Portfolio Management
TRE Portfolio Construction and Management
This section gives step by step instruction (a tutorial) to create and manage portfolios using TRE as the risk measure.
To start with, you need to have a brokerage account for trading equities. These days most brokerage firms (ex. merrilledge, fidelity, Charles Schwab, Robinhood etc)offer commission free trading. Some require a minimum account balance but most do not. Most of them including fidelity allow fractional stocks trading. Robinhood does not require a minimum balance. This is a good place for beginners. They even give you one stock up to $225 free when you sign up. Robinhood may not be available in all states. Check out if it is available where you live.
Once you are ready to trade, follow these step by step instructions
to create and manage your portfolio.
Step 1
Every 2 months, during the 1st week, we publish a table of stocks with their corresponding TRE risk values calculated from the past 5 years of data. The stocks are given in ticker symbols and arranged in the increasing order of TRE. At present we post two tables - one for the stocks in SPY and the second for those in ONEQ. Click trerisk_spy and trerisk_oneq to access the latest tables for stocks in SPY and ONEQ. They are Excel files and can be downloaded. For 5G and International stocks see 5G, International
Step 2
From these tables, choose the stocks with the risk value range you are comfortable with. This is your portfolio. (For back-testing, we used 15-20 stocks with TRE values of 1.2-1.4 (medium - high risk) for SPY stocks and 2.3- 2.5 for ONEQ stocks. A detailed study (on historic data) of the median performance of the portfolios so constructed is given in backtesting_tre.
A risk value around the percentile (90% of the stocks are below this risk value) value is re recommended
Step 3
After choosing the portfolio, invest an equal amount of money in each of the stocks in the portfolio.
Step 4
After six months or a year (turnover time), look at the new published risk tables. The stocks around the chosen risk value can be different. Sell the stocks in the old portfolio and with that capital and any dividend accured, buy these new stocks, all the time keeping in mind to invest an equal amount of money in each stock.
Note: Do not worry about commissions on trades. Almost all the brokerage firms now allow commission free trading.
Step 5
Follow Steps 1-4 every turnover time until a period of 5-6 years or longer if you wish. Longer the better. Note that taxes on stocks held at least one year (long term capital gains) are smaller than those on short term capital gains. A turnover time of one year is beneficial when the market is rising. When the market is falling, a turnover time less than one year is better for tax purposes.
In the following, we show our portfolio pick for 2022-10-01 created using Steps 1-4.
Ticker risk file for SPY stocks on 2022-10-01,
Risk range: .383 to .429 average .411
No. of stocks for the portfolio = 15,
Total Initial investment = $10,000.
Investment/stock = 10000/15 = $666.67
The following table shows the securities chosen for the portfolio. Columns 1-4 give the ticker symbol, company name, risk value and the current price for each security. Noting that an equal amount of money is to be invested in each security, the number of shares bought for each security is given in column 5.
The next example is for ONEQ.
Ticker risk file for ONEQ stocks on 2022-10-01,
Risk range: .772 to .849, average .813,
No. of stocks for the portfolio = 15,
Total Initial investment = $10,000.
Investment/stock = 10000/15 = 666.67
For reference, every 2 months when a new risk file is created, we change the example portfolio too.
Disclaimer:
The information and tools provided here (including the links) are research tools to help self-directed investors evaluate securities. The criteria and inputs entered are at the sole discretion of the user, and all strategies with pre-selected criteria are solely for the convenience of the user. Information supplied on this page is for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell securities, or a recommendation. EntropicDynamics makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use. Determine which securities are right for you based on your investment objectives, risk tolerance, financial situation and other individual factors and re-evaluate them on a periodic basis.
