Introductions and Purpose of this Page

Hello. My name is Leland Hevner. I am the President and founder of the National Association of Online Investors (NAOI) an organization I founded in 1997 with the mission of empowering individuals to invest with confidence via objective education and the use of online resources. Thousands of individuals have taken our online courses, read our published books and/or attended our college classes. As a result, we are a major influencer of how the public invests today and the advisors / financial organizations they work with.

The purpose of this Web page is to inform you of a major change that the NAOI is making to our education content. We will be teaching to students throughout our education network a new approach to portfolio design and management called Dynamic Investment Theory (DIT) and the new investment type it creates called Dynamic Investments (DIs). By being “market-sensitive” DIs change how investing works at a fundamental level. You will learn how they work on this page.

This is the first of two pages that provide a short introduction to how Dynamic Investments work and how we are teaching our students to use them. On this page I provide this information in a highly summarized form to save the reader time. At the bottom of this page you will find a link that takes you to the second introductory page that provides more detailed related to each topic discussed on this page and includes links to pages on this Web site that provide still more information for each. The second introductory page is intended for readers who see the value of the changes that the NAOI is making and want to learn more.

I have made these two pages available to only a select few individuals who are my contacts on LinkedIn - they are not accessible via the site’s navigation menu. I believe that those I have invited will benefit most from learning about this new approach first, and beginning to prepare now to meet the coming public demand.

Why Change Is Needed - NOW

Based on over two decades of teaching and working with individual investors, the NAOI has an unmatched knowledge of how the investing public views the world of investing and what they want and need to enter it with confidence. We know that the way investing works today is not meeting these needs and, as a result, an alarming number of individuals either investing far too conservatively, leaving the market or not entering it at all.

A major problem with MPT portfolios is that by using a buy-and-hold management strategy they have no sensitivity to market price movements. This makes them dangerously vulnerable to market crashes that occur on an average of about every 6 years. Thus, investors can expect to lose a significant portion of their portfolio value on a regular basis and it can take months or years to recover these losses.

Yet, after each crash and resultant portfolio losses, financial advisors offer to clients the same static, MPT portfolios that people realize will fail again in the not too distant future. Is it any wonder, then, that many are leaving. or avoiding, the market in significant numbers?

The Development Dynamic Investment Theory - an MPT Alternative

From our inception in 1997, the NAOI taught MPT methods for portfolio design and management - there were no options available to us. But after watching the MPT portfolios we had taught our students to create melt-down during the subprime mortgage crash of 2008-2009, I suspended all NAOI education classes and opened the NAOI Research and Development Division to find an alternative approach to MPT; one designed to thrive in modern, volatile markets.

Following a multi-year R&D project we found the approach needed in the form of Dynamic Investment Theory (DIT). This theory defines the logic for the creation of a new investment type that uses historical market price trends to predict future price movements. We call them NAOI Dynamic Investments (DIs).

Introducing Dynamic Investments

Using the logic and rules set forth by DIT, an unlimited number of Dynamic Investments can be created to meet a full range of investing goals. But regardless of the investing goal targeted, all DIs have the same components and structure as illustrated in this diagram.

Here is the description of each DI component:

1. Dynamic Equity Pool (DEP) - This is where a DI designer places two or more ETFs (or mutual funds) that are “candidates” for purchase by the DI at a Periodic Review event as described next.

2. Review Period - This is how often the DI ranks the ETFs in the DEP to find the one having the strongest price uptrend. The “winner” is the one ETF purchased, or retained if already owned, and held until the next Review event.

3. Price Trend Indicator - This is the technical indicator that NAOI testing has shown to be the most effective for ranking the ETFs in the DEP by strength of upward price trend.

4. Trailing Stop Loss Order- A Trailing Stop Loss order is placed on each ETF purchased by the DI to protect its value from sudden and significant price drops during the short holding period between Review events.

Each of these components is a variable that is defined by a DI designer to meet specific investing goals. But the NAOI has found that setting all of these variables as constants except for the ETFs in the DEP works extremely well and greatly simplifies the design process.

The Performance of a Simple Dynamic Investment; 2008-2019

Do Dynamic Investments work as predicted? The answer is a resounding YES. The table below shows the historical performance of the simplest possible DI that holds only a Total Stock Market ETF and a Total Bond Market ETF in its Dynamic Equity Pool (DEP). The DI reviews the price trends of each ETF on a Quarterly basis and purchases, or retains if already owned, the ETF having the strongest price uptrend for the past Quarter.

