Where Nick Radge is Putting his Money in 2020
Published August 12th, 2021
Where is Nick Radge Putting his Money in 2020
Where are Nick & Trish Radge putting their money in 2020? Exactly what we’re going to be doing and how we’re going to be doing that. For those of you who are relatively new, I tend to think a little bit differently. Rather than investing in a portfolio of stocks, which is the usual way that people would look at what we’re doing. I invest in a portfolio of strategies. The reason why I do that is because not every strategy is going to work all of the time, but all of the strategies will work over the longer term. Hopefully they’ll all offer outperformance over buy and hold over the longer term.
Now, the reason why I invest in a variety or a portfolio of strategies is, as I said, not every strategy is going to work all of the time. If you invest in a single strategy, whatever it may be, and it doesn’t matter if it’s buy and hold. It doesn’t matter if it’s fundamental or technical. It doesn’t matter if it’s systematic or discretionary. Every strategy, at some stage, will go through periods of equity decline, which is known as drawdown, or flat periods of time, and that can become very, very frustrating, especially for new traders and investors.
If you get an underperformance in a single strategy, and that’s all you’re relying on, well, it does become very, very frustrating. We’ve had people join our growth portfolio for three months, and during that period of time it would just happen to be a very quiet period of time, and they became frustrated, and unfortunately you’ve got to take the longer-term view in all of this. One of the ways to overcome that frustration, the usual way, is they change strategy.
That’s the beginners cycle. There must be something better than this. It hasn’t worked for three months, or there’s nothing going on. I better go and do something else, and around and around and around they go. That’s not the kind of thing you really want to do.
Warren Buffett doesn’t change strategy every six months because it goes flat or he’s underperforming the market. He’s been doing the same thing for 50 years, so rather than changing strategy all the time, or trying to predict what strategy’s going to work next, the best thing to do, in my view, is trade a different portfolio of strategies that do different things, different styles, like have a different markets, different time frames, they’re doing very different things. What that will do is, hopefully, over the longer term, whilst they’ve all got a positive expectancy, some portfolios will go flat, and they’ll be offset by others that are doing reasonably well.
Last year was a classic example for me. All my trend-following portfolios had a pretty average year. Most of them returned single digits for the year, yet my mean-reversion strategies, they all returned 19 to 20% for the year. So if you were just relying on one single trend strategy last year, and the market was up whatever it was up, 20%, 15%, and you were returning five or 7%, you could have been frustrated. You could have been annoyed. You’re probably thinking, “Well, maybe I ought to go somewhere else”. Where as if you can offset it by using multiple strategies, you’ll find that over the longer term you’ll be able to stick to a strategy regardless if it goes flat, and just let it do its thing over the longer term.
So the whole idea of what I’m doing is diversifying across different strategies, different styles, different time frames, and even different markets. We’re going to go through my exact portfolio, exactly what I do very, very shortly. So the last thing I just want to say here in the introduction is what I’m going to be presenting today may seem a little bit complex. You might be thinking, “Oh gosh, this is all too hard,” or, “It’s too much of a hassle.” It’s really not. It takes a little bit of practice. It’s no different to driving a car. You know, when I was teaching my youngest daughter to drive a car, the first time in the car everything was all confusing. There was buttons and levers and wheels and all sorts of stuff going on, but now she’s reasonably proficient at driving the car. It’s just like anything. It just takes a little time to get a handle on what you’re doing and how to go about it.
For me, even though I’m running six different strategies, it takes 20 to 30 minutes tops per day to do that. Some of the strategies I don’t have to do anything. Some of the strategies are monthly strategies. You only have to do something which takes 10 minutes per month. So the whole idea is for you to take away a small snippet of what’s out there. Put some seeds in your mind to maybe think about, and hopefully, potentially hold onto this broader concept that I use to move forward.
So let’s get into it and have a look at my full portfolio. Now, this is ex any property that we own or ex any business interests that we have, and we’re basically looking here at five different things, if you like. We’ve got a tactical portfolio, which we’ll go into shortly, ASX strategic, U.S. strategic, bonds, and cash. The tactical portfolio is 65% of the total, strategic is 25%, and bonds are 9%. Now, some of you may have heard of, or you may have been to a financial planner. Some of you may have heard of what’s called the 60/40 portfolio, and that’s the usual, common way to invest your assets, so you would put 60% into equities and 40% into bonds, and that gives you a reasonably good risk-adjusted return over the longer term without having to do too much to it. It gets balanced on a regular basis. Mine is basically a 90/10 portfolio, so the tactical, then the strategic, they’re all equities, and you’ve got there bonds, which makes up only 9%, and a little tiny bit of cash, so the tactical is 65% of my total, strategic is 25%, and the bonds is 9%.
