I’m in Las Vegas this week, where I’m presenting at the Stansberry Las Vegas conference. It’s pretty incredible, and humbling, to be here and to share the stage with the likes of Dr. Ron Paul, Mark Spitznagel and Dr. Steve Sjuggerud … and that was just the first half of the morning!
It wasn’t that long ago that I was in the audience myself … instead of the stage. I was one of the very first Stansberry Alliance subscribers. At the first Alliance meeting I met Steve and he inspired me to start TradeStops. The rest is history.
Having come from the Stansberry audience to the Stansberry stage gives me a unique perspective – one I work hard to never forget.
It’s why I continue to invest time and money in ground breaking research that I believe gives all of us the best chance at capitalizing on the outstanding investment ideas published by Stansberry and other great publishers.
I mentioned last week that my team and I are up to our eyeballs in some of that research work right now … and the results we’re seeing have convinced me more than ever that the services we offer are indispensable for most investors.
Last week I told you that even just the volatility-based position sizing has a profound impact on the portfolios that we’re back-testing. I showed you how to calculate investment sizes based on our VQ algorithm and the amount of money you’re willing to risk.
This week I’m going to show you how VQ position sizing and VQ trailing stops work together to absolutely transform the results of a couple of the dozens of portfolios we’re studying. I’m going to show you overall results as well as individual investments … and I’m going to talk about specific dollar amounts invested because I want you to feel at a gut level what can go wrong … and what can go right.
Our first case study is a portfolio based on about $160,000 of invested capital. Our first chart shows what happed with this capital alongside the impact of position sizing alone and position sizing combined with trailing stops.
The numbers next to each strategy name are the net gains in dollars resulting from each strategy. Even just using position sizing would have saved this investor over $12,000. Combining position sizing and trailing stops resulted in a differential of nearly $43,000.
The first example is Norstra Energy (NORX). Below the chart I show a table with some figures from the Original strategy versus the “Sized & Stopped” strategy. (Again, we’re just using VQ% here).
This position was originally entered in mid-2013. You can see in the Initial $ column above that the initial amount invested in this position was bigger for the Sized & Stopped strategy – $1,945 invested versus the original $495 invested.
Based on the size of this portfolio and the volatility of NORX, a larger amount of money could have been invested in NORX.
The chart shows that NORX took off like a rocket and the VQ% trailing stop got out of the trade with a healthy gain of $2,161. That gain of $2,161 was 111% compared against the initial Sized & Stopped investment of $1,945.
However, what’s even more impressive is when you consider the size of this gain versus the original amount actually invested in this position – $495 … and the fact that the original investment unfortunately went to zero.
If we look at this $495 as the “pre-TradeStops” invested amount, then this investor could have turned that initial idea of a $495 investment into a gain of $2,161 instead of a total disaster – just by using TradeStops. That’s a gain of 437% versus the original intended investment of $495.
Are you starting to get the idea of the synergistic power of proper position sizing and trailing stops?
Here’s an even more gut-wrenching example from a much larger portfolio.
This investor started with $4,667,380 in capital and ended up losing $1,461,232 of the original capital.
Simple position sizing would have saved nearly $1,000,000 of that loss, while combining position sizing with trailing stops would have netted him or her a gain of $368,627. That’s a net differential of $1.83 million dollars!
Let me show you a couple of the extreme examples of actual investments from this portfolio.
First, on the losing side, we have Seabridge Gold:
Here the critical piece is the position sizing. Our table in the chart above shows us that proper position sizing for this position would have been $26,130 rather than the “swing for the fences” amount of $384,648.
That’s what happens when we get too emotional about the potential of an investment. We take too large of a position size!
Position sizing and trailing stops acted as a double protection here to reduce a nearly $300,000 loss to a mere $8,500 loss.
Here’s another example – Activision Blizzard (ATVI).
Here we see that position sizing allowed for a much larger position in ATVI than the investor originally made. Based on the portfolio size and the VQ of ATVI, this investment allowed for a position of $73,221 rather than the original investment of just $8,869.
Incredibly, however, the Original strategy has only netted $17,161 in (paper) profits while the Sized & Stopped strategy netted $54,755 in (banked) profits.
I know that these are “shoulda, coulda and woulda” examples but I hope that they give you a kick-in-the-gut sense of why it’s so important to use great position sizing and trailing stops.
To smart investing,