The Next Step in the Evolution of Investing
Dynamic Investment Theory (DIT) sets the logic and rules for the creation of a new investment type called Dynamic Investments (DIs). DIs have the built-in intelligence to identify and capture the positive returns of uptrending asset classes and market segments wherever and whenever they exist in the market. They are the financial world's first “market-sensitive” investments that can be easily implemented and managed by the investing public. With their introduction, the world of investing evolves to a better place.
The NAOI Dynamic Investment Structure and Components
The following diagram shows the very simple structure and components of all Dynamic Investments. Note that in this discussion Exchange Traded Funds (ETFs) are used as the investing vehicle; Mutual Funds work as well.
These are the components of all Dynamic Investments that make them “market-sensitive”:
Dynamic Equity Pool (DEP) - This is where a DI designer places groups of ETFs that are “candidates” for purchase by the DI at a Review event as discussed next.
Review Period - This is how often the ETFs in the DEP are ranked to find the one having the strongest price uptrend. The “winner” is the one ETF purchased, or retained if already held, until the next Review event.
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.
Trailing Stop Loss Order- A Trailing Stop Loss order is placed on the ETF purchased by the DI to protect its value from sudden and significant price drops during the short time it is held.
Each of these components is a variable that is defined by a DI designer to meet specific investing goals. The NAOI offers training classes for DI Designers as discussed at this link.
Dynamic Investment Management
Dynamic Investments are the market’s first “comprehensive” investment type. They not only specify the equities to work with but also set the rules for how these equities are too be managed on an ongoing basis. The following diagram illustrates how a DI can change the ETF it owns based on a quarterly sampling of the price trends of the ETFs in the DI’s Dynamic ETF Pool.
Via this simple management process – which can easily be automated – DIs strive to hold ONLY uptrending equities while selling, or avoiding, those that are trending down. This is in stark contrast to MPT portfolios that are designed to hold both winning and losing equities at all times.
The Amazing Performance of Dynamic Investments
The Table below shows a comparison of the performance of an MPT portfolio and a Dynamic Investment, both holding only Stock and Bond Exchange Traded Funds (ETFs). The test period is from the start of 2008 to the end of 2018 – a period that included both a stock market crashes and an unprecedented bull market.
You can see that the simple DI significantly outperformed the MPT portfolio. Not only did it provide higher returns, but it did so with lower risk!
How Is This Possible?
Today’s financial experts will say that returns like those produced by the Primary DI in the above Table are impossible. And they ARE impossible using MPT methods. But we have moved out of that outdated world into the new world of DIT. Here, performance like this is not uncommon.
The Impact of Dynamic Investments
Dynamic Investments do not simply “tweak” the way we invest today., they change it at a fundamental level. DIT and DIs open up a vast new world of new investment product development and portfolio design strategies. By doing so, DIs enable the financial services industry to offer investing solutions that meet the needs of an investing public that will not enter the market the way it works today. For these reasons and others we believe that Dynamic Investments belong in the following list of investment types that have, or will, evolve the world of investing to a higher level:
Mutual Funds - 1924
Exchange Traded Funds - 1993
Dynamic Investments - 2019
The world of investing has just evolved. Go to this link for examples of the benefits of this evolution.