Introductions and Purpose of this Page

Hello. My name is Leland Hevner. I am the President and founder of the National Association of Online Investors (NAOI) an organization I founded in 1997 with the mission of empowering individuals to invest with confidence 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 the advisors / financial organizations they choose to work with.

The purpose of this Web page is to inform you of a major change that the NAOI is making to our education content. We will be 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 it creates called Dynamic Investments (DIs).

Developed based on a multi-year study using extensive input from the investing public, DIs are “market-sensitive” and capable of producing significantly higher returns than MPT-based portfolios with lower risk and no active management required. Feedback from NAOI students tell us that this is the approach to investing that will finally enable them to participate in the market with confidence and without fear. You will learn how Dynamic Investments work on this page and throughout the NAOI Web site.

I have made this page available to only a select few of my contacts on LinkedIn who I believe will benefit most from learning about this new approach first, and beginning to prepare now to meet the public demand for Dynamic Investments that is coming fast.

Why Change Is Needed - NOW

Based on over two decades of teaching and working with individual investors, the NAOI has an unmatched knowledge of how the investing public views the world of investing and what they want and need to enter it with confidence and without fear. We know that the way investing works today is not meeting these needs and, as a result, a significant number of individuals are either not participating in the market or are investing far too conservatively.

A major problem is today’s unquestioned use of Modern Portfolio Theory (MPT) to design and manage portfolios. By using a buy-and-hold strategy, these portfolios are not sensitive to market changes. This makes them dangerously vulnerable to market crashes that occur on an average of about once every 6 years. Thus, investors can expect to lose a significant portion of their portfolio value on a regular basis and it can take months or years to recover these losses.

Yet, after each market crash and resultant portfolio losses, financial advisors continue to offer to clients the same static, MPT portfolios that people know will fail again in the not too distant future. And individuals, in increasing numbers, are no longer willing to subject their financial futures to the risk of modern markets. This needs to change.

The Development Dynamic Investment Theory - an MPT Alternative

From our inception in 1997, the NAOI taught MPT methods for portfolio design and management - there were no options available to us. But after watching the MPT portfolios we had taught our students to create melt-down during the subprime mortgage crash of 2008-2009, I suspended all NAOI education classes and opened the NAOI Research and Development Division to find an alternative approach to MPT; one designed to thrive in modern, volatile markets.

I was adamant that the new approach would be designed based on input from the investing public, not on a decades-old academic theory as is the case with MPT. So we began our research by asking our students what they wanted in a new investing approach. Their top goals were as follows:

• Simple to understand, implement and manage, with or without the assistance of an advisor

• Higher returns with lower risk than the MPT portfolios they are given today

• Absolute protection from significant market dips and crashes

• Eliminate or reduce the “human-risk” element that is the source of so much that is wrong the way investing works today

Following a multi-year R&D project we found an approach that met all of these goals in the form of Dynamic Investment Theory (DIT).

DIT uses the proven power of asset-class and market price trends to predict future price movements. Used by hedge funds for decades to produce exceptional returns, price-trend following is seen today as too complex and risky for use by individual investors. DIT solves this problem with the creation of a unique investment type called NAOI Dynamic Investments (DIs) that make price-trend following simple, profitable and safe for the investing public as discussed below.

Note that the information on this page is a quick overview Dynamic Investment Theory and Dynamic Investments. The details and specifics needed to put this approach to use are found in our book entitled “Introducing Dynamic Investment Theory” that is discussed below on this page and can be purchased in the NAOI Store.

Introducing Dynamic Investments

Using the logic and rules established by DIT, an unlimited number of Dynamic Investments can be created to meet a full range of investing goals. But regardless of the investing goal targeted, all DIs have the same components and structure as 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.

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 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. But the NAOI has found that setting all of these variables as constants except for the ETFs in the DEP works extremely well and greatly simplifies the design process.

The Performance of a Simple Dynamic Investment; 2008-2019

Do Dynamic Investments meet the goals set for us by the investing public? Significant NAOI testing shows that the answer is a resounding YES. The table below shows the historical performance of the simplest possible DI that holds only a Total Stock Market ETF and a Total Bond Market ETF in its Dynamic Equity Pool (DEP) as compared to an MPT portfolio using the same ETFs with the allocations shown. The 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. This is the one ETF held by the DI until the next Review.

During this period, the Dynamic Investment held the Stock ETF for 1694 days and the Bond ETF for 1327 days. Trades were signaled based on objective observations of empirical market data, with no human judgments involved meaning that the DI can easily be managed by individuals using an online broker and it can also be completely automated.

