Introducing Dynamic Investment Theory and Dynamic Investments
This is the Future of Investing
By Invitation Only
The world of investing is about to change at a fundamental level. Welcome to a Web Page that describes why this change is needed and what it looks like. For far too long we have been investing using methods created in 1952 when Modern Portfolio Theory (MPT) was introduced. While equity markets have evolved significantly since then, MPT methods have barely changed at all and they can't cope with modern volatile markets.
It is time to bring the world of investing into the 21st century and release the amazing profit potential that today's equity markets offer. Dynamic Investments, created based on a 5+ year R&D effort by the NAOI, do just that. You will learn how on this page.
It takes just a few minutes to read the information presented here, but it will be time well spent. You are one of a very few individuals being offered a first look at the future of investing and the opportunity to take advantage of it now.
Leland Hevner, President
National Association of Online Investors (NAOI)
The NAOI Study that Changes Everything
The National Association of Online Investors (NAOI) has recently completed a multi-year study to find an updated approach to investing that is able to thrive in 21st Century equity markets. Following extensive research we met this goal with the discovery and development of Dynamic Investment Theory (DIT). DIT creates a revolutionary investment type called Dynamic Investments (DIs) that will change the wold of investing as we know it for both individual investors and the financial services industry. You will learn about both on this Web page made available only to those who I, Leland Hevner, President of the NAOI, have invited via a personal LinkedIn message.
The Study Findings Release - and a Valuable Opportunity
Soon we will be announcing this revolutionary dynamic investing approach to the public and the financial services industry via a nationwide Press Release along with the release of The Amazing Future of Investing book that describes the DIT approach in detail (see book information below).
The purpose of this page is to provide a pre-release summary of the new approach to a select group of LinkedIn contacts who I believe are well positioned to take maximum advantage of it now.
The NAOI is prepared to offer cooperative arrangements to financial professionals and organizations that will enable them to gain a massive competitive advantage by being among the first to learn about and offer Dynamic Investments to the market. An opportunity like this is rare.
About the National Association of Online Investors (NAOI)
I founded the NAOI in 1997 to empower individuals to invest with confidence and success. We have taught thousands of individuals the art and science of investing via our books, online courses, college courses and the market's only Individual Investor Certification Program. Yet, in 2008 when the market crashed, we clearly saw that education was not enough to empower individuals to become successful investors . Also needed was innovation. To meet this need we formed the NAOI Research Division to supplement and enhance our education offerings.
The Need for Change
For the first ten years of our existence, the NAOI taught traditional investing and portfolio design methods based on Modern Portfolio Theory (MPT) - the financial industry's "settled science" approach to portfolio design and investing in general.
However, when the stock market crashed in 2008 and MPT-based portfolios crashed along with it, I paused all future classes. I realized that we were doing our students no favors by teaching then how to create portfolios based a theory introduced to the market in 1952! I saw that while markets had changed significantly since the 1950's, MPT had barely changed at all and the "static" portfolios it creates simply were not able to cope with modern "dynamic" markets.
At that point I refocused NAOI resources from education to research and initiated a study to find a new and better approach to investing; one designed to thrive in 21st century markets. The chart, at right, illustrates the problem with MPT and the promise of an updated approach called DIT that you will learn about on this page.
Starting with Investor Goals
We started our research efforts by first conducting an in-depth study of today's individual investor experience. Our goal was to learn what the average person with money to invest needed to confidently and successfully interact with the market. Fortunately the NAOI has access to hundreds of members and students who are the target market. Via interviews and surveys they told us that they wanted the following major improvements to how investing works today:
- A less complex world of investing - i.e. simplify!
- Higher investing returns in all economic conditions with less risk
- The ability to take more personal control of their financial future - i.e. less dependence on financial experts
- Absolute protection from market crashes such as the one they experienced in 2008
- Absolute protection from investor abuse - e.g. churning, sales bias, inappropriate advice, scams and fraud
We quickly realized that we could not meet these goals using MPT portfolio design methods. So we started our research with a blank slate. We would not be constrained by the decades-old methods used almost universally today.