So let’s first of all look at the strategic portfolio, and the best way to explain what the strategic is is it’s basically buy and hold. What we have done over the years, and some of these positions have been on since 2002. Invocare, for example, that’s been there since 2002. These are disruptive businesses, and ideally these are ones that we’ve used. Thankfully, we haven’t had to use Invocare a great deal over the years. That’s crematoriums and cemeteries, but essentially these are monopolies in their fields, and they’re products that we’ve used. These are as of about three days ago, so they would have changed a little bit, so we’ve got exposure there to Apple, 27%. That’s been in the portfolio for quite some time, and that’s why it’s such a big slice of the pie. Tesla’s currently 19%, and that’s grown substantially over the last few weeks. Amazon, 12%, PayPal, 15%. PayPal’s your classic example. We use it in our business. Very, very popular. A lot of the entrepreneurs that we have to deal with during the year, they all use PayPal. Tesla, obviously, we own a Tesla. We’re very bullish Tesla. In fact, I heard today that someone’s put a $6,000 price tag on the Tesla share price. I’d be well happy if it got to $6,000, I’ll tell you, and TEAM there, that’s Atlassian. Some of you may have heard of Atlassian, so these are strategic. These are longer-term positions that we have. They’re buy and hold. We might add to these if we come up with some other kind of idea or anything like that, but very, very low turnover. Most of these have been in our portfolio for years, and we continue to just hold them regardless until the time changes, or unless we have to rebalance.
So just to reiterate, a strategic portfolio is basically buy and hold, and tactical, and this is really what we’re gonna be talking about tonight, so tactical means active, so these are all 100% systematic strategies. These are the ones I’m using, and they’ve all been built to have superior performance metrics than buy and hold, so for example, buy and hold would be an annual return of around 9%, max drawdown of around 50%. That’s pretty well what you would get over the longer term from buy and hold. What I look at is a minimum to build my strategies. It’s long-term performance metric where I want an annual return of at least 15%, and I want a MAR ratio.
Now, a MAR ratio is when you take the annual return and divide it by the maximum drawdown, so the MAR ratio of a buy and hold would be nine divided by 50, so it’s not particularly good. MAR ratio of 0.8 would mean a annual return of 15% and a drawdown of around 18, 19%, somewhere there. I build all my systems to have drawdowns of around the 20% maximum, and that’s what we’re looking at, so these are all 100% systematic. I’m not looking at charts or anything like that. They’re all being back-tested. They’re all portfolio-based. As you can see, there’s no single-market systems here, so I don’t have a system that trades gold. I don’t have a system that trades just Bitcoin. These are all broad portfolio-style systems, so in here we’ve got the growth portfolio. That currently represents 43% of the allocation to this tactical portfolio.
The Trade Long Term Premium Portfolio is 16% of the total. U.S. momentum is 10%, so they’re all trend-style systems, trend or momentum style. The growth portfolio, many of you are aware of that. The Trade Long Term and the U.S. momentum, very similar kind of portfolios. They trade once a month, and a slightly different style to the growth portfolio, so they’re called relative momentum strategies, whereas a growth portfolio would be an absolute momentum-style strategy, so even in the trend-style strategies, they’re slightly different. You can see one is in Australia, the other two are in the U.S.
Then we go into the shorter-term systems. We’ve got the high-frequency strategy, which, again, is offered as part of The Chartist. I’ve currently got 10% allocated to that, and I’ve got a day-trade strategy. Now, the two strategies here on the end, the U.S. day trade and the DMK-9, little asterisks there. They’re not available for the public. They’re not a signal service. They are my own personal strategies. The day-trade strategy is actually made up of two different strategies, very high-frequency, places 80 orders every single day. Doesn’t get filled on 80 orders every day, but can do when it gets very busy, and the DMK-9, 7% allocated to that portfolio, that’s new portfolio that’s only just come in over the last few months, and that’s based on the Tom DeMark strategy.
If you do a Google search of Tom DeMark, you’ll see that strategy of his, and that’s, again, a systematic variant of what he does, so some of these strategies, they trade the Russell 1000. They trade the Russell 2000. Some of them day trade. They’re in and out on a day. That’s trading the U.S. market. I don’t sit there and watch the market overnight. It’s all done automatically for me. Just wake up in the morning, positions have opened and closed, and you go home square, and the DMK-9 and the high-frequency are short-term swing trades, so the DMK-9 holds overnight, just one night, and the high-frequency has an average hold period of three days, so that’s the tactical allocation into that portfolio, and we’re just going to just split it up a little bit more as we go into this.
In the tactical portfolio, you can see here there’s quite a heavy bias into trend following, so it’s 70% trend following or momentum, and 30% is short-term or mean reversion, and this has actually substantially increased over the last few years as I’ve increased my exposure to the mean-reversion side of things, and it used to be 100% trend following.
I think 2010 is when we launched the first public mean-reversion system. I started researching them back in 2008, but as technologies has increased, my knowledge has increased in coding, then we’ve actually increased these models. If we go down into the trend following itself into a style, 62% into the growth portfolio, 24% into the Trade Long Term Premium Portfolio, and the U.S. momentum is 14%. Now, the growth portfolio, the reason why that’s such a large percentage is because that’s actually our super-fund. So that growth portfolio currently represents about 90% of our super-fund, so that’s a fair allocation, whereas everything else is outside of the super-fund, and we can switch it up or down a lot easier. We’ll talk about that growth portfolio and what I intend to do about that very shortly, so this is just giving you some background of where I’m at and how I manage things.
