Welcome to a Web Page that describes how the world of investing is about to change at a fundamental level. The National Association of Online Investors (NAOI) has recently completed a multi-year study aimed at evolving the world of investing into the 21st Century. Following extensive research we developed a clearly superior approach to portfolio design and to investing in general that we call Dynamic Investment Theory (DIT). It is described on this page and the implications are enormous.
We will be announcing this new development to the public in the first quarter of 2018 via a nationwide Press Release. The purpose of this page to provide a pre-release summary of how DIT works to a select group of LinkedIn contacts who I, Leland Hevner, President of the NAOI, believe are perfectly positioned take maximum advantage of the information presented here. This page is not available to the public. It is only accessible to individuals who have received a personal LinkedIn message from me containing the URL of this page.
Major advantages will accrue to individuals and organizations who are among the first to know about this change. These are advantages that go away when this information is known to the public at large.
About the National Association of Online Investors
I founded the NAOI in 1997 to empower individuals to invest with success and with confidence. We are currently the premier source for objective investor education in the market. We have taught thousands of individuals to invest via our books, online courses, college courses and the market's only Individual Investor Certification Program. Yet in 2008 when the market crashed we saw that education was not enough to empower individuals to become successful investors . Also needed was innovation. We thus formed a Research Division to supplement our education activities.
The Need for Change and the NAOI Study
For the first ten years of our existence, the NAOI taught traditional investing and portfolio design methods based on Modern Portfolio Theory (MPT). When the stock market crashed in 2008 and MPT, asset-allocation portfolios crashed along with it, I stopped all future classes. I realized that I was doing my 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 has barely changed at all and the "static" portfolios it creates simply could not cope with modern dynamic markets.
As I watched the massive wealth loss resulting from the 2008 crash, it was clear to me that more than education was needed to empower individuals to invest with confidence, also needed was innovation. At that point I refocused NAOI resources from education to research and initiated a study to find an updated and more effective approach to investing; one that was designed to prosper in 21st century markets.
Starting with Investor Goals
We started our research efforts by first examining in detail today's investor experience. Our goal was to learn what the average person with money to invest needs and wants to enter the market with confidence. Fortunately we have access to hundreds of NAOI members who are the target market. Via interviews and surveys they told us that they wanted the following major improvements:
- 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 - e.g. less dependence on financial advisors
- Absolute protection from market crashes such as the one they experienced in 2008
- Absolute protection from investor abuse - e.g. scams, fraud, churning, sales bias, bad advice
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 decade's old traditional methods in universal use today.
After multiple years of research, testing and development we found the new approach needed. It met all of the requirements given to us by the public as listed above and more. We call it Dynamic Investment Theory. It sets the logic and methods for the creation of a revolutionary investment type called Dynamic Investments that are capable of not only coping with modern markets but thriving in them. Let's look at each.
Introducing Dynamic Investment Theory
We started our research effort with 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
That's it. But it was enough to enable us to formulate and develop the new investment theory that we needed to meet 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 goal then became to develop a new investment type that could find and capture this positive returns potential.
Our next step was to create a theory that would provide a logical basis for creating such investments. We did so and called it Dynamic Investment Theory (DIT). DIT creates Dynamic Investments (DIs) that are designed to find and capture the positive returns that exist in the market at all times in any economic condition. And to do so with minimal risk and no active management required.
Introducing Dynamic Investments
DIT guided our design of Dynamic Investments, a new investment type that met the goals given to us by the investing public. The DI structure and components are shown in the diagram below.
Powered by Exchange Traded Funds (ETFs), Dynamic Investments (DIs) are the market's first comprehensive investing "product". They not only specify the ETFs to work with but how they are to be managed on an ongoing basis. These are buy-and-hold investments that automatically change the ETF they hold based on a periodic sampling of market trends. In essence, they are active investments that are passively managed. DIs represent a huge leap forward in the evolution of investing.
