Hello and welcome to the Web site of the National Association of Online Investors (NAOI). My name is Leland Hevner. I am the President of the NAOI, an organization I founded in 1997 with the mission of empowering individuals to invest with confidence and success 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 on how the public invests today as well as on how they choose investment advisors and financial organizations to work with.

The Purpose of this Executive Summary - Introducing “Dynamic Investments”

The purpose of this Web page is to provide a summary of a major change that the NAOI is making to our education content.

In the fourth quarter of 2020, we will begin teaching to students throughout our education network a new approach to portfolio design and management called Dynamic Investment Theory (DIT) and the use of a new investment type that DIT creates called Dynamic Investments (DIs).

Developed by the NAOI based on a multi-year R&D project, using extensive input from the investing public, DIs are “market-sensitive”; capable of automatically changing the ETFs they hold based on a periodic sampling of price trends. By doing so, extensive testing has shown that they consistently produce returns that are significantly higher than MPT-based portfolios with lower risk and no active management required. DIs also provide absolute protection from significant value loss due to market crashes - one of the top features requested by the public for a new approach to investing.

NAOI focus groups who have field-tested the use DIs tell us this is the approach to investing that will finally enable them to enter, or re-enter, the market with confidence and without fear.

Below on this page I provide a short summary of how DIT and DIs work along with links to pages on this NAOI Web site that provide more details for each topic. I also discuss why this change is urgently needed in today’s markets as well as the significant benefits that it will provide to both individual investors and to the financial services industry.

By Invitation Only

This page is not accessible from the site’s navigation bar. I have made a link to it available to only a select few of my contacts on LinkedIn who are employed by organizations that the NAOI is open to working with via either a consulting contract or a Partnership in order to create a better and more profitable future of investing for both equity buyers and sellers.

Coffee Break!

So, grab a cup of coffee. or beverage of choice, and spend 20 minutes scanning the information provided below. It is remarkably simple. Gaining an understanding of what the public will soon begin to demand and what the financial services industry will begin to offer to both retail and institutional investors will be a valuable use of your time. You are about to get just a glimpse of a simpler, more profitable, less risky and more user-friendly future of investing. And organizations who begin planning for it first will benefit the most.

Why Change Is Needed - Now!

The NAOI has been teaching and working with the investing public for over two decades. While we teach individual investors, they teach us. We know that far too many individuals are not happy with the way investing works today and large numbers are leaving the market, or not entering it at all. And we know that those who remain in the market are investing far too conservatively to take full advantage of the substantial gains available in today’s markets. We are also seeing a significant trend toward people buying annuities without a good understanding of the related risks.

A major reason why people are afraid of investing today is that they are given portfolios based on a 1950’s-era theory of investing called Modern Portfolio Theory (MPT) that readers of this page will know creates portfolios designed to match each investor’s risk profile. And then investors are advised to simply buy and hold them for the long-term.

Because of their buy-and-hold management strategy, these portfolios are not sensitive to economic/market changes and are dangerously vulnerable to market crashes that occur on an average of once every 6 years. NAOI students tell us that while they understand the value of a buy-and-hold strategy, the stress of holding static portfolios in modern volatile markets is just too great for many of them to handle.

The Catalyst for Change

Following the market crash of 2008-2009 when many holders of standard MPT portfolios lost a significant portion of their life savings, the NAOI paused all of our education classes until we could find an alternative to, or supplement for, MPT portfolio design and management methods; one that provided the flexibility needed to thrive in today’s volatile markets.

Following a multi-year R&D effort we met this goal in the form of Dynamic Investment Theory (DIT) and an innovative investment type it creates called Dynamic Investments (DIs). You will learn about both below on this page and throughout this Web site.

With the development of this new approach to investing along with positive feedback from both NAOI students as well as financial professionals who have evaluated and testing it, we are restarting our education activities - teaching both DIT and MPT methods. You will see below that they compliment each other nicely.

Introducing Dynamic Investment Theory (DIT)

Dynamic Investment Theory (DIT) is the first viable alternative to the Modern Portfolio Theory (MPT) approach to portfolio design and management since the 1950’s when MPT was introduced to the market.

While MPT portfolios are customized to match a subjective “guesstimate” of the risk tolerance of each investor, DIT uses objective observations of equity price trends to create portfolios with the universal goal of maximizing return while minimizing risk in all economic conditions. DIT portfolio design requires no customization for each investor and the very difficult task of assessing an individual’s risk tolerance goes away.

