We're about to release our software for beta testing (see signature below), and would love to have some real portfolios to analyze: stocks, mutual funds, ETFs, indices, foreign or domestic; as long as I get historical prices on the internet.

If you'd like a free analysis of your portfolio, just send me a PM with your current holdings; if you don't want to betray the value of your portfolio, just send relative weightings for each security.

The idea will be to improve your portfolio: either more return for the same risk, or the same return with lower risk. I'll analyze it as of some date in the past - say, six months or one year ago - and compare the risk / return on your portfolio with the risk / return on the (predicted) improved portfolio.

 

Look for PM

 

PM will be sent later. Thank you!

 

Ok, analyze me, Mr. Magic! PM sent.

 

Here's the beginning of an analysis of one portfolio; I'll include some screen shots in this one, but for later analyses I'll just put in the numbers.

First, the individual securities, as of 4/16/06 (the portfolio was created on 4/17/06, so all of these data were available when the stocks were purchased):


Then, a summary of the portfolio:


A graph showing return vs. risk for the original portfolio:


I added four securities: a large-cap stock fund, an intermediate-term bond fund, the S&P 500 index, and 10-year US Treasury Bonds:


Finally, I built an efficient portfolio with an average (historical) return of 30% / year:


I'm off to work now; I'll put in the results tonight or tomorrow.

 

Magic man, how long does it usually take to complete an analysis? And what if I won't understand the data, will you answer my questions then? Thanks!

 

It should be less than an hour, at least, when I haven't twenty-five other things to do at the same time.

I'll be more than happy to explain anything that's unclear.

 

The portfolio above comprised the following stocks / amounts:

HNT $3,024.12
EEM $2,771.55
MATR $3,064.25
MSCC $2,879.55
TRAD $2,921.77
ULTI $3,289.22
AMG $3,346.20
ADRE $2,678.40
DIOD $3,223.20

Over their history, these stocks had the following average (compounded) annual returns:

HNT 20.76%
EEM 43.62%
MATR 64.78%
MSCC 68.10%
TRAD 44.29%
ULTI 88.45%
AMG 48.86%
ADRE 42.00%
DIOD 80.81%

They also had the following (annualized) volatilities - standard deviation of monthly returns:

HNT 141.93%
EEM 84.05%
MATR 275.08%
MSCC 374.50%
TRAD 596.15%
ULTI 241.75%
AMG 140.19%
ADRE 90.70%
DIOD 272.97%

To put this in context, over the same period (3 years, 1 month) the Dow Jones Industrial Average has had an average annual return of 12.10% with 35.65% volatility; the S&P 500 has averaged 12.65% return with 33.78% volatility. This portfolio had an expected return of 62% and a volatility of 109%.

In short, the manager of this portfolio was trying to hit a home run with every stock.

Babe Ruth tried to hit a home run every time he came to bat; he leads the major leagues in strikeouts.

The owner of this portfolio had stop-loss orders on every security; they all bottomed-out: 9-for-9 in strikeouts.

A more sensible portfolio would have included some lower-risk securities, or at least some securities with low correlations to the rest of the portfolio.

I tossed in a large-cap mutual fund (chosen essentially at random), an intermediate-term bond fund, the S&P 500 index, and 10-year US Treasury bonds, then created a the portfolio with an expected return of 30% / year (still very high, but not as ridiculous as the original) and minimal risk.

I'll post the allocations and the results for the last 6 months later today.

 

Without the stop-loss orders, the original portfolio of $27,198.26 would have dropped to $23,531.61, a loss of 13.5%.

The efficient allocation for an average (historical) annual return of 30% was:

HNT $3,661.96
EEM $4,502.48
MATR $700.73
MSCC $0.00
TRAD $0.00
ULTI $3,355.65
AMG $0.00
ADRE $0.00
DIOD $1,987.77
FSMKX $0.00
SPGVX $9,876.0
^GSPC $0.00
^TNX $3,113.58

Over the same period this allocation would have dropped to $25,485.66, a loss of 6.3%. Advocating a portfolio that loses money may sound silly, but note that this allocation would have turned out $1,954.05 better than the original. A more judicious selection of stock and bond funds may heve produced a better result.

 

Looking at another portfolio as of 2/9/06:

3-mo CD $7,463.41
EEF $3,526.00
FAGIX $4,944.00
FRESX $2,908.80
FSENX $10,528.55
FSRRX $3,081.40
IGNAX $3,070.90
PCUFX $5,078.50
RMT $7,358.00
RYVFX $3,508.65
RYVPX $2,992.30

I used the ten-year Treasury as a proxy for the CD.

This portfolio had a different problem: virtually no diversification despite having eight mutual funds. The reason: these funds are very strongly positively correlated; they all move up and down together. Here's a graph of historical returns for the six months preceding 2/9/06:



Except for the T-Bonds, everything moves together; eight of the mutual funds have average correlations with the rest of the portfolio of over 70%.

The current allocation has an average annual return of 16.5% and an annual risk of 56.22%. The efficient portfolio having the same average annual return of 16.5% has an annual risk of 17.45%:

^TNX $25,605.64
EEF $0.00
FAGIX $14,335.79
FRESX $0.00
FSENX $0.00
FSRRX $0.00
IGNAX $0.00
PCUFX $0.00
RMT $10,173.35
RYVFX $0.00
RYVPX $4,345.73

From 2/9/06 to 8/8/06 the original portfolio would have grown from $54,460.51 to $56,865.21; the modified portfolio would have grown to $56,744.19.

Adding neither a large-cap stock fund (FSMKX) nor an intermediate-term bond fund (SPGVX) improves the portfolio because their returns are also strongly positively correlated to the rest of the portfolio. The owner needs to find another security or two whose correlation with the portfolio is much lower than 70%