The mean reversion, the U.S. high-frequency counts for 32%, the day trade 46%, and the DMK-9 accounts for 22%, so I’d like to increase some of these, and we’ll talk about that in the next section. The high-frequency’s been running for quite a number of years. It’s had a couple of hiccups in the last few years. 2018 was good. ’16, ’17 were pretty average. We can forget about them. Uh, ’17 and ’18, actually, were pretty average, and we can probably forget about 2018, and this is the leverage that we’re currently using. Very small degree because the strategies are active, so to give you an idea, the day-trade systems have no overnight exposure whatsoever. They’re in and out on the day, and in fact you can recycle your capital. I don’t personally do it, but some of the students in the Mentor Course do do it, whereas they’ll trade the U.S. market through the night. Let’s say you put $100,000 towards a day-trade strategy. You trade it through the night. Come home square, and then you have the same style strategy, trading the Australian market during the day, so there’s no overnight exposure. You use your capital, and you recycle it during the night, recycle it during the day, and roll it over. You actually get pretty good returns doing that kind of style, so gives you a bit of an idea, so these are active strategies.
Short-term stuff has no overnight exposure. The trend systems will revert to cash during sustained bear-market events, so they’re a lot more defensive than leveraging with buy and hold. Where people went wrong with leverage during 2008, obviously with buy and hold they weren’t accounting for a 50% decline in the market, so we’re not going to really have that problem because 2008 was a slow bear market. It was a slow roll-over. Our biggest risks, and this is why we keep the leverage quite low, is a 1987-type event. That’s probably our worst-case scenario, touch wood, when you just have a complete collapse without too much warning whatsoever, so that’s why we can use a little bit of leverage, but the key here is just a small amount of leverage, not a great deal in any way, shape, or form.
Okay, so let’s talk about the key areas that I’m looking to change in 2020, and as I said, what I’ve talked about here may appear overly complex on the surface, but it is within the reach of the average trader or average investor, and it doesn’t take a great deal of learning. I mean, it’s not very difficult to actually initiate. Some strategies can be, simply because some of them do use leverage, and leverage, unfortunately for many Australian traders, is now out of reach, especially through normal brokers, not so much through a CFD provider, and that makes things a little trickier, but they can be overcome.
Here I’m going to outline my goals for the coming year, and how I intend to kind of optimize that portfolio performance, and the ultimate goal is to smooth the equity curve and keep it moving in the right direction. That’s the whole idea. I don’t want the equity curve to kind of stop for an extended period of time, so by trading multiple strategies, you will tend to get that equity curve moving, even if one strategy stalls or even goes backwards. Overall the portfolio can keep moving in the right direction.
We’re just gonna go back to this style allocation that I showed you before where we’ve got 70% of the assets allocated to trend-following on momentum, and only 30% to mean reversion. One of the things I intend to do is allocate more to the short-term systems, and this is not a view against trend-following. It’s not about taking a view that trend-following is not gonna be as good in the future as what it has in the past or anything like that. I have no view of what the future holds. I can’t possibly know, and I’ve not met anyone in 35 years who does know. My view is that mean reversion has a lot of benefits. They include low exposure. As I said, some of these don’t take a position overnight. You can sleep like a baby, come in the next day with a fresh look, and especially with the day-trade systems, and even the high-frequency strategy, a lot of the time you’re only 30 to 50% invested, so it’s not like you’re 100% invested every single night and you’re holding it all the time.
The other important thing is the low correlation of some of these systems to trend systems. For example, they actually keep trading during bear markets, whereas our trend systems will switch themselves off and go to cash, and this is what happened back in 2008, which is one of the reasons why we started looking at mean-reversion systems back then is because our growth portfolio went to cash, and early in the piece some of our members said, “Well, why are we paying you? “We should be doing something at least. “Why are we paying you? “We’re sitting in cash.” Unfortunately, the answer was quite obvious at the end of 2008, early 2009, after we’d been sitting in cash for eight or nine months, that the answer was, then, obvious, so the short-term systems can be, or sorry, the longer-term systems can be frustrating if people are told to sit in cash, so rather than try and tweak the systems to keep trading in those poor periods of time, sometimes it’s best to have a different system that can actually profit, and these short-term systems can do that because they tend to profit from the increase in volatility, and that volatility’s mainly found during bear markets.
The other thing here is the short-term systems tend to react a lot faster to changes in sentiment, so when volatility increases, the systems adapt automatically, so if we have a look here, this is the high-frequency going back to, and this is some back-test results back to 1999, what I want to point out is those bearish years in the S&P 500. So if you have a look in the year 2000, the S&P had three negative years in a row there. There’s the 2000, 2002 bear market, so down 10%, down 13%, down 23 1/2%, but you can see here that the high-frequency strategy actually made money in all three of those years. Again, in 2008, strategy made 34%, again in 2015, failed to do so in ’17 and ’18.