What the NAOI has done in creating DIT is to enable individuals of all experience levels to take full advantage of the proven predictive power of price trends in a simple, safe and profitable manner. A more detailed discussion of Dynamic Investment Theory is found at this link.

Introducing NAOI Dynamic Investments (DIs)

DIT sets the logic and rules for the creation of an innovative investment type called Dynamic Investments. DIs are capable of changing the ETF they hold based on a periodic sampling of market and asset-class price trends. An unlimited number of powerful Dynamic Investments can be quickly and easily created to meet a full range of investing goals. But regardless of the goal targeted, all DIs have the components and structure 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. The DEP typically includes at least two ETFs that track uncorrelated indexes or asset types.

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 simplest and 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. However, the NAOI has found that setting all of these variables at constant values except for the ETFs in the DEP works extremely well and greatly simplifies the design process. The NAOI teaches DI design classes as discussed at this link.

The Performance of a Simple Dynamic Investment; 2008-2019

Using the above configuration DIs are capable of producing high returns that today’s investing experts will say are impossible. And they do so with lower risk. Let’s looks at the performance of the simplest possible Dynamic Investment.

The table below shows the historical performance of a DI that holds only a Total Stock Market ETF and a Total Bond Market ETF in its Dynamic Equity Pool (DEP). This 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. The top-ranked ETF is the one purchased, or retained if already owned, and held by the DI until the next Review. Its value is protected by a trailing stop-loss order. In the table the DI performance is compared to a simple MPT portfolio holding the same ETFs with the allocations shown.

How are exceptional returns like those produced by the DI possible? It is mainly due to the fact that DIs are “market-sensitive”, able to detect long-term market price uptrends and buy into them while avoiding market areas that are trending down. DIs have the goal of owning ONLY equities moving up in price - unlike MPT portfolios that are designed to hold both winning and losing investments at all times in order to reduce risk - but also reduce returns. A more detailed discussion of DIs is found at this link.

The Performance of an Enhanced Dynamic Investment - The NAOI “Alpha” DI

The above DI example is as simple as it gets; having in its DEP only 2 ETFs - one for Total Stocks and one for Total Bonds. And the returns are amazing. But higher returns, without higher risk, are possible by simply adding more, or different, ETFs to the DEP. For example, an “enhanced” DI designed by the NAOI that adds to the DEP of the DI discussed above a Small Cap Growth index ETF and a Long-Term Government Bond ETF produced the performance shown below for the same test period. We call this the “Alpha” Dynamic Investment.

You can see that by adding carefully selected ETFs to the Simple DI, average annual returns of the Alpha DI increased significantly as did its Sharpe Ratio - meaning that additional returns were achieved without commensurate additional risk. MPT says that this is impossible - higher returns come only with higher risk. DIT shows that this is wrong. Remember, when using DIT methods we are working outside of the MPT “box” and no longer subject to its constraints.

Annual returns for the Alpha DI are found at this link that is updated quarterly.

The Unique Characteristics of Dynamic Investments

Make no mistake, Dynamic Investments represent an evolutionary change to the world of investing. The market has never seen an investment type like this. Below is just a short list of the unique benefits provided by DIs and why they will usher in a new era of investing that will bring millions of new investors into the market with confidence and without fear.

• Higher Returns with Lower Risk. By being “market-sensitive”, DIs are capable of buying only equities moving up in price and avoiding, or quickly selling, those that are trending down in price. DIs are the market’s first “time-diversified” investment. And this evolutionary development will have a massively positive effect on the way investing works.

• Absolute Protection from Market Crashes. From over two decades of working with individual investors, the NAOI knows that the public’s greatest fear is the substantial loss of money due to market crashes that happen on an average every 6 years. DIs provide absolute protection from market crashes via the use of a Trailing Stop Loss order place on the ETF owned by a DI at any one time. This feature alone will bring thousands of individuals into the market who are now on the sidelines in fear.

• A Built-In, Intelligent Trading System. MPT portfolios fail today because the are “static” and provide no plan for buying and selling as economic and market conditions change. Trading decisions are left to the subjective, and risky, judgments of investment advisors and market analysts. In contrast, DIs have a built-in trading system that automatically signals trades based on objective observations of market data. This removes a massive element of “human-risk” that plagues the way investing works today.

• A Comprehensive Investment “Product” - DIs are the market’s first investment type that specifies not only the ETFs to work with but also how they are to be managed on an ongoing basis. Thus, they are plug-and-play “portfolio products” that individuals can buy off-the-shelf from a variety of vendors and simply hold for the long-term with the confidence that the DI is signalling trades as needed to take advantage of current economic conditions. DIs open a new era of investment “productization” that has long been seen as the “holy-grail” of the investing world.