Following multiple years of research, testing and development we discovered a superior approach to investing that met all of the goals given to us by the public. The approach consists of both a new Theory and a new Investment Type that is defined by this theory. Both are explained below.
Introducing Dynamic Investment Theory
To develop a new, scientifically-based theory of investing we first needed to identifying the only things we know about market price movements with a high degree of certainty. One would think we know a lot. We don't. Following is the complete list:
- Market prices are cyclical - they move up and down on a periodic basis
- Different assets, markets and market segments move up and down at different times - e.g. when stocks move down, bonds tend to move up and vice versa
That's it. But it was enough to enable us to formulate and develop the new, comprehensive investment theory that we needed to fulfill our mission.
From these two observable elements of market dynamics we created the premise that at all times and in all economic conditions there exist positive returns potential somewhere in the market.
Our next step was to create a theory that would provide a logical basis and rule-set for creating a new investment type that could take advantage of cyclical markets. We did so and called it Dynamic Investment Theory (DIT). DIT defines how to create and manage a revolutionary investment type that we called Dynamic Investments as explained below.
Introducing Dynamic Investments
Dynamic Investments (DIs) automatically change the ETF they hold based on a periodic sampling of market trends. Whereas MPT-based, asset-allocation, portfolios must, at all times, hold both winning and losing investments to reduce risk, DIs strive to hold ONLY winning investments. By doing so, DIs are able to produce returns that today's "experts" will say are impossible. And they do so without excessive risk and no active management required. This investment type is a huge leap forward in the evolution of investing!
The components of all DIs are shown in the diagram at right and defined below:
- A Goal - There are an unlimited number of DIs that can be created for a wide range of investing goals. But regardless of the goal, all DIs will have the same components as shown in the diagram at right. The goal of the DI determines which ETFs a designer places in the Dynamic ETF Pool as explained next.
- Dynamic ETF Pool (DEP) - Dynamic Investments work with groups of Exchange Traded Funds (ETFs) in a DEP. Chosen by a DI Designer, the ETFs in the DEP specify the areas of the market where the DI will search for positive returns. These ETFs are simply "candidates" for purchase. Only the one trending up in price most strongly at the time of a Review is bought and held until the next Review as described next.
- Review Period - The ETFs in the DEP are periodically ranked to determine which is trending up most strongly at a predefined Review Period. The "winner" is the one that is bought and held until the next Review Period. The Review Period is a variable that is defined by the DI Designer. An example would be "quarterly."
- Trend Indicator - This is the price chart indicator that is used to rank the ETFs in the DEP at Review Time. Only the ETF with the strongest positive price trend is selected for purchase and held until the next Review. The Trend Indicator is a variable that is defined by the DI Designer.
In the NAOI book entitled The Amazing Future of Investing, described below on this page, we suggest a Review Period and a Trend Indicator that extensive testing has shown work exceptionally well. By holding these two variables as constants, DI Designers are able to focus on finding an optimal mix of ETFs to place in the DEP. In the book we show the design of several well tested, high performance, Dynamic Investments and their DEPs. These are DIs that readers can begin using immediately to obtain the performance discussed next.
Dynamic Investment Performance - The NAOI Core DI
Theories are a dime a dozen. It is performance that counts. Do Dynamic Investments work? Extensive NAOI back-testing across multiple economic environments showed us that they do work and amazingly well.
As just one example, let's look at the simplest DI designed by the NAOI called the NAOI Core DI that holds just two ETF types in its DEP - one for Stocks and one for Bonds. It automatically rotates between a Stock and a Bond ETF based on a quarterly sampling of the price trends of each.