That’s what I said: We had a bit of a black period there, especially in 2018. Got caught out pretty badly in that fourth quarter in 2018, like so many people did, but over the longer term, you can see here that this strategy does actually perform very, very well when you get volatility. It still performs well when it’s a bullish situation. We kind of like a slow chop higher. That’s where it performs the best, but during high-volatility periods of time it can perform. Now, don’t get me wrong. Have a look at 2008. Have a look at October 2008 there. The strategy dropped 16% in that one month, so I’m not saying it’s a perfect straight line. I’m not saying it’s perfectly comfortable all of the time, but over the longer term it will produce results, so that’s the high-frequency.
If we have a look at some of the at one of the day-trade strategies, so this is the Russell 1000 day-trade strategy, no overnight exposure whatsoever. In and out on the same day, and again, you can see the strategy is quite consistent. No losing years yet, touch wood. 2018 was a bit of touch-and-go there. 2019 was much better, almost 21% return, but the key takeaway, again, is the strategy is performing during the high-volatility down years, and it’s offsetting, so during those years, like 2008, 2000 through to 2002, the trend-following models would basically be off, and you’d be sitting in cash, twiddling your thumbs, getting bored, wanting to do something, so strategies like this, you could implement as a part of the total portfolio.
I’m not suggesting you go the whole hog and put everything into here. The whole idea is to diversify the portfolio and smooth that equity curve growth. To elaborate on that further, is what I want to do is introduce more of these type of strategies in there. We’ve currently only got 30% allocated to mean-reversion strategies. I’d like to lift that to 50%, so part of my research and development this year, and I’ve already started, is working towards more strategies, and allocating more capital to the existing strategies, so the high-frequency, we’ll allocate more capital to that. That’s proven itself over the time as a solid strategy, and same with this particular Russell 1000 day-trade strategy. I will continue to look for different strategies.
There’s a book out just recently, the Jim Simons book, so Jim Simons, some of you may have heard, runs Renaissance Technologies, started back in the ’70s, and he’s by far the world’s greatest investor, significantly better than Buffett. A lot of people haven’t heard of him, but he’s just written this book as he goes into his retirement. Well worth reading, and the takeaway that I got from that book is these guys trade hundreds of systems, not just one or two, but hundreds of systems. Now granted, they’ve got 1,000, 2,000 staff. They’ve got better computer technology and databases than what I’ll ever have, but the whole idea of what they’re doing is trading many, many different systems on different time frames, smooth that equity curve, and they’ve got an annual return, I think their annual return for the last 30-odd years is 38% after a 40% performance fee, so it’s quite extraordinary the performance these guys have had.
One of the goals for 2020, for me, is to continue to research these strategies, have a look what’s around, I’ve already started that, and hopefully launch a few more strategies to go alongside the ones that I’m currently using. Ideally, they’ll be doing things completely different to what I’m currently doing, and again, that’s part and parcel of diversification.
So if we now move on to the second part of my goals for 2020, it’s in the trend-following area, and you can see here that the growth portfolio takes up 62% of the trend-following side of the tactical portfolio. U.S. momentum and Trade Long Term portfolio there make up the balance of 38%, so the issue here, the growth portfolio sits in our super-fund, represents 90% of our super-fund, and this year, or, sorry, 2019, the growth portfolio, for me, at least, not for everybody, but for me, at least, lagged quite a bit, and the key reason was I was only really 50 or 60% invested for the whole year.
Now, that has happened before. It happened back in 2015. As many of you know, I only invest in the small-cap industrials. That’s the blues, and there just hasn’t been that many breakouts in that part of the market. All the action has been in the front end of the market, the top 100, so our clients that have been trading the green signals, or those top 100s, they’ve done reasonably well.
I was chatting to a client the other day. He’s been trading it for six months. I think he’s up 16% in that six months. Some of the guys in our mentor Trading System Mentor Course, they trade the weekend trend trade, a style strategy. Much of that’s been in the front end, and they returned 34, 35% last year, so there’s been a lot of winners out there, but it’s all been in that top 100, not where I’m currently trading, so I can obviously allocate some of that money to those top 100, but what I’d probably prefer to do is diversify the style of strategy here in the ASX, and potentially add some into a momentum or rotational-style strategy that just concentrates on the ASX 100, so what that will do is give me exposure to the ASX 100, the growth portfolio will keep me exposed to the small-cap industrials, and I’ll have a monthly system as well, as will I have a relative momentum strategy, as well as an absolute momentum strategy, which is the growth portfolio.
Now, to give you an idea of the benefits, if we have a look here, this is the exact same strategy as the Trade Long Term strategy, the Premium Portfolio, but traded on the Australian market, so the exact same parameters. It’s a concentrated momentum portfolio. It only ever holds five positions, and that’s why we only focus on the top stocks, so the Premium Portfolio and Trade Long Term only trades the NASDAQ 100. In this particular case we’d be trading the ASX 100, so good-quality names. Benefits, minimal turnover, which is appropriate for a super-fund.