• Easy to Create. New investment products today such as ETFs and Mutual Funds are expensive and time-consuming to create. And it is becoming virtually impossible to identify truly unique investing products. In contrast, creating new. powerful DIs is easy, quick and low cost. They are developed by simply combining existing ETFs in the DI format shown above. And each, when designed correctly, will produce higher returns with lower risk than virtually any newly created Mutual Fund, ETF or even MPT portfolio as illustrated in the above performance examples.

• Easy to Manage. MPT provides no guidance for managing a portfolio on an ongoing basis other than to buy-and-hold. It provides no standards for when to rebalance a portfolio or when to make changes to take gains and avoid losses. Such actions are at the discretion of an advisor or portfolio manager. In contrast, as mentioned above, Dynamic Investments have a built-in, automatic trading plan for taking advantage of changing market conditions. And because these trades are signaled by objective observations of empirical market data, DI management can easily be automated.

• Reducing the “Human Risk” Element of Investing. A major problem with the way investing works today is the existence of a massive “human risk” factor. This risk arises from the fact that the standardized investing process used today is filled with subjective human judgments. These include the determination of an investor’s risk tolerance, the selection of equities to place in a portfolio, when and how often a portfolio should be reviewed/rebalanced and when trades should be made in response to changing economic conditions. All of these subjective human judgments, and others, expose a portfolio to the risk of bad data, incorrect analysis, lack of attention, sales bias and even fraud and scams. Unfortunately, using MPT methods the effectiveness of an individual’s portfolio is largely dependent on the advisor people choose to work with - an often arbitrary decision. DIT and DIs remove these human-risks by basing portfolio design and trade decisions on objective observations of market data. When the human risk element is reduced or eliminated from the investing process the world of investing becomes much simpler, more profitable, less risky and far more user-friendly place for the investing public, And the NAOI knows that this will bring a massive number of new investors into the market.

Learning More. Via Consulting Agreements and Partnerships the NAOI can show the financial organizations we work other reasons why DIs will change the world of investing at a fundamental level and how to take advantage of this change. For more information related to working with the NAOI, go to this link.

Dynamic Portfolios

Some in the financial services industry will say that the use of DIs would negatively affect current operations and business models that are based on MPT methods. The NAOI understands this perception. We alleviate this concern by showing how DIs can easily be used as building blocks in traditional MPT portfolios. The addition of a DI building block will both enhance returns and lower the risk of any MPT portfolio. We call this configuration a Dynamic Portfolio. It is illustrated below with example allocations.

A Universal Dynamic Portfolio that Works for ALL Investors

The NAOI has also created what we call a Universal Dynamic Portfolio that works well for all individuals regardless of their risk tolerance. It is discussed at this link. As shown in the diagram below, it buys and holds a Total Stock Market ETF and a Government Bond ETF. And it owns a simple Dynamic Investment that rotates periodically between the Stock and Bond ETF depending on the price trend of each as discussed above. As a result, this portfolio is “biased” toward either stocks or bonds depending on which asset class is moving up in price. The NAOI teaches this portfolio as a “default” investment for individuals who are just starting their investing career. It can also be seen as the first step toward the holy-grail of investing; namely the “productization of investing”.

The performance of the Universal Dynamic Portfolio from 2008 to 2019 can be seen on the Updates Page found at this link.

The Use of FOUR Portfolio Diversification Factors!

An amazing feature of Dynamic Portfolios is 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 changes in the ETFs held at any one time (used by DIT only)

4. Methodology Diversification - by including in the portfolio 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, reduce risk and enhance returns! The use of four diversification elements in a portfolio is truly an evolutionary step forward in the world of investing.

More information related to Dynamic Investment Portfolios (DPorts) is found at this link.

The Benefits of Using Dynamic Investments and Portfolios

By escaping the MPT “box” and breaking the related constraints, the use of DIs changes how investing works at its very core. And by doing so investing performance that today’s experts will say is impossible suddenly becomes probable. But there are other benefits besides higher performance for both investors and for financial services industry. You can find a list of just some of them at this link.

Why and How Dynamic Investments will become Mainstream Investments

Readers of this page may be tempted to shove Dynamic Investments and Portfolios into the “Alternative Investment” category and thus unsuitable for use in the portfolios of average investors. This would be a mistake. Dis will become mainstream investments on a par with mutual funds, ETFs and even MPT portfolios for the following reasons:

1. DIs are Superior Investment Products. First and foremost Dynamic Investments are superior investments. They provide investors with higher returns, lower risk and absolute protection from market crashes. No other investment type, or total portfolio, provides these benefits.