An Enhanced Dynamic Investment

The above DI example is as simple as it gets, holding in its DEP only 2 ETFs - one for Total Stocks and one for Total Bonds. And the returns were amazing. But higher returns without higher risk are possible by simply adding more and different ETFs to the DEP. An “enhanced” DI that adds to the Simple DI’s Dynamic ETF Pool an ETF that tracks a Small Cap Growth index and an ETF that tracks a Long-Term Government Bond index produced the performance shown below.

You can see that by adding carefully selected ETFs to the Simple DI, average annual returns increased significantly as did the Sharpe Ratio - meaning that additional returns were achieved without additional risk. MPT says higher returns come only with higher risk. DIT says that this is not true. Higher returns can come from a more effective selection of ETFs in the DEP. Remember, we are now outside of the MPT “box” and working with a new set of rules.

A Vast New World of Product Development Opens Its Doors

By changing the number and/or type of ETFs in the DEP, designers can can easily create an unlimited number DIs that target a full spectrum of investing goals and this opens the doors to a massive world of new product development. The NAOI offers DI Design Classes that teaches individuals and organizations how to create their own proprietary DIs as discussed at this link. And unlike current new-product development in the form of ETFs or mutual funds that is expensive and time consuming, DI product development is simple, quick and inexpensive.

Dynamic Portfolios: The NAOI Recommended Investment Vehicle

While a single Dynamic Investment, such as the ones shown in the examples above, can be used as a total portfolio, the NAOI knows that allocating 100% of an investor’s money to one ETF at a time will not be easily accepted by either individuals or financial professionals. So, the NAOI is teaching individuals to use DIs as building blocks in the more familiar MPT portfolio format.

We call these Dynamic Portfolios. They contain both a DIT, buy-and-sell Segment and an MPT, buy-and-hold Segment as shown in the diagram below. NAOI trained DIT designers can easily change each of the allocation values shown in this example to meet a client’s specific needs.

The NAOI Dynamic Portfolio Configuration

The NAOI Universal Portfolio - A “Default” Recommendation

We have found that the following configuration works well for all investors regardless of their risk profile. As a result the we have called this the NAOI Universal Portfolios that we will be teaching individuals to use as a default starting point for their investing career. Of course we also show our students the specific ETFs that the NAOI recommends.

The NAOI Universal Portfolio Performance 2008-2019

The table below shows the performance of the NAOI Universal Portfolio for the period from 2008-2019. We will be teaching students to use this performance, updated regularly, as a performance benchmark for all portfolios that are recommended to them by advisors. Why should they accept lower performance when the NAOI Universal Portfolio provides these results automatically?

Note that while the returns of this portfolio were not as high as the Simple DI discussed above,

A New Portfolio Performance Benchmark

A major problem with the way investing works today is that their is no standard for portfolio performance that individuals can use to compare the portfolios they either own or are recommended by advisors with the gains that the market is offering. Now one exists in the form of the NAOI Universal Portfolio as shown above. It shows the returns and risk produced by a completely automated and passively managed portfolio. Any portfolio that produces lower performance should be at least questioned and at most rejected and replaced with the Universal Portfolio. Note that the NAOI posts the performance of this portfolio on our Web site and updates it quarterly.

A Non-Disruptive Enhancement

Some advisors and portfolio designers my say that the type of portfolio shown above is too disruptive to current operations and revenue streams to consider using. But a Dynamic Portfolio can be designed in such a manner that the DI simply “boosts” the performance of a traditional advisor-designed portfolio as illustrated below. Adding a DI to any MPT portfolio will increase its returns AND lower its risk.

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 potential changes in the equities held (used DIT only)

4. Methodology Diversification - by including 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, not only reduce risk but also enhance returns! The use of four diversification elements in a portfolio is truly an evolutionary step forward in the world of investing.

The Benefits of Using Dynamic Investments

You have seen above that the use of Dynamic Investments enables investors to achieve higher returns with lower risk. But there are other benefits of using DIs that are equally valuable for BOTH individual investors and investing professionals. Listed below are just a few of the top benefits for each. More are found on this Web site by clicking the links provided.

Top Benefits of using DIs for Individual Investors

• Simplicity. DIs provide investors with a simple, logical approach to investing that people of all experience levels can understand without extensive financial education. DIs are so simple to implement and manage that individuals can take advantage of them on their own using an online broker if they wish.

• Higher Performance. The DIT approach consistently provides users with higher returns and lower risk than MPT portfolios in all economic conditions.

• Lower Stress Investing. DIs provide users with absolute protection from market crashes; dramatically lowering the stress level of investing in modern volatile markets. This benefit alone will bring thousands of individuals into the market who are now on the sidelines in fear.

• Elimination of the Human-Risk Element. By basing trade decisions on objective observations of market data instead of subjective human judgments, DIs eliminate a massive area of risk that is the cause of so much that is wrong with investing today.

Click here to see more benefits for individual investors.