My accountant certainly doesn’t like me doing too much trading in the super-fund. Minimal workload, this one only trades once a month, and sometimes there’s only one trade to do. Sometimes there’s no trades. Fortescue, for example, has been in the portfolio since about March last year, and you can see here that 2019 this portfolio returned 40%, so you could see if I’d had some in here and some in the growth portfolio, the balance between the two would have been reasonably acceptable, as opposed to having everything in the growth portfolio like I’ve had. This one also has quite a high win rate. This one has a win rate of around 60%, which is similar to the Trade Long Term Premium Portfolio. Lot more comfortable. Growth portfolio, little bit less than that. Currently, I think my personal one’s running at around 41, 42%. It’s had a pretty bad year. Was doing exceptionally well up until September 2018, and then it kind of hit the wall. I see It’s slowly trying to pull itself out of that hole, so that is a concentrated momentum strategy that’s on the ASX.
It is the exact same strategy that I trade with the Trade Long Term, so just goes to show how robust it is. It’s not perfect all of the time, but that’s got an annual return of around 20%, and a max drawdown, I think that one’s got a max drawdown of around 24%, so my goal would be potentially to divest some of the money out of the growth portfolio, and allocate it into this portfolio, and that would give me some diversification in the trend-following space on the ASX.
All right, so that’s pretty well all I have for you at the moment. Here is a little bit further information that you can pursue if you wanted to add something a little different to what you’re currently doing, whatever that may be, and don’t get me wrong. It’s not necessarily just our stuff. You might find some other signal providers out there. Certainly a lot of our clients use multiple vendors, and they’re doing the same kind of thing.
So here, for example, if you want exposure to the U.S. market, you could use the Trade Long Term Premium Portfolio. That’s the concentrated momentum strategy. Has a very high annual return. Personally, I love trading it. Minimal workload. I’m super-bullish tech stocks in the U.S. over the next 10 years. I think we’re seeing the new Industrial Revolution over there, and we’re only at the very, very start of it all, so super-bullish for the next 10 years U.S. equities. It’s going to be a few bumps along the way, but as you can see, we’re already breaking out to new highs across the board, and breadth is increasing.
The other choice is doing it yourself. We provide a variety of turnkey trading systems. We’re about to completely revamp that whole section of our service. Hopefully we’ll get that done in the next month or so, and we’ll be posting new performance data, updated performance data, across the ASX for a lot of those different systems, and if you wanted to go the next level and do it yourself, get a real understanding on building systems and implementing them yourself, then the Trading System Mentor Course is open. It’s always open. We do take a maximum of 20 people at any given time. Very, very popular. We teach you how to code, how to program, and we teach you how to build, design, build, test, back-test, stress-test, and then implement your strategy, and that includes implementation via APIs, all those kinds of things that I personally use to put my stuff in there.
Q & A
Q. Is the Russell day-trade strategy available publicly?
No, it’s not. A key reason for that is it requires an API. It requires a VPS. A VPS means you can run the strategy overnight without using your own computer. You have to be connected to the Internet constantly, so a VPS allows me to do that, and ideally, the way I do it, and it’s not necessarily absolutely required, but because trading in the U.S. has different margin rates, if you day-trade in the U.S., you can actually get 25% margin, which means you can run $100,000 at $400,000 if you like, which can be very useful for a day-trade system. Without margin, you get a very low return and an extremely low drawdown, so it makes sense to perk that up a little bit. You don’t have to go the whole hog, but that’s basically what we do. At this stage, the day-trade strategy is not available to the public, mainly because it’s one I use myself personally. Many of the students in the Trading System Mentor Course have built their own ones, so that’s a way to do it. Otherwise, we do have custom coding service available, so if it’s something that you’d want to pursue, we can certainly look to build you your own one. It would not be the same as my one. It would be similar, and that could be a viable proposition, so if you wanna pursue that, just drop me an e-mail.
Q. When the growth portfolio turns off, do you exit all holdings?
No, what happens when the growth portfolio switches off, the regime filter switches off, two things occur: one, no new buy signals will come in, and two, the trailing stops get ratcheted higher, so when the market’s trending, we’re happy to allow the position some room to move, but when the market turns down, we don’t wanna give the market, we don’t wanna give our positions that much room to move. We’re giving them a little bit of wiggle room, but not much. What we’ve found in our research is that when the broader market turns down, so long as it doesn’t go into a full-blown bear market, the leaders tend to consolidate. They don’t tend to fall; They tend to consolidate, and then when the market turns up again, those leaders are the first to kick higher, so our research has shown, rather that just exit positions for the sake of exiting positions, it’s best to actually give them a little bit of wiggle room, and then, if the market turns up, then they’ll jump out of the block again. Okay, so the next question, Kieran. Are you planning to release code for the mean-reversion systems? There’s code already available, but we’re gonna upgrade that code. We’ll probably have a U.S. mean reversion and an ASX mean reversion. I think they’re already on the website, but as I said, we’re about to upgrade them and make them a lot better, so they’re currently available. They will remain available. Probably best just to let us update them within the next month, and then look to purchase them, but drop me an e-mail to double-check on that when that gets done.
