Research Model
It is axiomatic that to produce consistently, superior returns you have to something different from the majority of investors. Yet it is equally true that making different financial decisions requires you be right or your portfolio will suffer the consequences.
360Portfolios was engineered to provide investors with an investment edge1. This edge is built into the methodology which strives to amplify portfolio compounding while pro-actively managing risk.
The 360Portfolios’ five-step process to begins with
| ❶ | macro-indicator analysis to assess the health of the market. |
| ❷ | Then a database of pre-screened opportunities is scored and ranked for their reward for risk potential as well as to identify their timeliness. |
| ❸ | Next portfolio asset allocations are set factoring-in scenario analysis for each model portfolio’s objectives. |
| ❹ |
Portfolio holdings are then confirmed using the formula3: Rmaxi = (P x D)i where Rmaxi = the portfolios ROI over period i, P = portfolio holding, and D = weighted compounding rate over period i. |
| ❺ | Finally portfolio Value-At-Risk parameters are established with virtual GuardRailSM Technology to combat portfolio risk.4 |
The result is a powerful, institutional-grade money management program designed to perform in good or bad financial markets. It’s a process that’s dynamic with real-time inputs providing feedback to update the models as the Markets change. Performance is highly competitive on a risk-adjusted return basis simply because its design parameters give it an edge over conventional approaches. Built into the methodology is the logic to counterbalance geometric loss—the debilitating, mathematical reality that losses require an increasingly significantly greater gain to recover (a portfolio that has a $10,000 position that declines to $5,000 incurs a 50% loss but requires a 100% gain to recover). Indeed, 360Portfolios combats this risk by carefully monitoring a control baseline set above the average (mean) with the objective of remaining above it.
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Back-tested and actual results provide confidence 360Portfolios’ methodology is a more viable way to invest. Rigorous back-testing with market data over twenty years (12/1985 -12/2005) in Bull, Bear, and Sideways Markets, corroborates its superior merit and efficacy as an improved investment discipline. Subsequent, actual results with client accounts using it have produced above-average market returns. That said, 360Portfolios does not promise any investor profits, warrant similar historical returns nor provide guarantees against losses. The fact is the 360Portfolios methodology is short of perfection, but 100% accuracy is not required to beat the market. All that is claimed is that 360Portfolios methodology is a better way to invest that will out-perform many conventional investment strategies widely in use. In reality that’s not much of bogey as 360Portfolios need only produce a return that is one percentage point better to beat the market and the investment edge generated from low investment costs, portfolio optimization and combatting loss makes that metric inordinately possible.
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1 There is of course no guarantee that 360Portfolios will sustain an investment edge over the market or that it will continue to work without a greater degree of investment error.
2 360Portfolio’s five-step process was formulated after rigorous testing and incorporates years of portfolio management know-how including investment methodologies others have had success with and provided details about.
3 Rmax formula for optimized portfolios is adapted from John L. Kelly's work as cited in his publication entitled: "A New Interpretation of Information Rate," The Bell System Technical Journal, March 1956. Kelly used Claude E. Shannon's equations on Information Theory first published by Shannon in his paper: "A Mathematical Theory of Communication," The Bell System Technical Journal, Vol 27, July, October 1948. While 360Portfolios borrows from Kelly's work in optimizing asset allocation it does so without the requirement of probability forecasts of future returns and without application of the Kelly criterion to allocate holdings.
4 Value-At-Risk is a risk management methodology utilized for portfolio asset liability management to quantify overall portfolio risk exposure throughout an organization with many portfolios or trade positions simultaneously under management. The 360Portflios methodology has simplified and adapted VAR for measuring portfolio risk exposure in the 360Portfolio models.
5 Modern Portfolio Theory and its various Mean Variance Optimization derivatives are commonly used by retail and institutional investors and have defects. 360portfolios seeks to exploit these for market advantage. Additionally 360Portfolios cross-matches investment strategies with investment scenarios to create vantage points. There can be no guarantee that the street will continue their robo-investing methodologies or that the markets won’t change in some way that the 360Portfolios’ methodology may require further adaptation. Adaptation however is at least partially considered by new input data regularly factored into the 360Portfoli models.