A Message from NAOI President, Leland Hevner

Hello

This page is directed at owners of the NAOI Dynamic Investing Bible who have not upgraded to The Amazing Future of Investing book.

 click to Purchase in the NAOI Store

click to Purchase in the NAOI Store

After sending an email announcing the release of The Amazing Future of Investing book a couple of weeks ago, I have had several inquiries asking what has changed in the Dynamic Investment Bible content that makes an upgrade worth the price. I realized from these questions that I needed to present the case for upgrading more clearly. Doing so is the purpose of this brief Web page.

While virtually all chapters have been modified and enhanced to some extent, the most important changes are in areas listed below.

1. Dynamic Investment Performance Updates. The DI Bible's last full year of performance data was 2015. The new book presents data through the end of 2017. It shows that Dynamic Investment Theory (DIT) methods continue to work. Following is the performance data for the NAOI Primary Dynamic Investment that was discussed in Chapter 12 of the DI Bible. It has the following ETFs in its DEP (RZG, RPV, EDV, TLT).

NAOI Primary DI Performance:

  • 2008 – 2017:   Average Annual Return (AAR) = + 30.1%
  • 2016 – Mid-May 2018:   AAR = + 15.8%

We noted in our testing that TLT was rarely purchased so we dropped it from the Primary DI Dynamic ETF Pool, leaving its DEP with only three ETFs (RZG, RPV, EDV) making implementation and management slightly more simple. More details related to this performance are given in the book.

2. Exchange Traded Fund (ETF) Changes. The NAOI is constantly searching for new ETFs to enhance the returns of our core Dynamic Investments. We found one that met our strict criteria and is discussed in the new book. This ETF has the symbol MTUM. It is a unique ETF that tracks a stock momentum index. It was released in 2013. You can read more about it by clicking here.

The data below shows how the returns of the Primary DI - as discussed above - were enhance by adding MTUM to the DEP which, in the new version of the Primary DI, looks like this: (RZG, RPV, EDV, MTUM). Keep in mind that MTUM was released in 2013, thus the testing period used below.

Current vs. New Primary DI Performance:

  • 2013 – 2017: Current Primary DI:    Average Annual Return (AAR) = +20.2%
  • 2013 – 2017: New Primary DI that includes MTUM:  AAR = +25.0%

You can see that by adding MTUM to the Primary DI's Dynamic ETF Pool, the performance was enhanced significantly. The data also shows that the current Primary DI is still a very good investment - MTUM simply allows it to search another area for positive returns.

3. Dealing with Stop Losses. As you know a major goal of Dynamic Investment Theory is to remove the “human judgment” risk element from the investing process as much as possible. But in one area, judgments can’t be eliminated. This area relates to working with Trailing Stop Loss Orders (TSLs).

Appendix B of the new book discusses this subject in detail. This is important as in the very recent past the DOW has had multiple drops of over 400 points in a day and then most of the time the market quickly recovered. But because of the drop, the TSLs for some Dynamic Investments were triggered and the ETFs being held were automatically sold, when in retrospect the better option would have been to just hold on.

Still, I cannot recommend NOT putting a TSL on the ETF held by a DI. Its value must be protected from market downturns and crashes. I do suggest in the new book, however, that the Stop Loss trigger percentage be "loosened" during periods of high market volatility - for example, from the default 7% to the a more forgiving 10% drop.

In addition, investors need to be aware of "choices" when a TSL sell-signal is triggered. Below are possible actions discussed in the new book for what to do when a TSL sale happens:

  • Stay in cash until the next quarterly review - or
  • Rank the DEP again and buy the one with the strongest uptrend until the next review - or
  • Repurchase the same ETF should it comes back to the sell point during the same holding period

The pros and cons of each are discussed in the new book

4. Choosing Your Dynamic Portfolio Configuration. The Primary DI can be a smart choice as the only investment in your portfolio. But most DI Bible owners tell us they use the Primary DI as one component of a more traditional MPT portfolio. We call such configurations DIT/MPT “hybrid” portfolios. Following are two of an unlimited number of possibilities for such a configuration. Both of these portfolios use the NAOI Primary DI to both boost the returns of an MPT portfolio AND to lower its risk. How is this possible? The DI is "time-diversified" the MPT portfolio is not.

Example Configuration 1:

  • 20% Primary DI
  • 80% MPT Portfolio with 60% Stocks (SPY for example) and 40% Bonds (EDV for example)
  • 2013-2017 Average Annual Return: 14.5% with very low risk, Sharpe Ratio = 1.64

Example Configuration 2:

  • 20% Primary DI
  • 80% Your Advisor Portfolio
  • Returns obviously depend on your Advisor Portfolio performance

DI / MPT hybrid portfolios configuration options and the pros and cons of each are discussed in detail in Chapter 7 of the new book. 

5. Adding Specific Market Exposure to Your Portfolio. NAOI students of DIT often ask how they can place exposure to a specific market or asset type to a DIT portfolio.

For example, they may want exposure to the Internet market space. To do this you can simply add to your portfolio an ETF that tracks an Internet index. One such ETF has with the symbol FDN. It tracks the "First Trust DOW Jones Internet Index" – you can learn more about it here: Morningstar.com. There are, of course, others and the new book tells you where to find them in Chapter 6 using this site.

In a "static", buy-and-hold MPT portfolio this type of ETF can be a very risky investment in today’s environment where prices of Internet-related stocks have surged almost to the breaking point. This risk goes away in a DIT portfolio environment by using what we call a DI “Wrapper” as explained next.

A "Internet DI" can be created by placing these ETFs in its DEP:  (SPY, EDV, FDN). In such a DI, the Internet ETF is "wrapped" by a Stock ETF (SPY) and a Bond ETF (EDV).

This Dynamic Investment will only purchase and hold FDN  for one quarter when it is trending up in price more strongly than either Stocks or Bonds. Thus your risk is minimal and you are positioned to take full advantage of the price appreciation of Internet Companies when/if it should occur!

Following is a performance comparison for the period from 2008 to 2017 for both just buying and holding FDN and "wrapping" FDN in a Dynamic Investment format.

  • Standalone FDN:  Average Annual Returns: +16.0%
  • Dynamic Internet Investment:  AAR: +24.1%

During this period the Dynamic Internet DI held FDN for 1195 days of the total period of 2518 days. SPY was held for 373 days and EDV for 950 days. Trade decisions were made based on the strength of the market trends of each ETF, not by subjective human judgments. This is how investing should work. 

Dynamic “wrappers” can be created for any ETF you are interested in having exposure to. The process for doing so is discussed in more detail in the new book.

Purchase and Contact Information

The bottom line is that If you want to get the most out of the amazing new Dynamic Investing approach that you have learned in the Dynamic Investment Bible, should seriously consider upgrading to the Amazing Future of Investing. I have made available to current DI Bible Owners a significant discount for doing so. 

Go to the NAOI Store to add the new book to your Cart. During the order process use the PROMO Code: OWNER to take advantage of the very low upgrade price!

If you have questions please feel free to contact me any time at LHevner@naoi.org