Regarding Rebalancing a Portfolio

Posted in Investing on 10, January 2018 by nathanbusch

A client recently asked me the following set of questions:

Most stock screens typically have a high turnover of Ticker Symbols and are advertised using monthly rebalancing or updating: would annual rebalancing of the portfolio give better returns?

Also, it seems that monthly rebalancing of a portfolio necessarily increases costs of transaction, slippage and taxes. Therefore, how can the monthly rebalancing add sufficient value to a Portfolio given the inherent shortcomings.

Is there any way to obtain results of a portfolio managed according to yearly rebalanced as opposed to monthly rebalancing?

My response is as follows:

As to your question about backtesting to obtain the results of annual rebalancing: my question is why would you want to use annual “rebalancing”; do you have especial information that a portfolio that is rebalanced on an annual basis will out perform a portfolio that uses the same screen but is “rebalanced” on a monthly basis. If you have such information, then you are set to go. If you have no such information and you are relying upon a rule that some academic researcher or Wall Street guru establish, then you are in for some very poor sailing.

As to costs of transaction: if you use a large bank or brokerage house, you are lucky if your transaction costs will be any less than 111 basis points plus $45.00 per trade, and that is for each of the buy and sell. If each of your transactions is, say, $1000.00, I guarantee that you will lose money if you rebalance on a monthly basis and it is highly likely that your portfolio will suffer severely even if you “rebalance” on an annual basis. Of course, your portfolio will, most likely, suffer severely if you “rebalance” on an annual basis because it is highly likely that the average annual return on the stocks that enter the Passing List of any given stock screen will be much smaller than the average annualized return of the portfolio if you “rebalance” on a monthly basis. Use an online discount brokerage house: their transaction costs are so cheap as to be negligible.

As to slippage: this is pure nonsense. Understand the behaviour of the market in which you intend to operate and use limit stops.

As to taxes: this is also pure nonsense and an absurdity. Use tax sheltered or tax deferred accounts. You will be best if you use a Roth IRA.

To help you understand a bit better as to how to use the screens: let us consider the EPS Est., Rev. Up 5% Stock Screen. Typically, this stock screen produces, on average, about 40 ticker symbols per week. Consider further promoting the set of ticker symbols, which enter the Passing List on a given week, to the Portfolio and holding that set for a set time and then selling. Do that each week. Now, I know by now that you are screaming that I am completely off my rocker. I ask that you bear with me a bit.

Of course, for any given stock screen, it is highly probable that a single Ticker Symbol will enter the passing list over the course of several weeks. It would be absurd to purchase that Ticker Symbol and then purchase that Ticker Symbol a week later, & etc. The solution to this is to cull all repeat ticker symbols during a window of time before the week of interest. I use a 28 day look back period. That immediately eliminates about two-thirds of the ticker symbols that enter the passing list each week.

Then, screen the remaining one-third of the ticker symbols that enter the Passing List each week using one or more items of fundamental financial information or derivative information therefrom. I actually use a derivative of approximately 42 individual items of fundamental financial information each of which is averaged over the previous eight years. By this “buy rule”, I am able to decrease the average number of ticker symbols purchased each week to 2.06 between the beginning of January 2016 and 5th January 2018.

Then, I have an algorithm that maximizes the capital invested in the portfolio at any given point in time. This algorithm is based upon the utility function used by Bernoulli in his solution of the Saint Petersburg Paradox. This step alone approximately doubles the average annualized return of the portfolio.

Now, test to obtain the optimal holding period for the set of ticker symbols that is promoted to the portfolio each week.

The answer for my set of rules as applied to the EPS Est., Rev. Up 5% Stock Screen: buy every week, hold for five weeks and then sell as close to the market closing price as is possible.

My Simulated Portfolio indicates that the average annualized return on the invested capital in the Portfolio is 57% if the set of ticker symbols is held for five weeks and 12% if held for more than 26 weeks. I have been using this method since the beginning of January 2016 and have obtained a return that is within 0.15% of the Simulated Portfolio. And all of these numbers include transaction costs.

As to backtesting: there are some websites that one can use to backtest stock screens. I have found that these are incredibly difficult to program, have long waiting times for execution, and are inordinately expensive. Therefore, develop your own and I suggest that you not try to do so in MicroSoft Excel. Excel is clunky, slow, and underpowered for the computations you will need to properly backtest any stock screen. I currently use 8 macMini computers all running my algorithms in parallel and over ethernet connections. I obtain my items of fundamental financial information from the AAII Stock Investor Professional data base. My computational time for a complete Portfolio Simulation is approximately 8 hours per year of backtesting.

I hope that this helps.

Nathan A. Busch


Cryptocurrency and Tulip Bulbs

Posted in Investing on 12, December 2017 by nathanbusch

In 1637, Dutch tulip bulbs, which had only recently been introduced, reached extraordinarily high prices: so high became the price that people were liquidating vast fortunes and borrowing to the hilt to buy a small handful of bulbs.  Then, people came to their senses and the price of the bulbs collapsed.

