The World of Investing Has Just Changed
at a Fundamental Level
The National Association of Online Investors (NAOI) has released a new comprehensive theory of investing called Dynamic Investment Theory (DIT). This is the market's first viable alternative to Modern Portfolio Theory (MPT), today's standard approach to portfolio design and investing in general. The problem that investors face today is that MPT was introduced in 1952 when markets were a far different place. While markets have evolved significantly since then, MPT has barely changed at all, and it no longer works in modern markets. DIT creates a next-generation investment type called Dynamic Investments (DIs) designed specifically to thrive in today's markets and they do so amazingly well.
As an example, the simplest Dynamic Investment possible, one that works with only a Stock and a Bond Exchange Traded Fund (ETF), earned an astounding 26.7% per year during the 10-year period from 2008 to 2017. This, while a typical MPT portfolio earned approximately 10% per year for the same period. And the DI performance came with less risk and NO active management required!
You will learn how and why Dynamic Investments work on this page, this site and in the NAOI's new book The Amazing Future of Investing that is described below on this page.
As a member of the media I believe that your audience will benefit greatly by being among the first to know about this fundamental change to investing being able to use and benefit from it now.
The Evolution of Investing
After reading this short Web page you will see that the world of investing has just evolved from the 1950's to the 21st Century. Below is the newly revised evolutionary timeline for modern investing:
- 1952 - Introduction of Modern Portfolio Theory and Asset-Allocation Portfolios ( Markowitz - Awarded Nobel Prize )
- 1980 - Introduction of Mutual Funds
- 1992 - Introduction of Exchange Traded Funds
- 2017 - Introduction of Dynamic Investment Theory and Market-Sensitive Portfolios ( Hevner)
- 2018 - Release of Dynamic Investments to the Public via The Amazing Future of Investing book
Today the financial services industry is not serving the investing public well. It is using investing methods that are outdated and dangerous to the financial security of their clients. The introduction of Dynamic Investment Theory and Dynamic Investments brings the world of investing into the 21st Century and changes everything for the better.
Allow me to introduce myself as Leland Hevner, President of the National Association of Online Investors (NAOI). Formed in 1997, our mission is to empower individuals to invest with confidence and success through investing education and the effective use of online resources. Since our founding we have taught thousands of individuals the art and science of investing via our books, online courses, college classes and the market's only "Individual Investor Certification Program".
The Seeds of Change
I was quite happy with our education-based business plan and revenue flows until the stock market crashed in 2008 when I decided to change everything.
During 2008 the stock market crashed and the Modern Portfolio Theory (MPT) - based portfolios we were showing students how to create crashed right along with it. At that point I saw that education was not sufficient to empower individuals to invest with confidence and success. Also needed was innovation. The NAOI was teaching investing methods introduced in 1952 when MPT was introduced. While markets had evolved significantly since then, MPT methods had barely changed at all, and they no longer worked in modern markets. See the nearby chart that illustrates the problem and the solution.
With this realization, I was forced to made the very difficult decision of stopping all NAOI investor education classes until we could find a better approach to investing that did work in modern markets. With that goal in mind, I refocused NAOI efforts from education to research and development. I knew that meeting this goal would not be easy, quick or inexpensive - but I had no choice.
Following 5+ years of research and 2+ additional years of testing we met our goal with the discovery of Dynamic Investment Theory, as described, and confidently resumed our education activities.
Dynamic Investment Theory - A New Approach to Investing
Dynamic Investment Theory (DIT) recognizes the observable fact that total asset classes and markets have prices that are cyclical in nature and that the prices of different assets / markets move up and down at different times. Based on this observation, the NAOI set forth the premise that at all times, in any economic environment, there exist somewhere in the market positive returns. Our goal then became to develop a new investment type that could automatically find and capture these returns. Our new investment type would need to periodically monitor market trends and buy only Exchange Traded Funds (ETFs) that track assets / markets that are trending up in price while selling or avoiding those that are trending down.
We met this goal with the development of Dynamic Investments (DIs). Unlike MPT portfolios that must hold both winning and losing investments at all times - a strategy that reduces risk but also reduces returns - DIs strive to hold ONLY winning investments.
Extensive testing of DIs showed that this very simple investment type could produce astounding returns without excessive risk and with no active management required. In DIs, we had found the investment type needed to empower individuals to confidently and successfully invest in modern markets. In 2015 we started teaching personal investing classes again. And feedback from NAOI students has given us the confidence to predict that DIT, not MPT, is the future of investing.
The Components of Dynamic Investments
Key to the success of the new Dynamic Investment type is their unique structure. Both their simplicity and performance are astounding. At right is a diagram of the components that are a part of the structure of all DIs.
A critical feature of all DIs is a Dynamic ETF Pool (DEP) in which designers place ETF "candidates" for purchase by the DI. The ETF Selection Module periodically ranks the ETFs in the DEP to identify the one that is trending up in price the strongest at the time of a Review. This is the one ETF that is purchased and held by the DI for one Period until the DEP is ranked again. This structure and methodology enables DIs to strive to hold ONLY uptrending ETFs while selling or avoiding those that are trending down. By doing so DIs are capable of producing amazing returns without excessive risk and no active management required!
