Ian's Investment Plan Portfolio

[Gary M]

As I am 71, retired and wanting to preserve my capital, I did not change my portfolio structure to Ian's new Investment Portfolio structure of a buy & hold a single IJH ETF with satellite stocks.
I stayed with 2 x ETF's plus satellite stocks with timing.
I bought QQQ when the buy signal occurred several months back & bought IVV because I was sick and tired of waiting for a buy signal for IJH. I also bought 8 stocks when the buy signals came up with the emphasis on the FANG stocks that I thought would profit from COVID 19 conditions (Netflix, Amazon, Google, Microsoft, Adobe, Apple, etc)
Both QQQ & IVV plus the equities have performed remarkably and I am showing a portfolio profit of over 20% for the past two months and a return of 6% per annum for the past two years since starting my USA portfolio. I am happy to receive a lower total return compared to a 100% USA Equal Weighted stock portfolio because it suits my risk profile and I can sleep at night knowing that Spa3 Investor will protect me from the down side like it did while on holiday in QLD in early March this year. My portfolio is currently outperforming the S&P500 which is great but I understand anything can happen.
Ian's Portfolio however, which has IJH as a hold and represents 50% of the total portfolio value, has performed really badly and suffered a huge loss in March by holding onto IJH. As a result the portfolio is badly underperforming the S&P500
I understand Ian's new Investment Plan is based on a further 20 odd years of investing but in its early days it does not seem to be a good plan.
Are there any plans to reverse Ian's Investment Plan because from my point of view, it is not working to well compared to the original plan which is working fine for me.

[Jane Pervan]

I've experienced a similar journey as you Gary having modelled our SMSF on Ian's Investment Plan with a 50% core in IJH(ASX).  I moved to 25% of the core as B&H and 25% as timing when Ian did and the remaining 50% EW ASX.  When COVID hit, 75% went to cash very quickly but when the high market volatility rule was introduced, I then exited the B&H 25% in IJH for a big hit.  The ETF component is indeed acting as a big handbrake.

Having traded SPA3 since March 2019, I am sufficiently confident in my execution skills and mindset to consider changing this allocation in order to achieve more growth accepting that this involves more volatility in the equity curve. 

At first I considered 80% EW ASX and 20% IJH but, after this morning's webinar and also given that trading options in the future for income will likely require a US portfolio component (ASX options are too illiquid), I am considering whether now is the time to move to 50% EW US stocks and 50% EW ASX stocks?  In some ways, being spread across individual stocks is more reassuring because the timing sensitivity of the individual stocks gets you out to cash quickly in the event of market downturns without the large exposure to a single ETF instrument.

I did think about 100% EW ASX stocks with the advantages of market hours, franking credits and the CHESS system but being diversified across two different markets (accepting therefore that one will always be outperforming the other most of the time) seems like a smarter move to capture more growth as well as have the flexibility to introduce options trading for income in the future.

Are there any flaws in my logic?

[Gary Stone]

Jane,

I am considering whether now is the time to move to 50% EW US stocks and 50% EW ASX stocks?  In some ways, being spread across individual stocks is more reassuring because the timing sensitivity of the individual stocks gets you out to cash quickly in the event of market downturns without the large exposure to a single ETF instrument.

I did think about 100% EW ASX stocks with the advantages of market hours, franking credits and the CHESS system but being diversified across two different markets (accepting therefore that one will always be outperforming the other most of the time) seems like a smarter move to capture more growth as well as have the flexibility to introduce options trading for income in the future.

Are there any flaws in my logic?

No flaws that I can see.

Regarding your questions and observations about Iain’s Investment Plan, I’ll cover them in my response to Gary M.

Regards,
Gary

[Gary Stone]

Gary,

Ian's Portfolio however, which has IJH as a hold and represents 50% of the total portfolio value, has preformed really badly and suffered a huge loss in March by holding onto IJH. As a result the portfolio is badly underperforming the S&P500

I understand Ian's new Investment Plan is based on a further 20 odd years of investing but in its early days it does not seem to be a good plan.

