Why a simple stock portfolio can easily improve on

the performance of Indices and ETF baskets.

There are two reasons for this.

One is we don’t hold falling stocks, as ETF and Index baskets do, and secondly our portfolios use a high conviction trend following strategy limited to a small holding of stocks that fully utilises all available capital when markets are rising and minimises exposure during falling market.

If stocks aren’t trending up, we simply don’t hold them favouring the safety of cash. The stock market is a very simple and common-sense place to build wealth, if we let it be.

The chart below shows our Energiser portfolio returns versus the ASX Accumulation Index. Performance is highly correlated between portfolios because we always behave the same way of following a highly controlled risk managed process. The only differentiation is the data universe the stocks are drawn from. Top 100 or Midcap 50.

The stated objective is maximising exposure to rising markets (stocks) and minimising exposure to falling markets (stocks).  Thus, it is the rising market when these models will perform best. The stock market spends most of its time rising thus it makes sense to maximise exposure and fully utilise capital during these times.

The strategy is simple and effective based on the fact the market bias is up.

Indices like the ASX Accumulation Index and ETF’s hold defined baskets of stocks that include stocks that go down as well as up. There is no differentiation. They qualify stocks by the indices or ETF criteria only, not individual trends, as we do. Thus, it follows if you exclude falling stocks and only hold stocks that are rising you will naturally do better than an index or ETF.

1. We enable this by using a simple strategy based on identifying price trends defined with higher high and higher low price patterns. This is coupled with a very controlled risk management process that limits downside risk to a maximum of 15%. This is an overriding function. Risk is limited; potential is rewarded.

2. Second, conviction is key when we get a signal in our best performing Energiser Top 100 5-stock portfolio it places 20% of our capital on that stock. If it trends, well and good, our profitability is unlimited if not it is weeded out using our risk management process which on a 5-stock portfolio equates to 15% risk on a trade, equating to 3% portfolio risk. Again, risk is limited; potential is rewarded.

You can follow any Stockradar portfolio, 5 or 10 stock, or build you own portfolio from the current stock picks as they come up each week. All portfolios utilise the same Stockradar unique filtering process that controls Stockradar’s 5 and 10 stock portfolios.

The stock market is a very simple environment to build wealth, if we let it be.

You can sign up for Stockradar’s Premium Portfolio service and get started today or to discuss further contact Richerd Lie.  Richard@stockradar.com.au