This is going to be a bit of a new concept, and yes, I hope it starts a trend.
I’ve always made a pretty big deal about the fact that 100% of my own wealth is invested in my own trading models. I don’t suggest it for anyone else. In fact, it breaks every rule of basic financial planning. But I’ve always preferred to live and die by my own hand (hence the reason I love rock climbing, but refuse to skydive).
For self-directed investors like us, it’s important that we occasionally step back for a reality check. We work hard to do what we do, and regardless of how we wrangle these unruly markets, if we’re not significantly outperforming a passive index fund, then we should all be calling Vanguard asap and spending more time skydiving.
So beginning with this belated 3Q 2008 report, I’m going to report the rough quarterly results of my own personal portfolio since independent-auditing of my models began in the beginning of 2006. Note: audited returns can be found at MarketSci.com for the MarketSci strategies and on this blog for YK.
THE RESULTS:
Below are my personal results (red) vs the S&P 500 (blue) since I began being audited (later I’ll talk about how these results were calculated):
[logarithmically-scaled]
Things I’m happy about: (1) outperforming the S&P 500 by 23% annually, (2) the “smoothness” of returns (i.e. lower monthly volatility and much higher risk-adjusted returns), and (3) the consistency with which I outperformed in bullish (2006), sideways (2007), and bearish (2008) markets.
Things I’m unhappy about: (1) my current 17% drawdown – I don’t like taking a step back, and (2) high correlation to the stock market. Monthly correlation between my portfolio and the S&P 500 is about 71.7% since inception; in other words, I’ve generated a lot of alpha (good), but a lot of beta too (bad). This is something that I need to fix this year. I cannot accept my fate being tied to the broader market.
All in all, I’m satisfied. Not thrilled mind you, but satisfied. Regardless of what the “click here and get rich on your lunch break” types tout, investing is hard work and I’ll take a consistent 20% outperformance per year every year. Extrapolate that over the next couple of decades and yes, it makes all of this work time well spent.
HOW THESE RESULTS WERE CALCULATED:
I’m not going to get crazy about showing withdrawals and deposits and rebalances and all that jazz (do you really care that I just withdrew money to buy a new motorcycle? I didn’t think so), so I’ll be using approximate percentages invested in each strategy. Prior to YK, that was 100% MarketSci’s flagship ProFunds model, and since YK, about 2/3 MarketSci and 1/3 YK’s combined portfolio.
As previously mentioned, all of the individual strategies are independently-audited. I could be a cad and tell you that I’ve been maintaining this kind of outperformance for decades (it’s actually been about 7 years), but that would be well, caddish, so I’m only focusing on the period that I’ve had someone looking over my shoulder
About the only place that I require a little faith is in the % allocated to each portfolio. Two bits of info to make that faith a little easier to swallow: (a) both MarketSci and YK offer individual portfolios that outperformed the ones that I actually invested in – I could have juiced my returns by saying I invested in those hot models, but well, I didn’t actually, and (b) I hope that after all the time we’ve spent together on this blog, you know me and you know that being a cad just isn’t my style.
Happy Trading,
ms
P.S. I’ve been doing this long enough to know that some reader is going to ask me to scan and post actual account statements. Well sir (or ma’am) that’s just weird and voyeuristic. Showing you my dollars and cents feels like showing you my underwear. That’s what audited track records are for – so I only have to show my underwear to one person, not to the whole world.
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Filed under: My Performance | 17 Comments
Wow, that’s impressive! May I ask how active the YK strategy is? How many trades does it cause per month?
Hello Steven – the YK Strategy is extremely active – we change positions once per day near the close of trading. You can find out more details here: http://marketsci.wordpress.com/yk-strategy/.
michael
ms,
Actually I’m very interested in the motorcycle. I ride a Kawasaki 636Z. Had 260kph down the back straight…hard braking for the hairpin had it standing on the front end.
