Introducing the Future of Investing
Welcome to the Media Center for the National Association of Online Investors (NAOI), an organization that is quietly changing the way investing works at a fundamental level. Change will come in the form of Dynamic Investment Theory (DIT), the first alternative approach to portfolio design since today’s standard, Modern Portfolio Theory (MPT), was introduced in 1952.
DIT creates a revolutionary, new investment type called Dynamic Investments (DIs) that automatically change the equities they hold based on a periodic sampling of market trends. This makes them "market-sensitive" and able to produce returns that static, buy-and-hold MPT portfolios can't touch with less risk and no subjective trade decisions needed. This is the development that will finally get the world of investing unstuck from the MPT "mud" and evolving as it must to adapt to modern markets.
The purpose of this Web page and of this Media Center section of the NAOI site is to give select members of the financial media a "first look" at this new investing approach, allowing them to break this news to their audiences first, prior to a major, nationwide NAOI press release.
Allow me to introduce myself as Leland Hevner. I am the President of the National Association of Online Investors (NAOI). Founded in 1997 the NAOI is an established investor education and investment research organization located in Tampa, Florida.
Since 1997 the NAOI has taught thousands of individuals how to invest via our online courses, college-level classes and published books. Then, in 2008, I stopped all NAOI education efforts. Why? Because what I was teaching wasn't working.
For over a decade I had been teaching investment portfolio design based on Modern Portfolio Theory (MPT) methods - using asset allocation to match each student's risk tolerance. During a college class I was conducting in 2008 the stock market started to crash and I watched in dismay as the portfolios I was showing my students how to create were crashing right along with it.
At that point, I cancelled all future college classes and refocused NAOI resources on developing a new approach to investing in general that did work in today's markets; one that I could feel confident teaching.
Why Change Is Needed
As we started our research, I quickly saw that at the root of the problems facing investors today is the universal use of Modern Portfolio Theory (MPT) to design portfolios. This is a methodology introduced in 1952 . Click the chart at right to see the MPT problem (and the DIT solution that you will learn about on this site).
While markets have change dramatically since the 1950's, MPT has barely changed at all and it simply no longer works in modern markets. Yet we are still, today, given MPT-based portfolios by the financial services industry, resulting in investors having to accept mediocre returns, at best, excessive risk and no protection from market crashes..
MPT methods, by focusing their design on the risk tolerance of each investor, have no sensitivity to market changes. As a result, their value drifts up and down at the whims of the market. This is unacceptable in today's volatile markets and the reason why many individuals are not participating in, or taking full advantage of, the market today. Total reliance on MPT portfolio design is keeping the world of investing "stuck" in the 1950's. Having identified the root of the problem we started a development effort to create an investing approach that works in the 21st Century.
The NAOI Study and Findings
To develop an updated theory of investing we used rigorous scientific methodology, starting with the ONLY thing we know about market price movements with any degree of confidence - that the prices of assets, markets and market segments are all cyclical in nature and that they move up and down at different times as illustrated in the diagram at right.
Starting with this foundation of logic, we formulated a hypothesis that a portfolio, or investment type, could be created that was capable of automatically detecting positive price trends wherever and whenever they exist in the market and capturing their positive returns while avoiding areas of the market trending down in price.
Introducing Dynamic Investment Theory
Extensive testing and analysis showed us that our hypothesis had a high probability of being correct. Based on these results, we transformed our hypothesis into a theory and, after close to 5 years of R&D, Dynamic Investment Theory was born. DIT sets the logic and rules for the creation of a new investment type we call Dynamic Investments.
Introducing Dynamic Investments
Dynamic Investments are a unique investment type that are “market-sensitive”, capable of automatically changing the equities they hold based on a periodic sampling of market trends. By doing so they strive to hold ONLY equities that are trending up in price at time of purchase while avoiding, or selling if already owned, those trending down in price. By doing so DIs are capable of returns that are significantly higher than MPT portfolios and with less risk.
As a quick example of the power of DIs, the table below shows, in the top row, the returns of an MPT portfolio holding only two equities, a Stock Index ETF and a Bond Index ETF, with the allocations shown. The MPT portfolio simply buys and holds these ETFs for the long term with periodic adjustments to rebalance the allocations to original values. The bottom row shows the performance of the simplest possible NAOI Dynamic Investment (called the Core DI) working with the same ETFs but using DIT automated buy and sell methods.
The DI returns are amazing. But still more amazing is that these returns were achieved based solely on the objective observation of empirical market data - i.e. no subjective trading decisions were involved. It must also be noted that the DI’s higher returns did not come with higher risk as the Sharpe Ratio (a measure of how much return is achieved for each unit of risk taken and the higher the better) went up along with the returns. This, alone, causes the logical foundations of MPT to crumble.
Experts will say that the DI returns shown above are impossible. And they are right. Using MPT methods they ARE impossible. But DIs don’t use MPT methods, they use DIT methods. And once unchained from the constraints of MPT, investment returns that consistently exceed 20% per year are not uncommon. DIT and DIs transform investing from a subjective “art” to an objective “science” and this change is huge.
The Enormous Impact of Change
With the introduction of DIT and Dynamic Investments, virtually overnight, the world of investing becomes significantly simpler, more profitable and less risky. NAOI students who have field-tested the use of Dynamic Investments for close to two years tell us that DIT - not MPT - is the future of investing. This is the most significant advance to how we invest in over 65 years.
A Dynamic Investment Guided Tour
Visitors to this site can learn about the NAOI, President Leland Hevner and how the organization became the market’s leading provider of comprehensive, objective and academically rigorous personal investor education. Most newsworthy at this point, however, is the introduction of Dynamic Investments.
Therefore we have created a Web-based slideshow that shows why change was needed, how a new theory of investing was discovered, how Dynamic Investments work and the amazing performance they can produce. This is the stuff of interesting and actionable media articles and interviews.
For further information, questions and/or interviews please contact NAOI President, Leland Hevner at LHevner@naoi.org. Or call at 813-847-2121.