My reader and friend Dan asked my opinion on the rapid rise of the price of cryptocurrency and the futures market for these coins.  As a preliminary point, has anyone actually seen one of these coins?  My understanding is that the answer is a resounding NO!  That is because these things are nothing but a few bits of information in a computer.  Also, if memory serves, a considerable number of cryptocoins disappeared from a computer a few years.  Did anyone ever retrieve these “coins”.  Again, the answer is a resounding NO!  Oops!  There goes your life’s savings: too bad!

Cryptocurrency is not fungible, not readily liquidable, not recognised as legal tender by any government in the world, not negotiable, not tangible so these cannot be stored in a safety deposit box, and of use only by criminals.  These bits of information are even less valuable than Dutch tulip bulbs: at least you can plant tulip bulbs, let them grow for a year, and dig up six times as many bulbs as you planted, and you can sell the excess bulbs.

For these reasons, the Cryptocurrency Mania of 2017 is more lethal to your investment portfolio than was the Dutch Tulip Mania of 1637.

Therefore, run, as fast as you possibly can, in the opposite direction as the cryptocurrency is traveling.

I hope that this helps.

Nathan A. Busch

K.Z. in the Camel Hair Coat

Posted in Life in the Country on 11, December 2017 by nathanbusch

She: young, beautiful, in a camel hair coat waiting for her bagel to be readied.

He: mature, in common working clothes waiting behind her.

They struck up a conversation and she confessed that she bought the coat at Goodwill for $20.

Said he: “I would have bargained for $15.”

She laughed.

He gave her a gift that would change her life.

Then he discovered that she had a flaw: and, he pushed her away.

Awakening from a dream, he realised that she was imperfect as was he.

A beautiful couple they would make if she could realize as did he.

Yet, her life has been changed forever.

I hope that this helps.

Nathan A. Busch


If You Will It …

Posted in Life in the Country on 7, December 2017 by nathanbusch

“If you will it, it is no Dream.” Theodore Herzel

If you believe that your world is one of sickness, lack, limitation, poverty, and failure then that is the world that will manifest for you. It matters not how successful or wealthy you are: your world will crumble, your wealth will dissipate as the dew in the warm July morning sun, your health will lie in tatters, and poverty will be your reality.

If you believe that you have good health, wealth, and happiness then that will be the world that manifests for you. Listen not to the gods of poverty, doubt, sickness, limitation, and those accuse you of being mentally deranged as these false gods will destroy you. Banish those false gods by thinking only of joy, health, wealth, abundance, and love. In doing so, the Infinite One, the Creator of all That Ever Has Been, That Is, and That Ever Will Be will manifest for you the world of Joy, Health, Wealth, Abundance, and Love. There is no other outcome.

In Genesis it is written: G_d created humans, breathed into them Life, and gave them Choice. You can either chose the world of Love, Health, Wealth, and Abundance that G_d intended for you to have or you can chose the world of the false gods of sickness, disease, poverty, and eternal death.

The Choice is yours to make. Chose wisely because you have only once chance.

I hope that this helps.

Nathan A. Busch

Entered Passing List on 20171020; Promoted to Portfolio on 20171027

Posted in Investing on 1, December 2017 by nathanbusch

The following ticker symbols Entered the Passing List on 20171020 and were Promoted to the Portfolio on 20171027. These ticker symbols will be held for five weeks at which time these will be sold at a price equal to or as close to the day closing price as is possible. In the attached table, we find the ticker symbol, the price paid as at 20171027, the price as at 20171130, the capital gain for each ticker symbol, and the average capital gain assuming that an equal amount of capital is invested in each of the ticker symbols.

Promotion/Sale Epoch
Ticker Symbol 20171027 20171130 Capital Gain
ANF 14.15 17.99 0.2624
CVTI 29.19 29.32 0.0044
EXFO 3.90 4.35 0.1153
NR 9.20 8.78 -0.0456
Average 0.0837

I hope that this is of assistance to each of my audience members.

Nathan A. Busch

Automated Investing Decisions

Posted in Life in the Country with tags , , on 20, October 2017 by nathanbusch

Using an automated method for selecting stocks, and optimizing the buy and sell rules, I have realised annualized returns equal to 48.99% since the beginning of 2016.  That means that I doubled my investment in late August 2017.  Still, detractors say it cannot be done.

I hope that this helps.

Nathan A. Busch

Murdered in Cold Blood: Philando Castile and Justine Ruszczyk

Posted in Exposing Corruption, Life in the Country with tags , , , on 20, July 2017 by nathanbusch

Philando Castile was sitting in his automobile with his significant other and a young child.  He had his hands on the steering wheel.  A murderous police thug opened up with his pistol and pumped seven lethal bullets into the body of Mr. Castile.  Did that murderous thug not understand that one of those bullets could have killed the innocent significant other or the child?  No, the police thugs are trained to murder, then ask questions.

Justine Ruszczyk called 911 for help.  Another murderous Minneapolis police thug opened up with his pistol and murdered innocent Ms. Ruszczyk while she was pleading for help.

The law enforcement thugs are not the “good guys” that they pretend to be.  They are trained to murder innocent people whenever their trigger finger gets itchy.  The only discernible difference between street gang thugs and murderous police thugs is the color of their clothing.

Either stand up for your right to be free from the fear of becoming murdered by the murderous police thugs or visit he undertaker to buy your casket now.  You will soon need it.

I hope that this helps.

Nathan A. Busch