Game Over

Trading Portfolio; Momentum Experiment

What a difference six months make.

It is a wonderful world.

The world of equities tells a new story every year and it is always a new story and never boring.

Picture above; a kids drawing

In the first halve of 2023 the S&P 500 index rose about 15.91%.

The Nasdaq 100 rose 38.73% in the same time.

The smallest US companies did the worst and big companies outperformed.

The Micro Cap companies only rose by about 1.36% YTD.

The Momentum US equity factor was down about 1.15% YTD.

The Equal Weight US equity factor was only up about 5.94% YTD.

The Equal-weighted S&P 500 index has underperformed the standard benchmark by the widest margin for a calendar year since Bloomberg’s data began in 1990.

In equity markets there is always a first time for everything.

This blog is for information and entertainment purposes. If the reader uses information in this blog for investment decisions, the reader will lose money. Holland Park Capital London ltd is in no way, shape or form liable for what the reader decides to do after reading this blog.

First things first; on the 1st of July 2020 Q3 the Trading Portfolio; Momentum strategy started with $50000 in investments in S&P 500 index companies.

Now on the 1st of July 2023 the portfolio is worth $72183.

There is still some cash from dividends in the portfolio that has not been taken out yet. The value of the cash was about $194.

The value of the portfolio stock holdings adjusted for cash is about $71989.

The absolute return was about 8.87% Year to Date (YTD) for the Trading Portfolio; Momentum.

The absolute return of the S&P 500 index was about 15.91% YTD.

How has the relative return versus the S&P 500 index fared so far this year?

The relative return was about -7.04% YTD.

So all of the previous outperformance of the Trading Portfolio; Momentum strategy was wiped out this year in only 6 months.

Despite this the Trading Portfolio; Momentum did better than the equal weight and momentum factor.

So the relative return versus the S&P 500 index could easily have been even worse.

The VOO Vanguard 500 index fund ETF was put in a paper portfolio with two portfolio tracking websites on the 1st of July 2020 with $50000 as well.

The SigFig website shows the paper VOO holding would now be worth $72089.

Picture Above; SigFig website VOO ETF value now 72089 dollar

In the Stockrover website the paper VOO etf holding would now be worth $71848.

Picture Above; Stockrover website VOO ETF value over the last 3 years and value now 71848 dollar

So the Trading Portfolio; Momentum managed to get in 3 years a very similar return as the VOO ETF (ignoring dividends).

Almost 3 years is still way too short to be able to draw any conclusions with some amount of conviction if something works; time horizons of between five to seven years are needed for that.

Still if something doesn’t work 3 years is enough to establish that.

The conclusion is that the Trading Portfolio; Momentum project is NOT worth the time and effort.

For Holland Park Capital London for the Trading Portfolio; Momentum to be worth it long term the outperformance needs to be at least 2% a year.

The strategy should have been up over 6% by now versus the VOO ETF to be worth the time and effort.

So the hypothesis that the strategy could beat the VOO ETF consistently by 2% a year gets rejected.

In this experiment the conclusion is that;

Time in the stock market is more important than timing the market!

Equal weight and small caps usually do worse going into recessions and outperform first coming out of a recession.

There is a chance that the equity story plays out like that once again this year and next.

Dr. Michael Burry refers to a study that the impact from passive investing now means a flow of $1 in or out of the US stocks can result in $5 added or subtracted to equity markets.

If true that may mean contrarian behaviour may pay of more than in the past.

A small part of the money from stopping the Trading Portfolio; Momentum will be invested in an S&P 500 ETF. The bigger part will be invested in individual S&P companies in an equal weighted and personalized fashion.

For a small amount of money, say $500, investing in an S&P 500 ETF is the easiest way to get S&P 500 like returns.

For a big amount of money, say $50000, it is just as easy to create your own S&P 500 portfolio by investing in single stock S&P 500 companies oneself.

Blogger Investment Pancake on the SeekingAlpha.com website has a good point when he says;

“Any investor can easily see all the holdings of every index ETF, buy the underlying shares in the same proportions reflected in that index and then proceed to enjoy benefits that no commercial ETF can offer.”

Benefits of just buying the underlying shares according to Investment Pancake are;

One can personalize the S&P 500 weightings in your private portfolio according to taste.

One can opt for 100% zero turnover with the S&P 500 private holdings.

One can play around with capital gains in a taxable account.

Holland Park Capital London would add to the advantages described by Investment Pancake that;

“Blondes have more fun”. Or in this case buying your own underlying shares is simply more fun.

On top of that you don’t pay yearly management fees for the ETF. However small the costs are for an ETF it is still better to put that money into your own pocket.

“I don’t follow anyone” sings the band Live.

Just copy paste is a highly underrated investment technique. Copy paste and personalize!

Above picture; Black Swan Hyde Park 2023

The Covid Pandemic and the way the incompetent administrators in the west reacted to it with lockdowns have thrown the world into turmoil.

Realistically stock markets can only be expected to sing to their own tune again in 2025 and be in balance again by then hopefully.

Anyway thanks for reading and good luck! May the force be with you!

The blog is not advice on what you should do with your money and was written for information and entertainment purposes only. When you invest in the stock markets it is possible to lose money. Please do your own research. If in any doubt what is best in your individual situation, please hire a licensed financial advisor. Good luck on your investment journey.

Holland Park Capital London hopes you enjoyed the information in the blog. Holland Park Capital London Ltd is not receiving any compensation from anyone to write this blog. Holland Park Capital London is long most of the stocks in the S&P 500 index and is also long the S&P 500 index ETF. Holland Park Capital London has no business relationship with any company whose stock is mentioned in this blog. Holland Park Capital London expressed its own opinions. This is not advice. Make your own decisions please. Please go and see an authorized financial advisor before making any investment decisions. What works for Holland Park Capital London may well not work for you and your personal situation is unknown to Holland Park Capital London. Stocks go up as well as down and you may get back less than you invest. Any information in this blog should be considered general information and not relied on as a formal investment recommendation. This blog is for information purposes only and helps Holland Park Capital London expand on the book “Beat the Stock Market Casino” and brings extra discipline in the investment process. Holland Park Capital London is not liable for any mistakes in this blog. This blog cannot be a substitute for comprehensive investment analysis. Any analysis presented in this blog is illustrative in nature, limited in scope, based on an incomplete set of information and has limitations to its accuracy. The information upon which this blog is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore the accuracy cannot be guaranteed. Any opinions are as of the date of publication and are subject to change without notice.