The NAOI Core DI produced the returns displayed in the top data row of the table presented below along with its Average Annual Returns for the 10 year period and its Sharpe Ratio which is a measure of how much return is produced for each unit of risk taken; the higher the better. For comparison purposes I have shown in the bottom two data rows the performance of a traditional MPT portfolio with the allocations indicated and the performance of SPY, an Exchange Traded Fund that tracks the S&P Stock Index.
You can see that the Core DI performance is nothing short of amazing. And this performance was achieved with minimal risk and no active management required.
How is this possible? There are multiple reasons, but chief among them is that the DI is "market-sensitive"; able to automatically and rapidly change its ETF holding to take advantage of current market trends. The "static" MPT portfolio simply held both asset types (Stocks and Bonds) throughout the period, ensuring that the portfolio held both winning AND losing investments at all times to reduce risk. This is 1950's era thinking and it produces portfolios with very mediocre returns and excessive risk. DIs bring the world of investing into the 21st Century by striving to hold ONLY winning investments. This is how portfolios of the future will work.
"The NAOI foresees a future in which the NAOI Core Dynamic Investment is included in almost every portfolio created, regardless of its goal, to both enhance returns and reduce risk. It will act like the ballast on a ship, keeping an investment's value steady in any market turbulence it encounters."
The NAOI Core DI is just one of an unlimited number of DIs that can be created. In The Amazing Future of Investing book, discussed below, we show the design of several more DIs that produce returns even higher than the Core. And we show potential developers how to create a product line of DIs for a full range of investing goals.
DIT and DIs introduce multiple unique concepts, tools and methods to the world of investing. Below are just a few. Others are discussed in The Amazing Future of Investing book.
- Time Diversity - Dynamic Investments are the first investment type to take advantage of a new diversity element that we call "time-diversity." While the company and asset diversity elements employed by both MPT and DIT portfolios only reduce risk, time-diversity reduces risk AND increases returns. This is why DIs can consistently produce performance like that shown in the above table.
- Market Sensitivity - MPT portfolios are both "static" and "dumb". Because they utilize a buy-and-hold strategy, their value moves up and down at the whim of the market. In stark contrast, Dynamic Investments and Dynamic Portfolios are both "dynamic" and internally "smart"; capable of automatically changing the ETF held based on market price-trends. The introduction of market-sensitive investments and portfolios is a major evolutionary advance in the world of investing.
- The Productization of Investing - Dynamic Investments (DIs) are a unique investment vehicle the likes of which the market has never seen. DIs specify the ETFs to work with AND how they are to be managed on an ongoing basis. They are active investments that are passively managed and can simply be bought and held for the long-term by investors. And each is a standardized investment product that investors will be able to buy off-the-shelf from a variety of vendors. In DIs, the NAOI has found the Holy Grail of the financial world - the productization of investing!
- Decision Objectivity - Financial experts will tell you that DIT can't work because it uses a buy-and-sell methodology, and people simply are not smart enough to consistently select winning investments. This is correct, PEOPLE can't. But DIT does not ask them to. DIs automatically signal trades based on a sampling of objective market trends, not on subjective human analysis and judgments. And history shows that the MARKET is a lot smarter at predicting future price movements than any one, or group of, human analysts.
DIs eliminate the "guess-fest" that is investing today by basing trade decisions on objective market trend observations as opposed to subjective human judgments! By doing so, the use of DIs makes the investing process simpler, more profitable and less risky. This is the "evolution of investing" at its finest.
The Book: "The Amazing Future of Investing"
Format: 8.5" x 11.0", comb-bound for easy "lay-flat" study
Publish Date: April, 2018
Publisher: National Association of Online Investors, Tampa, FL
Price: $499 (See the NAOI Store for Sale Price)
To Purchase: Go to the NAOI Store to purchase.
The multi-year NAOI search for a better approach to investing and the methods used to find it are completely documented in our new book entitled The Amazing Future of Investing. Here you will also find a comprehensive description of Dynamic Investment Theory and the Dynamic Investments that DIT creates along with how how DIs can be used to improve virtually every area of the investing world. The book Cover and Table of Contents are shown at right.
