The Next Step in the Evolution of Investing
NAOI Dynamic Investments (DIs) are created using the logic and rules set forth in Dynamic Investment Theory. DIs have the built-in intelligence to identify and capture the positive returns of asset class and market segment price uptrends 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. This page provides and overview of how DIs work and the type of performance they can produce. Prepare to be amazed!
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 both “market-sensitive” and “intelligent”:
Dynamic Equity Pool (DEP) - This is where a DI designer places groups of ETFs (or mutual funds) that are “candidates” for purchase by the DI at a Periodic 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 Rise of Dynamic, Market Sensitive Portfolios
While Dynamic Investments can be used as complete portfolios, the NAOI knows that such radical change can be disruptive to the way investing works today. Most of our students are more comfortable using DIs as building blocks in a more traditional MPT portfolio where they will both increase returns AND reduce risk. We call these MPT/DIT Hybrid Portfolios and they are discussed at this link.