Don’t fancy the rock-climbing, that sounds very dodge.
jog on
duc
RE to duc: Hehe…funny because I thought of you when I wrote that. I knew you were going to ask me. And I decided that I’m not going to tell you b/c I’m sure yours is a gazillion multiples cooler than mine and I don’t want you having a good laugh at my expense =)
This is for my Asia home so it’s a very small bike – local mfg’er – anything big just gets burned up doing all this beep-beep-beep-stop-go-beep-beep-beep city driving.
michael
Michael, do the audited returns considerate slippage, brokers commissions, fees or taxes?
Hey, can I see your underwear?
I am there with you. It has been my long experience that good solid systems can outperform in decent/neutral markets, but in bad (catasthrophic?) markets . . . well, all correlations go to one.
Your comment on the motorcycle reminded me of something I read someplace (?) long time ago. A young trader was having a very hot streak and an old trader told him:” Kid, buy something really nice with all that money. I guarantee you that when all this ends, that will be the only thing you will have left”.
To a considerable extent, that has always been my experience, too. If you want a mathematical take on it, I would say it is equivalent to a “profit target”.
Always interested in your writings.
eb
RE to Steven: I only trade my programs using leveraged mutual funds from ProFunds, Rydex, or Direxion, so commissions or slippage to consider (but fund mgmt fees have been considered). Taxes have not been taken into account and would of course depend on each person’s specific situation. I’m fortunate that a hefty share of my investments are in tax-deffered accounts, but my non-qual accounts would of course get hit (but that hasn’t been included in this analysis).
Good question,
michael
RE to Wood: yes.
If I were wearing any.
RE to Eber: you would laugh if you knew what an incredibly cheap bastard I am (or at least my other half purports me to be). At the moment I generally live on about 30% of my gross income.
If I could impress just one thing on young people starting out today it would be: (1) live well below your means – money doesn’t buy happiness, but a lack of money can buy unhappiness, and (2) never put yourself in a situation where you can’t walk into your boss’s office tomorrow and flip him the bird (of course, hopefully it never comes to that, but just having that financial ability makes work a lot more palatable).
Good to hear from you,
michael
Yikes!
Michael is so cheap he goes commando!
Completely agree on the living below your means and keeping the bird option viable. Nothing more liberating than having options – or risking death my your method of choice.
Every time you spend money on something you are ruling out every other possible thing you could have done with it; a world of possibility collapses in an instant leaving you with just that one thing you bought. Small wonder trying to buy yourself happy invariably does the opposite.
RE to justdoug: nicely done: “small wonder trying to buy yourself happy invariably does the opposite”.
I’m adding that to my list of debating points for the next time me and the misses don’t see eye to eye. She’s a finance/econ grad so I’ll term it “opportunity cost”…at which point she’ll probably call me a nerd =)
michael
RE to Wood: Remember, I live a good part of the year in Asia. Just one of these for me buddy:
http://www.all4humor.com/images/files/Sumo%20Wrestling%20Crack.jpg
ROFL
Oh my, I just about spit coffee on my monitor!!!
It must take yards of fabric to make those…Certainly NOT a cheap alternative…lol
Mike,
Is that your photo climbing a series of cracks leading to multiple overhangs? I love rock climbing but the growing pressures of earning a living have gotten in the way. By the way, if that is you in the photo, you are in terrific shape… must be going to the gym 3-4 hours a day 5 days a week… How do you manage all that with your work?
RE to Andre: ding dong ding dong, you win the prize. After being up for months, nobody has ever commented on the climbing pic =)
Yep, that’s me on a route in Taiwan a couple of years back. I’m not climbing as much anymore – took a big scary whip on a run out lead (also in Taiwan) and lost my edge (feeling my age and all). Moved on to fighting sports now – MMA/boxing/jiujitsu. More small injuries, but less risk of a big life-ending one =)
RE: time management. One answer: “swing trading”. I spend very little time actually trading. Everything else I do, strategy development and running this business, is usually not time dependent, so I try to find lots of time to play.
P.S. hope you get back on the rock! One of the greatest sports in the world IMHO.
michael