Top Benefits of using DIs for Investing Professionals

• Better Products, More Clients, Higher Revenues. DIs enable financial organizations to easily create and offer a full product line of new, higher-performance investment products by simply combining existing ETFs in the Dynamic Investment structure. These unique, dynamic offerings will attract new clients, open significant new revenue streams and provide advisors and organizations that embrace them with a significant competitive advantage in a crowded market.

• Uncovering Hidden Value In Current Product Lines. DIs monetize combinations of existing ETFs. By doing so, they uncover massive hidden value in existing ETF product lines that is now lying dormant.

• A Massive New Field of Product Development. The DIT approach to investing opens a vast and virgin area of new product development. And high performance DIs can be created with far less cost, time and effort that is required to create ETFs and mutual funds today.

Click here to see more benefits for investing professionals.

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 investing options available today.

The Basic DIT/DI Books

The NAOI has created a substantial support system for the design, creation and use of Dynamic Investments and Dynamic Portfolios. One element of this support system is the two books pictured at right - one for investing professionals which is available for purchase now in the NAOI Store and one for the investing public that will be available soon on this site as well as on the Amazon publishing platform soon.

These publications show both buyers and sellers how Dynamic Investment Theory and Dynamic Investments work and how to use them to take full advantage of the wealth creation power of equity markets. Each is less than 100 pages long and both are easy to read and understand. Plus those who read either of these books will be able to significantly increase the performance of the portfolios that they own or develop immediately upon completion of the final chapter.

Working with the NAOI

The NAOI offers to financial advisors and organizations multiple options for working together to take full advantage of this new approach to investing in the shortest amount of time and with minimal expense. They are listed below with more detail found at the links related to each.

The Introducing Dynamic Investment Theory Book

A great place to start working with the NAOI is reading this book, shown just above on this page, that is available for purchase in the NAOI store.

For the select few individuals that I have invited to view this page I am offering a significant discount on this book. To take advantage of it use the Discount Code: DYNAMIC after placing the book in your shopping cart to get $50 off of the retail price of $149.

Advanced NAOI Dynamic Investment Education Classes

Dynamic Investments are easy to create and implement. The NAOI designed them specifically to be that way. But creating optimal DIs that produce the highest returns with the least amount of risk in virtually all economic conditions requires additional training. To gain an in-depth understanding of DIs and DI portfolios and to master the art and science of DI design, the NAOI offers advanced DI Education and Design Classes and Seminars. For more information click this link.

NAOI Consulting

The NAOI offers Consulting Agreements that show financial organizations how to integrate DIT methods, Dynamic Investments and Dynamic Portfolios into existing product lines in order to capture market share, increase revenues and meet their strategic corporate goals. The ROI of an NAOI consulting agreement will be off-the-charts. For more information click this link.

NAOI Partnerships

A recent survey by the CFA Institute showed that only 23% of individuals trusted their financial advisors. Having worked with and taught the investing public for over two decades, the NAOI is not surprised. People know that advisors are also salespeople and this can lead to biased investment product recommendations. A Strategic Partnership with the NAOI can immediately allay these fears as we are recognized by the investing public as a strong advocate for the individual investor. We also offer Education, Product Development and Marketing Partnerships. For more information click this link.

The Evolution of Investing and the Value of Working with the NAOI

It is far past time that the world of investing evolved to better meet the needs of the investing public. It is no longer acceptable that the only approach to portfolio design and management is Modern Portfolio Theory (MPT), a methodology introduced to the market in the 1950’s. While markets have changed dramatically since then, MPT has barely changed at all and the portfolios it creates simply can’t cope with modern, volatile markets. As a result people are leaving the market in large numbers or not entering it at all. This needs to change.

But what path must the evolution of investing take? The NAOI is seeing a rush today by financial organizations to form relationships with financial technology (Fintech) companies to automate the way we invest. The use of robo-advisors is an example. But simply automating an outdated approach to investing will not solve the problems that investors face today.

The NAOI is taking a different, more effective path to evolving the world of investing. It is based on first understanding the problems that the investing public faces today and then developing new investing methods that solve them. The introduction of NAOI Dynamic Investments and Dynamic Portfolios is just one example. As you have learned on this page, this innovative approach was designed to meet the goals set for us by the investing public. By creating portfolios that are simple to work with, produce higher returns with lower risk than MPT portfolios and provide absolute protection from market crashes, Dynamic Investments will bring tens of thousands of individuals into the market with confidence and without fear. This is the path to truly effective evolutionary change.

To gain competitive advantage in the future of investing, financial organizations must listen to, understand and incorporate into their strategic planning the voice of the individual investor. Based on 20+ years of working with both individual and corporate investors this is the indispensable element of success that the NAOI provides to financial organizations via a Strategic Partnership or an Advisory Agreement.

Contact me at LHevner@naoi.org to discuss how we can work together to define a better future of investing for both investment buyers and sellers.