Are there any plans to reverse Ian's Investment Plan because from my point of view, it is not working to well compared to the original plan which is working fine for me.

With the benefit of hindsight, it appears that we have tried to mould Iain’s Investment Plan (IIP) into a single model portfolio with too diverse a set of requirements.

It would be fair to say that we have been influenced by discussions with individual customers over the last 2 -3 years combined with movements in the market in an attempt to be representative of the majority of our customer base and also of Iain, who is in an earlier stage of his Investing Lifespan.

As a result, with some major chops & changes over the last 4 or so years, IIP has not played its role as the single ‘model’ portfolio it was intended to be at its inception.

What has also transpired over that period, is the more dominant role that stocks have come to play over ETFs in SPA3 Investor, and their greater potential for both growth and protection in an actively managed portfolio. Particularly as we have added more stocks to each of the ASX and U.S. universes.

As SPA3 Investor has evolved, and been further stress-tested in live market conditions, it has become more and more obvious that for a single portfolio its goto strategy for growth & protection is the Equal Weighted Stocks strategy.

Considering all of the above, we find ourselves at Share Wealth Systems asking, as Jane and Gary have, and I’m sure many others are, whether IIP is representative of how a single model portfolio would be set up if we were starting one now.

The answer I believe is that what IIP was trying to achieve in a single model portfolio should be done with two separate allocations of capital in two portfolios.

One allocation as a buy and hold portfolio in the Core part of the Core Satellite framework. This could be across 1-4 ETFs, depending on how much risk you wish to take.

The other allocation to an EW Stocks Portfolio (keeping it simple to just two allocations – a 3rd could be another EW in the U.S. /ASX or an income generating allocation).

This should be a Satellite portfolio.

The key here is that the two allocations can be measured separately as individual portfolios, and together as a Core Satellite Investment Plan.

The benefits of this are:

• The Satellite portfolio will act as a buffer (hedge) against a 50%+ fall in the B&H index ETF(s) allocation, while also offering superior overall returns from the higher volatility in stocks.
• The index ETF(s) allocation will always be invested and hence capture all of a bounce from a V bottom. And not be subject to short exit and re-entries in a raging bull market that detract from high B&H returns.
• If you need a break from actively investing your EW Stock portfolio, you will still have some exposure to the stock market via the B&H index ETF(s).

At the risk of confusing you, you could of course decide to execute multiple EW Stock Portfolios in your Core – no ETFs. This depends on:

1.   Your level of active investing skill in general, and with SPA3 Investor.
2.   Your time availability.
3.   How much market-facing capital you have to invest.
4.   Your risk profile.

A customer emailed me this afternoon after attending today's C&G Webinar, reminding me of a quote from the Investors Club Training, Module 4 Lesson 1:

Pick Your Strategy – The Right Strategy:

The first point I would like to make about the right strategy, is that it should be a strategy that you will be able to execute for many years to come. A lot of people embark on strategies that require many hours a day or many hours a week, and find when the novelty wears off, maybe a few weeks or a few months later they cannot sustain the execution of the strategy.

So, the first criteria is that whatever strategy you decide to use, ensure that you are going to be comfortable executing it for at least the next 20 years.

Thanks John.

I would like to hear what others may suggest that we do with IIP:

1.   Keep it going as is?
2.   Modify the mix of IJH in the portfolio to less than 50%?
3.   Cease it altogether? (Pointless SWS having a single or dual model ETF portfolio because that can easily be researched using data from BC or Yahoo Finance with dividends included.)
4.   Start a second ASX and/or U.S. EW strategy with a different focus? E.g. only open positions in stocks that are not in a first EW Stocks portfolio. Or a different no. of open positions.
5.   Other?