2. Demand by the Public for DIs will Grow Fast. The NAOI is teaching students about DIs throughout our extensive education network. We are also creating a DI User’s Manual that is shown at right that can reach millions of investors via publishing platforms such as Amazon. As people learn about DIs, demand for them will grow and they will seek out financial organizations that offer them. If they can find none, individuals can easily implement and manage them on their own using an online broker.

3. The Power of Competition. When at least one major financial organization offers DIs to their clients, others must do the same to remain competitive.

4. NAOI Consulting and Partnerships. Via a Consulting Agreement and/or Partnership the NAOI will show financial organizations the tremendous benefits of adding DIs to their product line. Links to more information related to NAOI support of DIs is found at the bottom of this page.

5. NAOI Trust. Very importantly, the NAOI is seen by the investing public as an objective and honest player in the investing world. Thousands of individuals have taken our online courses, read our books and/or attended our college classes. People will trust any new product that we develop and include in our education content. And they will understand that our reputation depends on DIs performing in exactly the manner we describe.

For these and other reasons, NAOI Dynamic Investments will become mainstream investments. Our corporate organization chart, explained on our home page, is uniquely structured to products that the investing public will buy, to train our students how to use them and to show the financial services industry how to create, manage and market them - and to make significant profits by doing so.

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 ” book, discussed below on this page, is dedicated to addressing these doubts. Here 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. True, the DIT buy-and-sell strategy will hold 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 the MARKET can.

3. There are already momentum products in the market - this is nothing new. The NAOI is well aware of momentum and factor-based ETFs in the market. In fact, we use some of them in our Dynamic Investment designs. But the NAOI is far more than creating a few momentum ETFs. We are introducing a new theory of investing and a platform that enables the easy creation of an unlimited number of Dynamic Investments and Dynamic Portfolios that can meet a wide range of investing goals. Plus, the DIs created using the NAOI development platform and NAOI training can provide far higher performance than any momentum-based products in the market today.

There will always be skeptics of change that is as dramatic as the introduction of Dynamic Investment Theory and Dynamic Investments. But the NAOI has heard NO valid reasons why this new approach won’t be a valuable addition to the investment options available to the public today.

The Evolution of Investing

The NAOI is well aware of current efforts by the financial services industry to make investing more effective and user-friendly for individual investors via Fintech partnerships aimed at enhancing the way investing works today. We find that our students have little interest in them. As one of my student’s put it, these changes are little more than putting lipstick on the MPT pig.

Effective evolution of investing will only occur by thinking differently about how investing works, starting with an escape from the MPT “box” in which the industry has languished for close to 7 decades.

The future of investing must include fresh ideas, innovative products and new ways of thinking about how portfolios can be designed and managed. In the opinion of the NAOI they should be designed not simply to avoid market volatility/risk, as is the case with MPT-based portfolios, but to embrace and profit from it, as is the case with DIT-based portfolios. And most importantly, new methods of investing must be created based on meeting the wants and needs of the investing public, not on decades old academic theories such as MPT.

But DIT and DIs are simply one step in the ongoing process investing evolution that has no end. The NAOI is constantly looking for new ways to empower investors to take better advantage of the wealth creation power of equity markets. And we are constantly looking for new products and methods that enable advisors and financial organizations to empower the investing public to do so. The NAOI’s trademarked tag-line is: “The Future of Investing Starts Here”. And we strongly believe this to be true.

We welcome financial organizations who share our mission of empowering individual and institutional investors to join us in this effort in order to create a better future of investing in which both investment buyers and sellers thrive. To do so read about NAOI Strategic Partnerships as discussed at this link.

Working with the NAOI and Learning More

The information on this page and on this Web site merely scratches the surface of the power of using NAOI Dynamic Investments and Dynamic Portfolios. To learn more about this evolutionary approach to investing and how it can give your organization a significant competitive advantage in a crowded field, the NAOI offers the following education and support resources:

1 - The “Introducing Dynamic Investment Theory” book pictured at right. It is available for purchase now in the NAOI Store at this link.

2 - Advanced DIT Education Seminars and DI Design Classes as discussed at this link.

3 - Consulting and Advisory Agreements that will show your organization how to take maximum advantage of this new approach to investing as discussed at this link.

4 - NAOI Partnerships are an ongoing relationship that enables our organizations to work together in multiple areas as discussed at this link.

Or just contact me personally at LHevner@naoi.org to discuss other forms of cooperation for working together to define a better, more profitable future of investing for both your organization and your clients.