We design sophisticated investment strategies which are inspired by investing legends. These are our own unique models. They have been applied to Canadian stock markets.
Two reasons. One is to disrupt the market. We feel that our free strategies are better than our competition. The second is that once you out-perform the market with our free strategies, you’ll probably be happy to pay a little extra to get the same strategies with even more potential edge.
Stocks are selected from only the Toronto Stock Exchange which is in Canada.
Simulated and reported prices are at the daily close of the day we recommend it.
That is entirely up to you and I do not recommend any brokerage over another. Because these are active strategies you should be very concerned about cost. Moneysense has a good guide that compares the various options available.
That is entirely up to you. However, if your goal is to mirror the performance of the model portfolio, you would need to invest and hold all the positions at once – as opposed to picking up the stocks piecemeal.
Rebalancing occurs when you re-set your positions back to the target weight. On this website, positions are optimal when they are equal weight. If you have 10 stocks and $100,000 then each position is roughly $10,000. Does that mean that every month or every quarter you need to buy and sell a few shares to get each holding back to its target weight? My personal research shows very little benefit in doing so. I have tested arbitrary rebalance points starting with a 10% up to a 50% drift from a stocks optimal size. The difference, in my opinion was negligible and any potential benefit was consumed by brokerage fees. In many instances performance was worse.
This 2014 research paper discussing the increased risk of rebalancing. They highlight that losses in down markets are magnified when rebalancing.
It is important to remember that the simulated performance is dependent on following the model portfolios. This doesn’t mean that you are required to do so. You may choose to trade only once a year…or buy and hold. That really is up to you. I don’t know your individual circumstances and cannot make personal recommendations to you.
But it is important to understand that the less frequently you switch holdings, the less returns you will earn from the underlying factors. For instance, one strategy might be based on high earnings growth. You can buy a stock during a period of high earnings growth, if you wish, and hold until it becomes a blue chip dividend stock. As the stock matures, your returns will switch from being based on growth to something like earnings quality and value or even sentiment. The performance will vary from anything reported on the site. But hey, this is your portfolio and you are in charge.
More documentation will be added in the future to show you various simulated return profiles when we make various changes. What happens if we replace stocks annually? Or buy and hold? What if we balance the portfolio according to sectors?
Backtesting is in reference to simulating a strategy on a historical database. It does not guarantee that a strategy will work going forward. However, would you want to trade a strategy that has worked poorly in the past? There are many considerations when it comes to backtesting. For instance, does the database include stocks which were merged, bought out or removed from the exchange? This is called survivorship bias. Does your model portfolio hold enough stocks to prevent overly optimistic curve-fitting? Curve-fitting is where you mindlessly run the simulation over and over until you get a result you like. I use 20 stocks instead of 5 or 10 to minimize one or two stocks being fit to make up the bulk of the simulated performance. Is the data-base true point in time? You should only know data (e.g. updated SEC report) at the exact time that people had access to that knowledge. If not, there is look-ahead bias. Backtesting is only a tool and its effectiveness relies heavily on the practitioner.
All stock trading and investing has risks. You should already be familiar with the investment process. There is market risk which cannot be diversified away. A bear market usually sees a highly correlated drop between all stocks. Stock picking strategies will typically not help cushion the fall. There is style risk. These models are typically centered around a style such as growth, value or momentum. Style performance can vary between periods. There is liquidity risk. Stocks with low turnover (infrequently traded) can be difficult to buy and sell at a favorable price. Positions may need to be accumulated over days and the execution price may inline with your expectations. The bid-ask spread may also be wide which can lower returns. Active trading adds various costs such as brokerage fees and if a stock picking strategy does not produce out-performance, this can compound any capital losses. It may also increase capital gains taxes. Concentration risk can occur when a strategy focuses heavily on one sector or industry group. This is only a sampling of the risks which you may incur.