Q. Where on the website is the Trade Long Term portfolio located?
Rob, it’s not. The Trade Long Term is a completely different service. It is actually on tradelongterm.com. It’s a completely different portfolio, completely different service, and it was built as a completely different reason, uh, completely different business. It was done for various reasons which I won’t go into here. We do have a similar portfolio, which I do trade, called the U.S. momentum. The differences between the two portfolios, the U.S. momentum, which is in The Chartist service, is a diversified portfolio, holds 12 to 15 position and trades the Russell 1000. It has a slightly higher turnover. The Trade Long Term Premium Portfolio is a highly concentrated portfolio. It only has five positions at any one time, and it just trades the NASDAQ 100, so they’re quite different. They’re the same in terms of what they do. They’re monthly systems following momentum, but they do slightly different things, so if you’re a professional bundle user in The Chartist, you can access the U.S. momentum, but the Trade Long Term is a completely different service, different database, different payment system, everything is completely different, and so you can find that over on Trade Long Term.
Q. Is the education section of the website the same as the old website?
Absolutely, it’s 100% exactly the same. If there’s something we’ve missed, let me know. It should have all come across, but as far as I’m aware it’s all there. Another question. The last slide on the ASX concentrated momentum strategy is recommended for a super account. Is that available to paid members? Currently no, that is not available anywhere. It could be something that we could release in the future. At this stage we have no intention of releasing any more portfolios into The Chartist service itself. That’s a business decision simply because if there’s too many in there, a lot of people get confused. We used to have a longer-term ASX strategy in there that I did not trade, and we found that a lot of people didn’t trade it because I didn’t trade it. If Nick’s trading the growth portfolio, well, that’s good enough for me, so that was removed. That was years ago. That was back in 2006 or 2007, so at this stage we have no plans to release that concentrated momentum strategy. It could be something that we release as a turnkey code. If it’s something that you’re seriously interested in, please drop me an e-mail, and we’re always open to considerations.
Q. Trading System Mentor Course, how is this run?
Is full-time availability required, or is it self-paced learning? Great question, so it’s a six-month course, and it is self-paced, so all the information is provided online. We have a special area that you get access to, and you can work through at your own pace, and the whole idea is that when you get stuck, then you reach out to your mentor, so there’s two mentors, Craig Fisher and myself, and our mentoring is unconditional for the six months, so the course is basically divided into two. The first half is all about programming, which Craig takes, and he will mentor you via e-mail, phone, TeamViewer, Skype, whatever you require. He can actually go onto your computer, and help you code in front of you via TeamViewer, for example. Second part of the course is with me, and that’s when you design your own system with my help. You design it, back-test it, stress-test it, and then we implement it, so it’s six months. You work through at your own pace. We guarantee you will come away with a minimum of one fully-working trading system that is implemented, and you’re trading real-time. Quite a number of students come away with two or three strategies, and over the years they add to those strategies, so the access, the mentoring is for six months. You have lifetime access to the learning management center. You have lifetime access to a very collaborative forum. There’s a student forum there that’s highly collaborative. Everyone’s in the same boat learning and executing their own strategies. Over 50% of our students are offshore, so you get a good variety of people discussing a good variety of topics, and you also get lifetime access to a group monthly call, and that’s where everyone can come onto a webinar, just like we’re doing now, and we go through each person individually, and we talk about what their challenges have been for the month, what their wins have been for the month, and everyone can listen in and comment if need be, so someone might say, “I’ve been having problems “with my directive brokers account. “This is going on,” and someone might come in and say, “Oh yeah, that happened to me, and this is how I fixed it,” so very collaborative. More details on that. Just drop me an e-mail or go to nickradge.com, forward slash, I think it’s Trading System Mentor Course You’ll see it on there. There’s a questionnaire. We just don’t take anyone for the sake of taking someone. You actually have to qualify. We do have certain boundaries that we want people to work within that we’re happy to work with, so it’s not just a matter of saying, “Yeah, sign me up, let’s go.”
Q. Hey, Nick, are you trading spreads in your mean-reversion strategy?
No, spread trading is something I keep going back to, but it’s just something that I can’t systemize enough to really feel comfortable with it, so yeah, nothing for me there in spread trading at the moment, I’m afraid. Something I’d like to do, but not really going on at the moment. Okay, we’ll just keep going through some of these questions. Okay, question here from Anthony. Have you heard anything about IB offering margin accounts to Australian residents? Good question, so here’s the story. The answer is if you are a retail investor you cannot get margin anymore. If you are a wholesale investor, or if you are a professional investor, then you can access margin, so a professional investor is someone like me or a financial a financial services provider, a fund manager. That’s a professional investor. A wholesale investor is somebody who has net assets exceeding 200, uh, sorry, $2 1/2 million or has earned more than $250,000 income for the last thee years. I think that’s the criteria, and you need an accountant’s certificate. If you are either of those, a professional or wholesale investor, then yes, you can get margin. If you don’t qualify for those, then no, you can’t get margin. The only way you can get margin is via a CFD account, and even that’s currently being scrutinized at the moment by the regulator.
Q. Is the Trade Long Term Portfolio better if you’re looking for something requiring less time?
Absolutely, literally, Trade Long Term or the U.S. momentum, they trade once a month. There’s no intra-month activity required. You can literally put it in your diary, come back on that day. They get updated after the close of business on the last trading day of each month, and then you place your orders to buy or sell at market on the first day of the new month. The U.S. momentum trades a little bit more than the Trade Long Term, so if you wanted to absolutely do as minimum as possible, then the Trade Long Term would be the way to go, but yeah, very, very minimal workload required.
