TuringTrader's All-Stars Stocks

Strategy Rules

Strategy Rules

The operation of All-Stars Stocks can be summarized as follows:

• divide capital into two equal-sized tranches
• allocate one tranche each to TuringTrader's Stocks on the Loose and Round Robin
• rebalance between tranches once per month

All-Stars Stocks diversifies across investment methodologies by combining two strategies. Even though both component strategies are momentum-based, this reduces volatility and broadens the portfolio's scope. Round Robin's approach of investing in broader market indices greatly complements Stocks on the Loose's stock-picking approach. As a result, the meta-strategy achieves higher risk-adjusted returns than its components.

Diversification

In bullish periods, All-Stars Stocks invests up to 100% of its capital in the U.S. Stock Market. The portfolio decreases its stock-market exposure and shifts toward a mix of bonds when market volatility increases. During bear markets and recessions, All-Stars Stocks fully invests in assets with low correlation to the stock market.

All-Stars Stocks achieves its diversification benefits primarily through serial diversification. As a consequence, the portfolio has a tail risk similar to holding the S&P 500. However, the portfolio's beta of approximately 0.3 shows that portfolio performance is well decoupled from the markets. Further, backtests show that the portfolio has successfully handled a wide range of historical market scenarios.

Returns & Volatility

All-Stars Stocks beats the S&P 500 index in most years. Over the entire economic cycle, the portfolio delivers almost twice the return of its benchmark. Simultaneously, the portfolio shows lower measures in all risk metrics, including standard deviation of returns, absolute drawdown, and maximum flat days. For most metrics, All-Stars Stocks' risk profile is even lower than that of a passive 60/40 portfolio.

With these properties, All-Stars Stocks bridges the gap between aggressive returns and prudent risk management, making high returns available to more conventional investors.

Account & Tax Considerations

All-Stars Stocks trades frequently and regularly triggers taxable events. Investors should expect almost all capital gains to be short-term. Therefore, the strategy works best in tax-deferred accounts.

To allow for accurate position sizing, All-Stars Stocks requires an account size of no less than $50,000.