging depends on my timing opinion for the overall market. I do not think the hedging has major influence to my account - short term it saves me some troubles in bear markets but it reduces my profitability long term. That is, if you look at these trailing 12 months the total of my hedging trades is negative (a loss) but in the time when the major market went sharply down I was sleeping well.
I have 3 Ports (2 with 5 Stocks and 1 with 3 Stocks) and they represent actual trades and cash added. The two 5 Stock Ports were started January 1/05 and were using different buy/sell rules, but since around June are using the current buy/sell rules as I liked the results I was getting from Sims. Also in both 5 Stock Ports I bought stocks that other member Ports were recommending so if one were to run a Sim since January 1, the returns may be a lot different.
My 5 Stock Ports since January 1/05:
EMA 9>20 74.8%
Roth 2 33.6%
My 3 Stock Port since October 7/05:
IRA Real 16.2%
All three Ports were created by other members and I tweaked them a little. At first I thought I might be smarter than the P123 system, but now I am confident with the system that I follow the recommendations. The only thing different that I am doing than the system is I have started using Trailing Stop Orders that have sold stocks before the Weekly Rebalance. Trailing Stop Orders have made me feel more relaxed about trading stocks and I highly recommend that other members use this trading feature.
I copied your CCC NG S15 W1 R98 and ran a sim with no changes. I got much worse results (roughly half the annual return you got and huge drawdowns). Could you tell me if you run a sim copy of that porfolio over the last year in your account, do you get results similar to the porfolio? I tried several start dates including some chosen so trades will syncronize with new ranking data each week. I also tried changing the price option to next open or pervious close. Nothing really helped. Any ideas what the difference might be?
Looks like a a very reliable portfolio judging by the graph.
Congratulations, Vlad! Your 63% real money return is great. I see that the Sharpe ratio for your unhedged port is around 3.76, but that means that your hedged portfolio Sharpe ratio would be much higher.
I can’t wait to start investing real money using portfolio123- probably in March of next year. Just my luck, the market will be ready to crash around then :>)
The ten stock one (S10) has been public for quite a while. The port and the real account was 10 stocks too.
After introduction of next open prices I dicovered that larger stocks number in the portfolio is actually not as bad as we thought. So I did some more experiments and moved to S15. I am making my S15 sim public as we speak “Sim CCC NewGrowth S15 W1 L4 simple rules” ( real simple rules, really).
“Sim CCC NewGrowth S15 W1 L4 simple rules” is still not showing in the public searches - I do not know why. Strance I go and update the public visibility and when I go back to my list it shows “N”. I will try after I close my forums window. It might have to do with a bad session or something.
I ran a month ago. And I re-ran it just now. I like the results. Look and see if you can find anything unusual in my settings: $8 fixed commission, 0.5% slippage on next open.
The sim shows 63.43% annual return at Standard Deviation of 24%. Let me know if you find many sims that do similar to that. The only one that does not use NewGrowth is one of Denny’s based on “BJS Mo Value”. not to brag here. I look up to and use the work of many other members here a lot, but I DO like this sim.
I won’t be surprised if the port is quite different from the sim and very different from the real portfolio.
Here are some more specifics to how I treat my port(s):
in the port I do not update real trading prices and ports these days use fiday’s closing ones; this was proven to blow up results unrealistically; maybe one day I will find the time to start doing that; I have enough with having to keep track of the performance of my reall portfolio; I am looking for an apprentice to do some of the boring work whie learning
if I make any manual decisions on trades they ARE reflected in the port
hedging is not reflected on the port; the effect of hedging is reducing drawdowns but also reducing overall returns; for looking long term and if one is less sensitive to risk no hedging sounds better
my real portfolio is oftne heavily leveraged throuhg margin; usually about 1.2 to 1.8. depends on my overall sentiment to the market.
rcflyerco, yes my real portfolio suffers drawdowsn as the ones I see on the sim. It is not unusual to see 10%, 15% drops. My hedgin saves me from that a bit. Those also will be the times when I go full throtle with the margin. I check my checking account first though to make sure I have enough to meet any margin calls :). Oh, well. In the worst case the brokers will randomly close some positions.
Let me know if I can answer any other questions.
mozart325,
since it seems like you are planning to invest real money for fisrt time. Some advise here, for what it is worth. Do as much paper trading as you can. Separately from you ports. There are a few brokers that will let you trade test/paper accounts. Invest only money that will not change your life style if you lose them all. If you have the luxury start putting small amounts regularly ($x a month) in the acount as opposed to a huge lump sun in the beginning. If you start with small money - do look for a broker with low commissions. I do not like paying more that 0.5 cents a share. And I think it is an honest earning for the broker.
Thanks. I found the new sim you made public. I got the same results as you this time. I still don’t know why the other one did not work for me.
It seems that sims can be optimized for amazing performance (better than 150% annually) over a period up to about a year, and that usually only works during bull markets. However I have observed the same as you that the best performance for sims that run for long periods is around 60 to 65% annually with drawdowns near 20 to 30%.