Q. For U.S. equities, I use CFDs. “Is there a better way”?
Rob, CFDs, very expensive way.
Two reasons: one, commissions, and second of all, you pay funding fees even if you’ve got a fully-funded account, so personally I use Interactive Brokers. I can get access to margin. I can short sell stocks if I wanted to. Commissions are the cheapest in the world, so for U.S. equities I pay half a cent per share, minimum of $1, and that’s pretty hard to beat anywhere else, and again, I pay no funding unless I’m using margin, so if I’ve got $100,000, and I buy $50,000 worth of stock, I pay no funding ’cause it’s fully funded. Whereas, if you have 100,000 in your CFD account, you buy $50,000 worth of CFDs, you pay a funding cost on that $50,000, even though it’s fully funded, so CFDs are quite an expensive way to do it.
Q. Nick, I followed your Bollinger Band Breakout Strategy last year. It’s given me great returns. When does this strategy underperform? i.e., under which market conditions.
So any trend-following strategy underperforms in a sideways market. That’s when you get whipsawed backwards and forwards. Any kind of, doesn’t matter if it’s the Bollinger Band or breakout-style strategy. It’s just the Achilles heel of trend-following. Believe it or not, they actually outperform in a sustained bear market such as the GFC because we sit in cash, so yeah, your Achilles heel, when it underperforms, is a sideways market, and the next part of that question is when the Bollinger Band strategy underperforms, which strategy works? So I’m going to give you an answer to that, and then I’m going to give you a caution. So the answer to that question is a mean-reversion-style strategy will tend to work when trend-following strategies don’t, especially if the market’s moving sideways. You got a high chance of a mean-reversion strategy making money, especially if it’s high volatility, than what you would with a trend-following strategy. Now, here’s your caveat. Here’s your caution. Here’s your warning. Do not try and predict when one should be on and the other should be off, and then one should be switched off and the other switched on. Do not do that. You cannot predict when the market is gonna be trading sideways. I know people out there like Van Tharp, for example, say, “Well, you’ve got to have a regime switch “where you switch your system on and switch it off.” By the time you realize the market’s trading sidewards, it’s probably gonna start trending again. By the time the market’s trending again, by the time you realize, it’s probably too late to get in those early breakout stocks, which is why you should trade a trend-following strategy all the time, and a mean-reversion strategy all the time. Build a strategy. Accept what it can and can’t do. Don’t try and predict when it should be on and when it should be off. Essentially, the trend-following strategies that I build do have a regime filter. That’s part of the strategy. I’m not predicting when it should be on or should be off, but just be aware that that’s a trap for new players, in my view, trying to predict when to switch one on and when to switch one off.
Q. Given your U.S. trading, do you have to do a U.S. tax return?
Absolutely not. I’m an Australian resident. I’m an Australian citizen. I have nothing to do in the U.S, I pay no U.S. taxes. However, I do have to pay withholding tax on any dividends that I earn in the U.S., but I can claim those back on my taxes. Such a minimal amount anyway for the style of trading that I do and the dividends that the U.S. market pay, that I do not have to pay any U.S. tax or do a U.S. tax return under any circumstances.
Q. What universe would you use the mean-reversion system on in the U.S. and also the ASX?
So I only trade mean reversion in the U.S., for two reasons. Well, I don’t trade it in the ASX for two reasons. One, commissions are quite expensive in Australia compared to the U.S. even though you can build commissions in and overcome commissions, it’s still grating to do your tax return at the end of the day and see how much commission you pay brokers for doing absolutely nothing, so the minimum commission here in Australia is $6, whereas the minimum in the U.S. is $1, so it’s six times more expensive in Australia, and it’s based on the minimums. The main reason why I don’t trade mean reversion in Australia is because of the size of my account. I simply can’t get filled. I’ve tried various methods to overcome that. Some of the different techniques that Interactive Brokers offer you, but it just doesn’t seem to work. It’s quite amazing how often my bid will be the absolute low of the day, and instead of getting filled I’ll get a little handful of shares rather than the whole thing, and look, yes, we can test around that, so we can put a bit of a discount on that and get an understanding, but at the end of the day I just choose not to trade in the ASX, so in terms of which universes, I trade the majority of my mean-reversion systems in the U.S., trade the Russell 1000, so the day-trade system, the high-frequency, and the DMK-9. They all trade the Russell 1000. I do have a day-trade system that does a little bit of trading in the Russell 2000, but that’s pretty small. In the ASX, you’d trade the ASX, the All Ordinaries index, you’d do that, but you wanna put a liquidity filter in there just to make sure that you will get filled, depending on your account size, obviously.
Q. On Trade Long Term there is no info about membership fee. Can you elaborate?
Yes, you can register. It’s free to register. The subscription for the portfolio is 495 U.S. dollars per year. That is your only option, but you can register and get free access to the watch lists if you want. They get updated every single week. You can get free access to the portfolio performance and historical trades, but to get the actual signals, it’s 495 U.S. per year.