How Dynamic Investments Work - An Example
Below, using a very simple example, I show how Dynamic Investments work and the results they produce as compared to today's MPT, asset-allocation portfolios using the same ETFs.
The Example ETFs
The simplest DI designed by the NAOI holds only a Total Stock Market ETF and a Total Bond Market ETF in its Dynamic ETF Pool. We call this the NAOI Core DI. I will use the colored blocks at right to represent each of these ETFs in the example below.
The Modern Portfolio Theory (MPT) Configuration and Management Process
In an MPT portfolio the two ETFs are given an allocation of money determined by the risk tolerance of the investor. Those with a higher risk tolerance are given a higher allocation to stocks; lower risk investors are given a higher allocation to bonds. For this example I will simply assign a 50% allocation to each. MPT portfolios are meant to be held for the long-term, changing periodically only to keep the allocations steady. The diagram shows a typical MPT configuration and its buy-and-hold management process for the period from the start of 2008 to the end of 2017.
The Dynamic Investment Theory (DIT) Configuration and Management Process
The diagram below shows how a Dynamic Investment is configured and managed using the same two ETFs for the test period. The DI measures the price trend of each ETF in the DEP periodically, in this case Quarterly, and buys ONLY the one that is trending up most strongly at the time of a Review. This ETF is held for one period until the next Review when it is either held again for another period or replaced if the other ETF is trending up more strongly. This is an example only.
The MPT - DIT Investment Performance Comparison 2008-2017
The Table below shows the performance of the DIT portfolio (holding only the above described Core Dynamic Investment) with the generic MPT portfolio, for the 10-year period from the start of 2008 to the end of 2017. The returns shown assume that all gains, interest and dividends are reinvested. The right two columns of the table show the Average Annual Return for each investment type along with the Sharpe Ratio for each. The Sharpe Ratio is a measure of how much return is achieved for each unit of risk taken - the higher the better.
Wow! You can see that the Dynamic Investment produced astounding returns by striving to hold only the uptrending ETF while avoiding the one that is trending down. The MPT portfolio held both the uptrending AND the down trending ETF at all times resulting in mediocre returns at best. Of special note is the difference in performance in 2008 during the stock market crash. The MPT portfolio simply held onto both its Stock and Bond ETFs. The market-sensitive Dynamic Investment quickly sold the Stock ETF it owned in 2007 and purchased the Bond ETF that was soaring during the market crash. The DIT returns could ONLY be achieved through the use of a DYNAMIC investment. And you can see that these higher returns came without higher risk by noting that the Sharpe Ratio for the period rose along with the returns.
This example illustrates the difference between MPT "static" investing in use today and DIT "dynamic" investing that will dominate the future of investing.
New Concepts in Investing
Today's financial "experts" will say that performance shown above for the simple NAOI Core DI is impossible. No investment can earn an average of 26+ % per year over a 10 year period, especially during a period that included a massive stock market crash. And these mavens are correct if their thinking is confined by MPT methods and concepts. But when the chains of MPT are broken, all manner of investing outcomes not currently possible, suddenly become probable. Following are just a few examples of how investing will change at a fundamental level in the DIT-based future of investing:
- DIs are Portfolio "Products" - Dynamic Investments can be seen as comprehensive "portfolio products." The design specifies not only the ETFs to work with but also how they are to be managed on an ongoing basis. Investors can simply buy pre-designed DIs from vendor catalogs and hold them for the long-term. Each DI has the internal intelligence to signal trades based on objective observations of market data, not on subjective human judgments. DIs are the market's first and only standardized portfolio products.
- DIs Are Market-Sensitive - Dynamic Investments periodically monitor market trends and automatically signal trades to take advantage of these trends. By doing so, DIs are "market-sensitive". They are designed to search for and capture positive returns that exist in all economic conditions with no human intervention involved.
- Objective, Not Subjective Trade Signals. MPT portfolios rely on advisors, analysts and assorted "experts" to design and manage them. Human error and the potential for investor abuse is a massive risk element in today's investing world. In contrast, Dynamic Investments signal trades based on the objective observations of empirical market data. By doing so, they eliminate the human risk element - or at the very least greatly minimizing it.
- DIs Produce Higher Returns without Higher Risk - Modern Portfolio Theory says that higher returns come ONLY with exposure to higher risk. DIT says that this is nonsense. DIs can produce higher returns without higher risk by simply adding more ETFs to their DEP and by doing so giving the DI more areas to search for stronger price uptrends.
- The Improved Individual Investor Experience. In a DIT-based world of investing, individuals will simply select Dynamic Investments from catalogs created by NAOI-trained DI Designers. Each DI will either be a total portfolio product or a self-contained portfolio building block. Once a DI is purchased, the investor simply buys and holds it for the long-term while the DI automatically signal trades to the ETF it holds either to capture positive returns offered by the current economic environment or to avoid losses. The stress of determining when trades are needed when holding an MPT portfolio is gone! And the market sensitivity of DIs enables them to produce returns that are far higher than ANY MPT portfolio with less risk. All elements of Dynamic Investing serve to reduce the risk and the stress that investors must accept today.