During this period, the Dynamic Investment held the Stock ETF for 1694 days and the Bond ETF for 1327 days. Trades were signaled based on objective observations of empirical market data, with no human judgments involved - the trading process can be completely automated.

Dynamic Portfolios: The NAOI Recommended Investment Vehicle

While a single Dynamic Investment, such as the one used in the example above, can be used as a total portfolio, the NAOI knows that allocating 100% of an investor’s money to one ETF at a time will not be easily accepted by either individuals or financial professionals. So, the NAOI is teaching individuals to use DIs as building blocks in the more familiar MPT portfolio format.

We call these Dynamic Portfolios. They contain both a DIT, buy and sell Segment and an MPT, buy and hold Segment as shown in the diagram below. NAOI trained DIT designers can easily change each of the allocation values shown in this example to meet a client’s specific needs. However, we found found that the following configuration works well for all investors regardless of their risk profile. As a result the we have called this the NAOI Universal Portfolios that we will be teaching individuals to use as a starting point for their investing career.

NAOI Universal Portfolio Performance 2008-2019

The table below shows the performance of the NAOI Universal Portfolio for the period from 2008-2019. We will be teaching students to use this performance, updated regularly, as a performance benchmark for all portfolios that are recommended to them by advisors. Why should they accept lower performance when the NAOI Universal Portfolio provides these results automatically?

Note that while the returns of this portfolio were not as high as the Simple DI discussed above, its Sharpe Ratio was higher, indicating lower risk. This is the portfolio configuration that the NAOI suggest that our students consider as either a total portfolio or as the core of a more extensive portfolio. Individuals and/or advisors can easily add other investments to this configuration. However, it would be difficult to beat the performance shown above.

A Non-Disruptive Enhancement

Some advisors my say that the type of portfolio shown above is too disruptive to current operations to consider. But a Dynamic Portfolio can be designed to in such a manner that simply increases returns and lowers risk for traditional advisor-designed portfolios as illustrated below. In which case, DIs can be seen as a powerful enhancement to current operations.

FOUR Portfolio Diversification Factors!

An amazing feature of the Dynamic Portfolios discussed just above that while today’s MPT portfolios use two diversification factors, NAOI Dynamic Portfolios use four. They are as follows:

1. Company Diversification - via the use of ETFs (used by MPT and DIT)

2. Asset-Class Diversification - by working with multiple asset classes (used by MPT and DIT)

3. Time Diversification - due to the DI’s periodic reviews and potential changes in the equities held used by (used DIT only)

4. Methodology Diversification - by using both MPT buy-and-hold methods and DIT buy-and-sell methods (used by DIT only)

It should be noted that the first two diversification elements listed above, used by both MPT and DIT, reduce risk but also reduce returns. Diversification elements 3 and 4, used only by NAOI Dynamic Portfolios, not only reduce risk but also enhance returns! The use of four diversification elements in a portfolio is truly an evolutionary step forward in the world of investing.

The Benefits of Using Dynamic Investments

You have seen above that the use of Dynamic Investments enables investors to achieve higher returns with lower risk. But there are other benefits of using DIs that are equally valuable for BOTH individual investors and investing professionals. Listed below are just a few of the top benefits for each. More are found on this Web site by clicking the links provided.

Top Benefits of using DIs for Individual Investors

• Simplicity. DI provide investors with a simple, logical approach to investing that people of all experience levels can understand without extensive financial education. DIs are so simple to implement and manage that individuals can take advantage of them on their own using an online broker.

• Higher Performance. The DIT approach provides users with higher returns with lower risk than MPT portfolios in all economic conditions.

• Lower Stress Investing. DIs provide users with absolute protection from market crashes. This benefit alone will bring thousands of individuals into the market who are now on the sidelines in fear.

• Elimination of the Human Risk Element. By basing trading decisions on objective observations of market data, DIs eliminate a massive area of human-risk that investors must deal with today.

• More Benefits for Individuals. The second page of this introduction to DIT and DIs provides a link to more individual benefits. Access it at the bottom of this page.

