I'm not a big fan of wall street.
I think too many of them routinely take every opportunity to profit off the average retail investor. And I get so frustrated when there are blatant attempts to overcomplicate investing and scare folks into overpaying for complex strategies that can be replicated with far simpler and cheaper strategies. What pisses me off the most is when they have outrageous minimums that prohibit an average investor from taking part in the "fun."
Take this interview with Cliff Asness, CIO at AQR. This is a quant firm that develops and uses algorithms to manage their investment products. As I watch this interview I'm liking everything he's saying: that markets are relatively efficient but that there are some tried-and-true factors that exist which can be exploited with quantitive analysis and decision making. The interview ends, and curiosity gets the best of me and I check out their products.
One of their products is a multi-factor (value, momentum, and quality) mutual fund, QSMNX that I rather like the strategy of. But then I go check what the fee and minimum is... they require a $1M minimum investment and charge a 0.97% expense fee, are you freaking kidding me! Not only is the minimum asinine, the expense fee is so stupid when you take a moment and realize they have an algorithm running it!
I want to prove to wall street that their arrogance will eventually get the best of them. I want to prove that there are non-professionals (like all of us) who know enough about investing to develop strategies that can compete with theirs; and that some of these people genuinely want to better the financial lives of others while asking for nothing in return.
So here's a smart beta strategy that can work in a Robinhood account (no trading fees) for a balance as low as $10K. Here's what I do to build an index of 20 stocks, rebalancing monthly:
- Take the smallest 50% based on market cap, and lowest 50% of stocks based on P-E per sector
- Of the remaining companies, filter away the lowest 50% based on dividend yield
- Of the remaining companies, filter away the highest 50% based on price volatility
- Take the largest 2 stocks left (tendency for mid-cap)
- Combine all 20 stocks and determine weighting using mean reversion (companies that have made it through our filters aren't typically exhibiting momentum phenomena, they are typically undervalued companies that are oversold)
Is this the sexiest strategy in the world? No. Does this remove or minimize market risk? No. But does it work? Yes.
This is a strategy that you can feel comfortable running on your real money. It doesn't need a lot of capital. It is diversified across all sectors. And best of all this lets you feel the excitement many of us seek with investing. You get to own individual securities and you can feel engaged with your investments.
Let's show wall street that we don't want to keep overpaying them for products we can replicate ourselves for less money and for more enjoyment. Oh, and we'll probably beat those twits in the process.
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|Sortino||1 Month||3 Month||6 Month||12 Month|
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|Max Drawdown||1 Month||3 Month||6 Month||12 Month|