Regards,
Gary

[Gary M]

Gary, the 5th option could be to return to the original IIP portfolio with 2 x ETF's with timing and satellite stocks also with timing. The original IIP portfolio was doing brilliantly until it was modified to 1 x IJH ETF as a hold and satellite stocks with timing. It all went south after the change.
I am no financial wizard but why fix something that isn't broken.
Can SWS back test what IIP's portfolio would look like now if it was in its original form??
With my shorter investment window I feel comfortable with a core of 2 x ETF's representing 50 to 60% of capital and the balance in EW satellite stocks with both the core and satellite stocks subject to timing. Over the 2 years that I have had this investment plan it has served me well in obtaining a respectful annual return whilst protecting my capital during the several market fails during the 2 year period. 
I am getting 50% of my return from the core and 50% from the satellite stocks although this may have something to do with the choice of the 2 x ETF's in the core. In my case I started with QQQ & IJH and then changed to QQQ & IVV when I got buy signals for them in mid April 2020.
My portfolio provided a 9.5% annual return for the last financial year and although it was well bellow the ASX EW portfolio, it performed much better than the Australian Super Funds negative returns (and even Warren Buffet, ha ha). For me, Spa3 Investor is doing its job.

[Gary Stone]

Gary,

I am no financial wizard but why fix something that isn't broken.

As I said above, it wasn't about fixing the portfolio because it was broken. It was about trying to reflect a portfolio structure that assisted in showing and coaching our customers.

Upon further reflection since my above post and your last post, over its lifespan Iain's Investment Plan has had mixed objectives that have been in conflict with each other to some degree. As stated above.

Rather than have the persevering clarity about its objectives, which are needed to create a long-term portfolio framework that continues to outperform alternative investing avenues and the Total Return index.

That is a lesson in its own right!

Can SWS back test what IIP's portfolio would look like now if it was in its original form??

We certainly can.

And herein lies one of the key decision criteria as to what performance results we "show & tell" with research, and what we "show & tell" with portfolios executed with money in live trading conditions.

To demonstrate historical performance of an ETF timing portfolio via back-testing, is 100% equivalent to historical mechanical live execution. Because there is no ‘stock’ selection in the ETF portfolio. Once the ETFs are chosen before starting the portfolio, the results will be the results.

We could run updated historical performance of this from time to time to show historical ETF portfolio performance without the need to try to construct a single live executed mixed ETF/Stock portfolio.

Whereas a stock portfolio is different. Stock selection, capital size, number of EW positions and when it is started will result in different outcomes, especially in the short term (less than a year).

My portfolio provided a 9.5% annual return for the last financial year and although it was well below the ASX EW portfolio, it performed much better than the Australian Super Funds negative returns (and even Warren Buffet, ha ha). For me, Spa3 Investor is doing its job.

This is great to hear Gary. Thank you for sharing.

Share Wealth Systems core business is to conduct research in the stock market to create mechanical systems that have a probabilistic EDGE, and then package the system in software, a plan/process and coaching that makes it as easy and efficient as possible for ordinary people to execute in the market.

SWS sees historical research results, AND executing live portfolios in the market as a key part in the coaching component.

With the benefit of experience, and knowledge of what can be done with research tools to closely replicate live execution, I’d like to focus live portfolio execution on the areas that require the most coaching.

And focus on where investing results require more live “show & tell” to help our customers improve their belief in mechanical investing to achieve their investing goals & objectives.

To my thinking, these areas are where the most mistakes can be made., i.e. where investors can most deviate from their Investment Plan.  And I think this is with executing a stocks portfolio that has multiple simultaneously open positions through all kinds of market conditions.


My view is that replicating a timing ETF portfolio requires no discretion once the ETFs are chosen and the portfolio is underway. There is no ‘stocks selection’ dilemma thereafter. The execution mistakes that can be made are no different to those in an EW Stock portfolio, i.e., not buying or selling when signalled to do so.

In terms of combining the performance of an ETFs and a Stocks portfolio, the overall performance can always be calculated from separate portfolios rather than having to execute them as a single portfolio.

For coaching purposes, for example, SWS could always show the combined performance of a researched ETF portfolio with timing, with that of a live executed stocks portfolio. The ETF portfolio could reside in the Core portion of the Core Satellite framework and the stocks portfolio as a Satellite.

Keen to hear your thoughts, Gary et al.

Regards
Gary

[Gary M]

"In terms of combining the performance of an ETFs and a Stocks portfolio, the overall performance can always be calculated from separate portfolios rather than having to execute them as a single portfolio.