The components of all DIs are shown in the diagram at right and defined below:
- Dynamic ETF Pool (DEP) - Dynamic Investments hold groups of Exchange Traded Funds (ETFs) in a DEP. Defined 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 one of them is bought and held at any one time as determined by the ETF Selection Module that contains the components 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. A typical Review Period is monthly or quarterly as defined by the DI Designer.
- Trend Indicator - This is the price chart indicator that is used to rank the ETFs in the DEP at Review Time. It can be as simple as the past 90 day returns. In which case the one ETF in the DEP with the highest returns for that period is bought and held until the next Review.
In the NAOI book entitled The Amazing Future of Investing, we suggest a Review Period and a Trend Indicator that our testing has shown work very well. This enables DI Designers to focus on finding an optimal mix of ETFs for the DEP. We also provide several well tested, high performance, DEPs in the book.
Dynamic Investment Performance
Theories are a dime a dozen. It is performance that counts. Do Dynamic Investments work? Extensive NAOI testing across multiple market and economic conditions showed us that they do work and amazingly well.
As just one example, the simplest DI designed by the NAOI has just two ETF types in its DEP - one for Stocks and one for Bonds. We call this the NAOI Core DI. It automatically rotates between a Stock and a Bond ETF based on a quarterly sampling of the price trends of each.
The Core DI produced the returns shown in the top row of the table below along with its Average Annual Returns for the 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 rows the performance of a traditional MPT portfolio with the allocations shown 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 dynamic and market-sensitive; able to automatically and rapidly change its ETF holding to take advantage of current economic and market conditions. The "static" MPT portfolio simply held both asset types (Stocks and Bonds) throughout the period, an approach that assures that the portfolio holds losing investments at all times. This is 1950's era thinking. DIs bring the world of investing into the 21st Century by striving to hold ONLY winning investments.
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 better than the Core. And we show potential DI Developers how to create a full product line of other DIs for a variety of investing goals.
DIT and DIs introduce multiple unique and valuable concepts, tools and methods to the world of investing. Below are just a few. Others are discussed in The Amazing Future of Investing book discussed below:
- Time Diversity - Dynamic Investments introduces to the world of investing a new diversity element that we call "time-diversity." While the company and asset diversity 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 where you can see that the Core DI earned close to 5 times the returns of an MPT portfolio working with exactly the same ETFs with approximately 3 times less risk!! MPT says this is not possible, that higher returns ONLY come with higher risk. DIT says this is nonsense.
- Market Sensitivity - MPT portfolios are both static and dumb. Because they utilize a buy-and-hold strategy, their value moves up and down with the whims of the market. In stark contrast, Dynamic Investments and Dynamic Portfolios are both dynamic and smart. They utilize an intelligent buy-and-sell strategy that periodically samples market trends and automatically makes changes the ETFs they hold to take advantage of them. The introduction of market-sensitive investments and portfolios is a major evolutionary step 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. By doing so this is the first comprehensive investment type ever created. Each is an active investment that is passively managed. And each is a standardized investment product that investors can buy off-the-shelf from a variety of vendors and hold for the long term. 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 won't work because it uses a buy and sell methodology and people simply are not smart enough to consistently select winning investments. And this is correct, PEOPLE are not that smart. But DIT does not require them to be. Designers select a group of ETFs to place in a DI and then the MARKET selects the ones to buy and sell based on an objective sampling price trends. And history tells us that the market is a lot smarter than any one or group of analysts at predicting future prices of equities. The bottom line is that DIT replaces subjective human judgments with objective observations to make decisions and the world of investing is more effective (and less risky) because of it.
When the constraints of MPT methods are removed from the field of investing all manner of improvements in the way we invest are allowed to flourish and performance freed to soar. This is evolution of investing at its finest.