Top Benefits of using DIs for Investing Professionals

• Better Products, More Clients, Higher Revenues. DIs enable financial organizations to easily create and offer a full product line of new, higher-performance investment products by simply combining existing ETFs in the Dynamic Investment structure. These unique, dynamic offerings will attract new clients, open significant new revenue streams and provide advisors and organizations with a significant competitive advantage in a crowded market.

• Uncovering Hidden Value In Current Product Lines. DIs monetize combinations of existing ETFs. By doing so, they easily uncover massive hidden value in existing ETF product lines that is now lying dormant.

• The Productization of Investing! Dynamic Investments have a universal goal that works for all investors regardless of risk profile. As a result, financial organizations that create proprietary DIs can sell them directly to financial advisors AND to the investing public as complete investing products. This is the Holy Grail of investing!

• A New Field of Product Development. The DIT approach to investing opens a vast and virgin area of new product development.

• More Benefits for Professionals. The second page of this introduction to DIT and DIs provides a link to more professional benefits. Access it at the bottom of this page.

There Will Be Skeptics

As you read the information on this page, you may have doubts. I know I would if reading it for the first time. An entire chapter in the “Introduction to Dynamic Investments and Market Sensitive Portfolios” book, pictured above, is dedicated to addressing these doubts. Below are the top reasons why people tell us that DIs can’t possibly work and a summary of our response to each:

1. The use of DIT methods will result in short-term capital gains taxes. Yes, the DIT buy-and-sell strategy will result in holding equities for less than a year, resulting in short-term capital gains taxes. There are two reasons why this is not a problem. First, most investing done by the public today is in retirement accounts in which gains are not taxed until money is withdrawn, starting a age 59 1/2, and then at personal income tax rates. Second, the significantly higher returns produced by DIs and DPorts, as illustrated in the examples above, more than make up for any additional taxes.

2. It is impossible to time the market. The use of trend-following methods can be seen as “timing the market” and experts will correctly say that you can’t time the market with any degree of accuracy. But DIT doesn’t ask you to. DIT makes trades based on observations of historical price trends. And extensive testing shows that past price trends have remarkable predictive power for future price movements, at least in the short term. So, yes, it is true that YOU cannot time the market; but MARKET price-trends can.

More reasons for skepticism are found on the second page of this introduction to DIT and DIs. A link to that page is found at the bottom of this page.

The Basic DIT/DI Books

The NAOI has created a substantial support system for the design, creation and use of Dynamic Investments and Dynamic Portfolio. One element of this support system is the availability of the two books that are pictured at right - one for investing professionals which is available on this site in the NAOI Store and one for the investing public that will be available soon on this site as well as on the Amazon publishing platform soon.

These publications show both buyers and sellers how Dynamic Investment Theory and Dynamic Investments work and how to use them to take full advantage of the wealth creation power of equity markets. Each is only about 70 pages long and both are easy to read and understand.

Working with the NAOI

The NAOI offers to financial advisors and organizations multiple options for working together to take full advantage of this new approach to investing in the shortest amount of time and with the least amount of expense. They are listed below with more detail found on the second page of this introduction to DIT and DIs found by clicking the link at the bottom of this page.

NAOI Consulting

The NAOI also offers Consulting Agreements that show financial organizations how to use DIT methods, Dynamic Investments and Dynamic Portfolios to capture market share, increase revenues and meet their unique goals. The ROI of an NAOI consulting agreement will be off the charts.

Advanced NAOI Dynamic Investment Education Classes

Dynamic Investments are easy to create and implement. The NAOI designed them specifically to be that way. But creating optimal DIs that produce the highest returns with the least amount of risk in virtually all economic conditions requires additional training. To gain an in-depth understanding of DIs and DI portfolios and to master the art and science of DI design, the NAOI offers advanced DI Education and Design Classes and Seminars.

NAOI Partnerships

A recent survey by the CFA Institute showed that on 23% of individuals trusted their financial advisors. Having worked with and taught the investing public for over two decades, the NAOI is not surprised. People know that advisors are also salespeople and this can lead to biased investment product recommendations. A Partnership with the NAOI can immediately allay these fears as we are recognized by the investing public as a strong advocate for the individual investor. Page two of this introduction to DIT and DIs shows the types of NAOI Partnerships that we offer.

More Detailed Information - Accessing Page 2 of the Introduction to DIT and DIs

To find more information related to each of the topic discussed above go to the second page of this introduction to Dynamic Investment Theory and Dynamic Investments by clicking this link.