More than a "Book"
This is more than a "book". It is better described as a portal into a better, more profitable future of investing and a detailed roadmap for successfully navigating it.
Don't make the mistake of comparing this publication to $19.95 investing "how-to" books that can be found by the dozens on Amazon. This publication is more akin to a report resulting from a multi-thousand dollar study commissioned by a financial organization to dramatically increase the quality and revenue generation power of its product offerings. Seen in this context, the price of this book is insignificant. And the ROI of purchasing, reading and acting on the information it contains is off the charts.
The Amazing Future of Investing is essential reading for organizations in the financial services industry. In these pages they will learn how to use Dynamic Investments to expand their product offerings, create significant new revenue sources, open massive new markets and gain a major competitive advantage in a crowded, ultra-competitive marketplace. Those who do so first will gain a massive competitive advantage.
The book is also essential reading for individual investors who want higher returns from their portfolios with lower risk and less dependence on advisors. DIT is so incredibly simple that investors of all experience levels will be able to easily implement and manage the DIs that are described in the book immediately upon completion of the final chapter. DIT and DIs meet every goal set for us by the public when we began our search for a new approach to investing.
DIT Application White Papers
To supplement the information provided in The Amazing Future of Investing book, the NAOI offers a series of focused White Papers that show the benefits of, and the business case for, the use of Dynamic Investments in specific areas of the financial industry as listed below. White Papers are free of charge and will be sent via email in PDF format to those requesting them using the information below the list.
- Dynamic Investment Designers (a new organization type)
- ETF Developers and Vendors
- ETF Product Researchers
- Portfolio Strategists, Designers and Managers
- Financial Advisors
- Index Creators
- 401k Plan Users and 401k Plan Providers
- Discount Brokers
To request a White Paper please contact me directly via email at LHevner@naoi.org. Sent to me your name, position, company and area of interest as listed above along with a link to your Web site if applicable. If your area is not in this list, contact me to discuss your unique application.
Why Change Is Inevitable
Fundamental change of the nature discussed here does not come easily to the rather staid world of investing. But change from static investing methods to dynamic investing methods is inevitable for these reasons:
- Demand. The NAOI is teaching Dynamic Investment Theory to the public via the above described book, extensive market efforts and our investor education courses. When the public learns about the simplicity, high performance and low risk of Dynamic Investments, they will demand them. Financial organizations that offer DIs will meet this demand and thrive. Those that don't will find themselves at a tremendous competitive disadvantage.
- Competition. When even one major financial organization begins offering DIs, all others will be forced to follow in order to compete.
- Do It Yourself Investors. Dynamic Investments are so easy to understand, implement and manage that individual investors will be able to do so on their own using an online broker; bypassing financial advisors completely. Thus, if they can't find an organization that offers DIs they have the DIY option.
Many in the financial industry are happy with the way investing works today. After all, the status quo is making them rich. But the invetsing public will have the final say in this matter. And their message will be "embrace and offer Dynamic Investments or we will either find an organization that does or invest on our own using an online broker if we must." When the market becomes aware of DIs, change in the financial services industry will no longer be optional for organizations that want to survive.
A Transition Vehicle and Plan
While change from a static to a dynamic investing approach is inevitable, DIT is not an all-or-nothing proposition. The NAOI has developed a simple transition vehicle in the form of the NAOI Hybrid MPT/DIT Portfolio to ease the change.
In our DIT field-testing phase we found that students were most comfortable starting with a small portion of their portfolio dedicated to a simple Dynamic Investment such as the Core DI described above. Using an NAOI Hybrid Portfolio, a DI can simply be viewed as another "asset class" in the an MPT, asset-allocation structure. Thus, a user can, for example, design a portfolio with a 50% allocation to Stocks, a 40% allocation to Bonds and a 10% allocation to the Core DI. In this configuration the DI would act as both a returns "booster" and a risk reducer. A Case Study showing how one NAOI student did just that, along with her results is detailed in Chapter 10 of The Amazing Future of Investing book.