Q. I’m going to finish out very, very shortly. Do markets eventually adapt to any of these strategies? If so, how do we know? And do you adapt your strategy accordingly?
Yeah, that’s a good question. All markets change over time. It’s just the way it is. Markets develop for whatever reason. They change over time, and as a result, certain strategies have to slowly adapt with them. Now, to give you an example, the growth portfolio, which I built back in the ’90s, and I’ve been trading since the late ’90s, pretty much, more or less the exact same rules. We added one filter, back in about 2013, to the strategy. The only other change is the length of the index filter, so when I started trading that strategy back in the ’90s, the index filter was about 70 days. Now it’s out around 130, 135 days, and what we do is usually every strategy, so long as it’s robust, every strategy tends to have one parameter that can have the biggest influence on that strategy, so for the growth portfolio, believe it or not, that one parameter is actually the regime filter, or the index filter, so what we do once a year, we optimize that one parameter, that index filter, and we plot every single length of that optimization, and we look for a statistical flat spot, and what we’ve found over the years is that tends to move out, so as I said, it started about 70. It’s now out about 130. We’ll do it each year. It doesn’t jump, it doesn’t go from like 130 to 200 in one year, it might move down to 135 next year. Might not move at all, but what we’re looking for is this statistical flat spot. The same thing if you listen very carefully to Jerry Parker. He’s one of the original Turtles. He runs Chesapeake. If you listen carefully and read, or listen between the lines of some of his interviews on “Chat With Traders,” you hear him talking about the same thing, so if we go back to the ’70s and early ’80s, the Turtles traded a breakout strategy using a 20-day breakout with a 50-day fail-safe. That’s what they started with. Now, these guys still trade the same style of strategy, but they’re just not using a 20-day and 50-day anymore. They’re probably using 100-day and a 150-day. I don’t know exactly what they’re using, but it would be very, very similar, so you would optimize the longer-term strategies once a year, and you would only optimize one parameter only. Shorter-term strategies, you would optimize one parameter, and you’d do that twice a year, so that’s how you would adapt to the current market environment, but you have to remember that the strategy needs to be robust to start with, so for example, a good way to understand how a strategy is robust, take that Premium Portfolio. Trade it on the U.S. market. It makes good money. Trade it on the Australian market, the exact same rules, the exact same parameter, makes good money, so that, to me, suggests that that strategy has a proper edge in the market, and it’s most likely going to continue to work in the future. The other important thing, and I know I’m going into a bit of depth here, the other important thing is you’ll notice all my strategies are portfolio-based. They’re not single-market strategies. Single-market strategies, something like this is my gold strategy, or this is my share-price-index-futures strategy, or this is my Bitcoin strategy, they tend to be optimized, and as a result, they tend to fail in the future, so we’re not really doing that. If I’ve got a strategy that I can test on 3 1/2 thousand stocks in the Australian market, and it’s profitable, there’s a very good chance that’s gonna continue to be profitable into the future, so they’re all the kinds of things we talk about in the Trading System Mentor Course.
Q. U.S. trading, can you mention a few interactive brokers I could investigate as alternatives?
Well, Interactive Brokers is a broker. It’s actually called Interactive Brokers. If you go to interactivebrokers.com, it’s one of the world’s biggest brokers. It’s been around since the early ’90s. It’s listed on the New York Stock Exchange. One platform allows you to trade absolutely everything, so for example, I do all my U.S. trading through them. You can trade the Australian market through them as well on the same platform, so take a look at that. Minimum, I think their minimum account size is 10,000 U.S. dollars. The account opening procedure is a bit of a pain in the ass, but if you can push through it, it’s well worth it.
Q. Recently you were requesting for NSE and BSE, that’s India data. Curious to know what you’re working on?
Most Indian investors I follow recommend buy-and-hold strategies for India. I’m not working on anything, personally, for India at this stage. That’s not something I’m going to be working with. I don’t have data for them as yet. If there was some decent data to come through, maybe I’d pursue it, but at this stage the only markets I trade is where the data qualifies for non-survivorship bias data, so that’s, at this stage, is only the ASX and the U.S. Okay, two mentions of Bitcoin. Yeah, let’s not go there.
Q. Can I trade exchanges outside the U.S.?
Absolutely, you can trade any exchange in the world. You can trade any product in the world as well, can trade bonds, trade futures, indices. You can trade almost anything anywhere through Interactive Brokers and through the exact same you can trade Spain, UK, Australia, U.S., Canada, Hong Kong, China, all sorts of places, so absolutely have a look at Interactive Brokers.
Q. Max drawdown on the momentum portfolio?
For the ASX one that I showed you there it’s around 23%. For the U.S. Premium Portfolio it’s about 32%, but remember that’s an aggressive one, and for the U.S. momentum portfolio under The Chartist banner, from memory that’s about 22% as well.
Thank you very much, everybody. If you do have any more questions, just throw me an e-mail. Very happy to answer those for you. I appreciate everyone’s time, and this has been recorded, and I will post it up in the members’ education area in the next couple of days, so thank you very much. Have a good 2020, and any other questions, just throw them in an e-mail to me. Thanks a lot, everyone.