The Book: "The Amazing Future of Investing"
The NAOI search for a new approach to investing and the methods used to find it are completely documented in our newly released book entitled The Amazing Future of Investing. Here you will also find a comprehensive description of Dynamic Investment theory and how to use the Dynamic Investments that DIT creates. The book cover and Table of Contents are shown below.
This is more than a "book". It is a portal into a new and better world of investing; one that took over five years to discover and document. It is your roadmap for successfully understanding and navigating this new world. To lump this with other $19.95 investing books on the shelf today would be an injustice. This publication is more akin to the output of a multi-thousand dollar study commissioned by a financial organization to dramatically increase the quality of its investment offerings along with the revenues that they generate. Seen in this context, the price of this publication is massively under-priced. The ROI of reading it will be enormous.
This book 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 base, open significant new revenue sources, capture massive new market share and gain a major competitive advantage in a crowded marketplace by bringing Dynamic Investments to market first.
The book is also be essential reading for individual investors who want higher returns with less risk from their portfolios. DIT is simple and investors of all experience 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 that the public set for us when we began our search for a new approach to investing.
The key to the future of investing can be purchased via this site at this page.
Format: 8.5" x 11.0", ring-bound for easy "lay-flat" study
Publish Date: March, 2018
Publisher: National Association of Online Investors, Tampa, FL
To Purchase: Go to the NAOI Store to purchase.
The NAOI understands that fundamental change of the nature brought about by Dynamic Investment Theory will not come easily to the rather staid financial services industry. But when the investing world learns about the power and advantages of using Dynamic Investments, change will not be optional as the public will demand DIs and the benefits they bring.
To meet this demand, the NAOI has created a full array of DIT support resources that make the integration of this new investment type into an organization's current offerings simple, efficient and inexpensive. By doing so they will open up vast new client markets and enable significant new revenue streams. The NAOI can show organizations how.
In addition to the above described book, the NAOI offers to the financial world information presentations, education seminars, DI design classes and customized consulting.
Change Is Inevitable
Fundamental change of the nature discussed here does not come easily to the staid world of investing where a 1950's era portfolio design methodology is seen as "settled science". But change is inevitable for three reasons as follows:
- Demand. The NAOI will begin teaching Dynamic Investment Theory to our Members and Students that number in the thousands. 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. In the free markets the laws of competition dictate that organizations offing the best products will attract a majority of customers. In the future of investing clients will flow toward financial organizations that embrace DIT methods and offer DI products. Those that do so will prosper. Those that don't will eventually change or fail.
- Do It Yourself Investors. Dynamic Investments are so easy to implement and manage that individual investors will be able to do so on their own using an online broker; bypassing financial advisors completely. In the future of investing people with money to invest will have the power to effectively manage their portfolios on their own. Only organizations that offer DIs will be able to attract these people.
Many in the financial industry are happy with the way investing works today. After all the status quo is making them rich. But the public will have the final say in this matter. And their message will be "embrace Dynamic Investments or we will find an organization that does." In the future of investing the power of choice shifts to the investing public, where it belongs. And change will no longer be optional.
Opportunities and Action Items
The NAOI will be announcing the introduction of Dynamic Investments to the world in the first quarter of 2018 via a Press Release. As an invited reader of this page, you are being made aware of this development first, in advance of this release. People and organizations who are first to market with this new investing approach and investment type will have a major advantage over those who learn about them later.
As a first action step toward toward achieving this goal we suggest that you purchase The Amazing Future of Investing book described just above. You can do so in the NAOI Store.
You may also contact me personally at LHevner@naoi.org to discuss how we can work together to integrate Dynamic Investments into your products and/or services sooner rather than later. At this early stage, exclusive cooperative arrangements are possible.
And finally, before you go, please consider joining for our NAOI Update Email List at the bottom of this page. We are issuing new Product Developments, new Dynamic Investments and new DI Applications at a rapid rate. You will want to be among the first to be learn about them.
For more information contact Leland Hevner either via his LinkedIn Profile or directly via Email at LHevner@naoi.org.