For coaching purposes, for example, SWS could always show the combined performance of a researched ETF portfolio with timing, with that of a live executed stocks portfolio. The ETF portfolio could reside in the Core portion of the Core Satellite framework and the stocks portfolio as a Satellite"

I like the concept of the two separate portfolios; an ETF portfolio with timing & an EW Stock portfolio with timing (I have basically got this now except its all under one roof so to speak). At my age I could not emotionally handle an ETF buy & hold portfolio. I simply could not handle the greater drawdown on my SMSF compared with lesser drawdown with an ETF portfolio with timing. I am also satisfied with a lower return with ETF timing and the protection it offers. It helps me sleep better at night which is important.
I have been with SWS for 12 years and with my current strategy based on IIP's original strategy, I am happy to stick with it.
My equity curve (blue) using the original IIP gives me comfort when looking at the drawdown on S&P500 Total Return (red) over the last 2 years and particularly in March 2020. With this confidence I have committed 90% of my SMSF to the system and the market with the knowledge that I have protection from the downside as long as I follow the rules. This is something I would not have contemplate years ago when I started the journey.

[John Tassopoulos]

Hi Gary,

My learnings since the Friday webinar and from this forum thread are:

1. ASX/US EW portfolios are viable Core strategies.

2. It will be difficult to mechanically execute an ASX/US EW portfolio Core for the next 20 years because of (a) the additional execution effort required, and (b) SWS will always be releasing new research over the years causing a re-think of ASX/US EW portfolios as a Core.  In response, the investor needs to commit in their Trading/Investing Plan to swap their Core allocation to IJH B&H or IJH timing when they are not able to mechanically execute, or consciously decide to not execute, the ASX/US EW portfolio Core.  An IJH Core allocation keeps you in the game (i.e. not a Spectator), and you choose B&H or timing depending on how far you are from retirement.  Iain is not yet 55 years old, so IJH B&H is a suitable approach.

3. For education purposes, what I would like to see is 20-year simulations of running different Core portfolios, at different times, and for different lengths of time, e.g. running ASX/US EW portfolios for x months/years, followed by IJH B&H for y months/years, then back to running ASX/US EW portfolios for z months/years, and so on.  These simulations will provide a realistic picture of whether the retirement capital needed in 20 years' time is achievable.

John

[Graeme Reardon]

Hi Gary,

My current structure also mimics to some degree the original IIP plan.

I have two separate portfolio's, one for the ASX, one for the US market (funded and traded in USD), tracked in TradeMaster as two separate entities, as follows:-

ASX Market - 2 x Timed ETF's (STW & VAS) with a maximum 20% allocation of that portfolio's capital to each, along with up to 12 EW Stocks (obviously up to 5% of the portfolio's capital to each). This portfolio has been running since 29th August 2018. Last fiscal year, this portfolio achieved 2.3% growth, which, whilst not stellar, certainly was not negative, which I'm quite happy with considering the state of the world.

US Market - 2 x Timed ETF's (QQQ & VAS) also with a maximum of 20% allocation of this portfolio's capital to each, plus up to 15 EW Stocks (up to 4% of this portfolio's capital to each). This portfolio has been running since Feb 27th 2019. Last fiscal year, this portfolio achieved 8.27%, which again, all things considered, was a reasonable outcome also.

I'm sub-50 (just!), so feel that I still have time on my hands to see solid growth over the years ahead, yet can't afford to see a 30%+ slide (as we have recently seen) via a B&H strategy, in particular since the 'extra' work to monitor the ETF's in reality is a fraction of the time spent on monitoring the EW stocks themselves (in particular when your portfolio is not full and you need to check each available stock to assess whether it's under the Action Price or not each day).

Whilst this approach may not be 15 minutes per week as is the stated aim of IIP, it could certainly be done in 10 mins per day, which, as an active investor, I feel is absolutely within reach of someone wanting to 'actively' manage their next egg themselves.

Just my two cents.

Best,
Graeme

[Karl Stanguts]

Continued on new Share Wealth Systems forum:  https://forums.sharewealthsystems.com/t/iains-investment-plan-portfolio/64