Using NAOI Hybrid Portfolios, investors and financial advisors can transition portfolios from the current MPT strategy to a complete DIT strategy as slowly or as quickly as desired. There are other DI integration and transition strategies that the NAOI makes available through the Support Resources discussed below on this page.
A Vast New World of Portfolio Design Strategies
The introduction of Dynamic Investments into the market opens a vast, virgin field for the development of Dynamic Portfolios (DPorts). By breaking the MPT chains, DPorts are able to produce returns that put MPT portfolios to shame and with loser risk. And DPorts are easy to create. Portfolio designers and strategists simply combine Dynamic Investments in a portfolio structure as described in Chapter 7 of The Amazing Future of Investing book. And, as an added benefit, DPorts are self-managing, all trades are automatically signaled by each DI in the DPort.
A single DI can be the only investment that a person owns in his/her portfolio. The Core DI is an example and just look at the performance it provided as shown in the table presented above on this page. Or, the Core DI can be one Building Block of a Hybrid Portfolio, as described just above, in a Transition Portfolio.
But there are so many other ways to combine DIs and so many powerful benefits of doing so that this is a field that must be studied to master. The NAOI offers training classes for this purpose as listed below in the NAOI Support Resources section of this page. We also offer consulting and advisory contracts that we guarantee will multiply the value of your current product line exponentially,
If you are an ETF developer, strategist and/or designer you must learn about DPorts and how to create them. There is no better way to quickly create significant new revenue streams, open new markets and acquire a massive competitive advantage in a crowded market than by offering Dynamic Portfolios. Feedback from NAOI students and members who are using DPorts now tells us that MPT-only portfolios will soon be obsolete!
To learn more about the benefits of Dynamic Portfolios request the Portfolio Designer White Paper listed above on this page .
DIT Support Resources
To meet the coming demand for Dynamic Investments, the NAOI has created a full array of DIT support resources. They enable financial organizations to incorporate DIs into their product lines quickly, easily and cost-effectively. Among these support resources are the following:
- DIT Information Seminars: "An Introduction to Dynamic Investments"
- Dynamic Investment Training Classes
- Dynamic Portfolio Design Training Classes
- DIT Research and Development Partnerships
- Customized Consulting Contracts
- Portfolio Advisory Agreements
- ..... and more
Learning about and understanding DIT and DIs is easy by simply reading The Amazing Future of Investing book discussed above. Taking maximum advantage of their potential requires further NAOI support. We have studied DIT applications for over 5 years. We know what works and what doesn't when using this new approach. Working with us to take advantage of this new approach will save you significant time, effort and money. Contact us for more information.
Opportunities and Action Items
Unprecedented opportunities abound in the extremely rare instance where the field of investing makes an evolutionary leap forward. To take full advantage of these opportunities, the NAOI suggests that financial organizations take the following steps:
- Purchase The Amazing Future of Investing book described just above. You can do so in the NAOI Store. Quantity discounts are available for qualifying organizations.
- Consider having the NAOI hold a DIT introductory Education Seminar at your corporate facilities
- Consider an NAOI Consulting Contract or Portfolio Advisory Agreement
- Consider an NAOI Research Partnership that enables you to work with the NAOI to continue the development of DIT
- Join our NAOI Updates Email List at the bottom of this page. We are releasing new DIT-related Product Developments, Dynamic Investments and DI Applications at a rapid rate. Joining our opt-in list enables you to be among the first to be learn about them
Contact me personally at LHevner@naoi.org or via LinkedIn to discuss these and other cooperative efforts. At this early stage, an exclusive arrangement is possible.
Thank you for taking the time to read this page! At the NAOI we are confident that what you have learned here describes the future of investing.