- DIT Advantages for Financial Organizations. Unlike Mutual Funds and Exchange Traded Funds (ETFs), Dynamic Investments are easy and inexpensive to create. They are designed by simply combining existing ETFs in the DI structure discussed above. And financial organization can create a full product line of DIs virtually overnight with amazingly little time, effort or expense. By doing so, organizations will expand their market reach exponentially while opening massive new revenue streams that don't exist today. Financial organizations that embrace DIT and DIs will have a massive competitive advantage over those that ignore this major advance in investing.
- Dynamic Investments are the "Holy Grail" of Investing - With the creation of Dynamic Investments, the NAOI has found the Holy Grail of the financial world, namely the "Productization of Investing". Because of the above listed factors, DIs can be used as standalone portfolios or as self-managing portfolio building blocks for Dynamic Portfolios. And because DIs don't care about any investor's risk tolerance, there is no need to customize them for each individual. DIs are the standardized portfolio products that financial scholars have been seeking for decades. They haven't found it found them, The NAOI has. And when portfolios are "productized" and can be sold to the masses via catalogs, the entire world of investing changes for the better.
This short list presents only a few of the new concepts and significant changes that Dynamic Investment Theory brings to the world of investing. These, and others, are discussed in the book described just below.
The Book: The Amazing Future of Investing
The NAOI has published an easy-to-read book that fully describes and explains how Dynamic Investments work and will change the future of investing at a fundamental level.
The intended audience for this book includes both individual investors and financial organizations. Through the use of Dynamic Investments, individuals will finally be able to effectively invest with confidence and without fear. They will be able to use implement and manage DIs immediately upon completion of the final chapter.
Financial organizations who embrace Dynamic Investment and DIT concepts will gain a massive competitive advantage in crowded field. And by doing will expand their market reach and open new revenue streams without disrupting current operations.
This is the book that will define how we invest for decades to come.
Author: Leland B. Hevner
Publication Date: April, 2018
Format: 8.5" x 11.0" Comb-Bound, Hard-Copy Book for easy study
Price: Go to the NAOI Store
Publisher: The National Association of Online Investors (NAOI), Tampa, Florida, USA
To Purchase: Go to the NAOI Store
The Book Table of Contents
There Will be Skeptics
We, at the NAOI, are acutely aware that MPT has been entrenched in the world of investing for so long that any change, especially one as far reaching as DIT, will be looked at with some amount of skepticism. Therefore, before ending this DIT introductory Web page I want to list just a few of these objections and bat them away. You will note that in the Table of Contents for The Amazing Future of Investing book, shown just above, an entire Chapter is dedicated to this topic.
Here are the objections I have heard:
- Tax penalties are too high - Skeptics will say that the use of a buy-and-sell strategy triggers short-term gain taxes that will negate the superior performance of Dynamic Investments. We have two responses to this claim. First, DI returns are so high that even after capital gains taxes their returns still dwarf the returns of buy-and-hold MPT portfolios. Second, most retail investing today is done in tax-deferred retirement accounts such as 401(k) Plans and IRA's where short-term capital gains taxes don't exist. This objection goes away.
- Investors can't time the market - Today's financial experts tell us that it is impossible for investors to "time" the market and consistently outperform market averages by frequent trading. And they are correct. But DIT doesn't ask individuals to time the market. Using DIs, the MARKET determines when trades are to be made based on objective observations of price trends, not based on subjective human judgments. And history has shown that "the market" is a far better predictor of future price trends than any one or group of analysts. NAOI testing shows this to be a fact. This objection goes away.
- DIT must be some type of trading system or even a scam! - If DIT were a scam the NAOI would promote it with a several-page glossy brochure filled with incredible-performance data and glowing bromides. Instead the NAOI spent 7+ years researching, developing and testing Dynamic Investment Theory. And then we wrote a 220 page book explaining how and why it works! A "scam" or "trading system" would not require this much time, cost and effort. If DIT is a "trading system", then Modern Portfolio Theory must be one as well. Of course neither are. This objection goes away.
- Limited Life-Span. Skeptics will say that "systems" like this may work for a limited period of time but they will eventually be crushed as the market eliminates conditions that make them profitable. In response to this we simply say this: DIT will work as long as the prices of asset classes, markets and market segments are cyclical and that they move up and down in price at different times. As a result, positive returns exist somewhere in the market at all times. DIT simply shows how to find and capture them. Should this fact-set cease to exist, then, yes, DIT will no longer work. Of course this will never happen.
There will always be skeptics. But the NAOI will always have answers. We welcome skeptics who are willing to debate their issues with DIT!
Web Site Road Map for the Media
Here is what else you will find in the Media Center section of this site:
- NAOI Press Releases (past or pending)
- Press Articles and Ideas (interesting ideas related to Dynamic Investments for articles and/or interviews)
- Leland Hevner CV (Hevner's background, experience and previous media exposure)
- About the National Association of Online Investors (Background material on the NAOI)