Ron Bertino – Portfolio Investing

Description of Portfolio Investing

Get steady and consistent returns with low drawdowns, spending just 20 mins per month

Do you need steady returns with low drawdowns?

Sure. Doesn’t everybody?

The problem is that we’re led to believe that investing our own money is too risky and we should therefore use hedge funds in order to take care of our long term investments.

Financial concepts tend to sound quite complicated and involve either having to get deep into the weeds with complicated financial formulas, or resorting to having to become a programmer in order to code up even a simple investment strategy.

Could you outperform the average hedge fund?

That may sound like a crazy question to ask, but did you know that the average yearly returns of hedge funds are just 4.5% to 5% over the long term? They may be higher in more recent years, where the stock market has been increasing at an incredible rate, but once you include a few stock market crashes, then the yearly returns drop to an average of around 5%.

That’s a performance statistic which tracks 600 to 800 of the larger hedge funds, where each of these hedge funds need to have at least 100 million dollars of customer funds under management.

While you may be frustrated with that level of lackluster performance, the hedge funds are still perfectly happy to keep charging you their management fee, no matter how they perform.

Ray Dalio claims to have found the Holy Grail

While the average hedge fund performance has been lackluster, there are certain hedge funds that do perform very well. Ray Dalio runs one of the largest hedge funds in the world, called Bridgewater Associates, which as of 2018 manages over 125 billion in customer funds. Ray Dalio himself is a billionaire. So when a person like this makes a statement about having found the Holy Grail, then perhaps we should pay attention.

Here is a short 4 min video, where Ray Dalio explains the concept of the Holy Grail. Note that he’ll reference a bunch of terms that you may be unfamiliar with (standard deviation, correlation, alpha, information ratio, etc). Don’t worry, by the time you complete this course, you’ll know and fully understand all of these financial terms.

The main point he’s making is that the Holy Grail can be achieved by trading a variety of trading strategies or portfolios, where the return of each of these portfolios is unrelated to the others. When one strategy or portfolio is losing money, then hopefully the others aren’t losing money at the same time.

The keys are to:

• have a variety of different portfolio strategies to choose from
• be able to measure the degree of correlation between these strategies

You’ll be learning both of the above in this course.

What will you learn in Portfolio Investing?

Introduction

• Welcome to the course
• Strategic versus tactical asset allocation
• Introduction to bonds
• Asset classes
• Hedge funds
• How data can trick you

Returns

• Getting historical data
• Linear versus log scale
• Arithmetic and log price returns
• Cumulative arithmetic and log price returns
• Converting arithmetic and log returns
• Arithmetic and geometric mean
• Wealth index
• Performance charts

Measuring risk

• Variance and standard deviation
• The portfolio effect
• Sharpe ratio, Sortino ratio, Calmar Ratio, Martin Ratio
• Alpha and Beta
• Correlation and R Squared
• Treynor Ratio and Information Ratio
• Value-At-Risk and Expected Shortfall

Factor models

• Capital Asset Pricing Model (CAPM)
• Fama French 3 factor model

Permanent portfolios

• Equal and Value Weighting portfolios
• Calculating portfolio returns
• Review of 5 different permanent portfolios

Moving average filters

• M.A.F. – single asset
• M.A.F. – all assets in a portfolio

Modern Portfolio Theory

• Introduction to MPT
• Correlation and the correlation matrix
• Efficient frontier
• Minimum variance portfolio and mean-variance efficient portfolios
• Rebalancing
• Return vs risk graph
• Capital Allocation Line, and margin effect on returns
• Kelly Criterion – optimal f
• Inverse variance portfolio
• Risk parity portfolio

Dual Momentum

• Review of 6 different dual momentum portfolios

Other portfolios

• Review of two Adaptive Allocation portfolios
• Review of two Core-Satellite portfolios

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