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Tom Meyer: Hello, everyone, and welcome to TradeStops. My name is Tom Meyer, and I’m pleased to be joined today by Naresh Vissa, our director of special events. Good afternoon, Naresh.
Naresh Vissa: Tom, it’s a pleasure to be back on. Happy summer.
Tom: We have an incredible webinar lined up. We’ll go into that in a moment. We’ll take care of a few housekeeping things first. We have welcomed thousands of new TradeStops members in the past few weeks. Our customer success team has been working their way through thousands of calls and emails, and they are getting caught up.
We appreciate your patience as we continue to answer these. Hopefully, today’s presentation will answer many of your questions and help you on your way to using the TradeStops site effectively and easily. We are planning more training webinars this week and the next several weeks. You’ll see them posted on the website, and you’ll also receive emails with registration links.
We are recording the presentation today and we’ll send you the link to the recording later today or tomorrow. If there’s something you don’t understand right away, you’ll be able to review the presentation at your convenience.
TradeStops is the one tool that can help you become a more successful investor from the very first time you log in.
Dr. Smith and his team have spent years analyzing the risks of individual stocks and portfolios, and our TradeStops’ members are the beneficiaries of this research.
We do have members of our customer success team answering your questions during the webinar today. We will also answer some of the questions at the end of the presentation.
Please keep in mind that we cannot answer your specific investment questions. We are not registered advisors and cannot give advice.
We do receive many questions that ask us, “What if in regards to tax consequences and the green, yellow, red light system of the Stock State Indicators?”
As individual investors, the final investing decisions are in your hands. We can’t give you any answers and we appreciate your understanding that.
The webinar today will be full of information. We encourage you to ask the questions. There is a question box on your screen, and you can ask them there.
We have Gail, Haidee, Meng Dee, Stephanie, and Brian answering them. You’ve got a great team working for you.
Today, our focus is going to be on using the TradeStops tools to choose and manage your investments. This is going to be a good example of how you can integrate all of the TradeStops tools into creating and managing investment portfolios.
We’re going to go fairly quickly. If you don’t pick it up the first time, you’ll be able to watch the recording and get the information when it’s most convenient for you. We’re going to go ahead and started right away.
You can think of today’s webinar as putting it all together. All of our other presentations have been, we focused on the VQ, we focused on putting portfolios together, we focused on different alerts. We’re going to do it all today.
We’re going to manage a portfolio. We’re going to look at stocks to determine if we want to buy those stocks or not, and how we enter those into a risk rebalanced portfolio.
Naresh: Sounds like inaudible 3:40 .
Tom: Say it again, Naresh.
Naresh: I said it sounds like fun. I know it’s a topic that has been in very high demand with our inaudible 3:47 .
Tom: We’re going to look at researching stocks. We’re going to show how new stocks can affect your portfolio. We’re going to show you how to rebalance the portfolio for equalized risk and then show you how to add new stocks to your balanced portfolio.
We’ll be using just about all of over the TradeStops tools and people will be able to see, “Aha, this is how I get down. This is how I use it. This is how I manage it.” Let’s go ahead and get started.
We’ll spend most of the day on the website itself. As we know, Dr. Smith like to talk about successful investing is about staying in the game. All of these tools that we’re going to be working with and portfolio management tools are all about becoming a successful investor, and staying in the game for the long run.
Let’s go to the website. The first thing that I’d like to show before we even log in is how you find the webinars. If you go to the tradestops.com website, just click on webinars. At the top of the screen or the webinars that you will be able to register for, we have one folk seen on the Risk Rebalancer on Thursday.
All of these are recorded so you can get the recordings for these either on this website or if you do register, we send you the link a little bit earlier.
Here are our on-demand webinars. We talked about the VQ, how to get started with TradeStops, how you can research stocks, linking your portfolios from your brokerage firm, “Alerts 101,” we did that a couple of weeks ago.
If we click on this, it not only takes you to the recording, but in many of these we actually have the transcripts for these underneath here. You’ll be able to see everything that we talk about. We’re looking at putting those maybe in PDF format so that it’ll be easier for you to print.
We do have several of these webinars that do have transcripts available. You can make use of that. We do go very quickly in these training webinars. I know we speak quickly. Sometimes it’s a little difficult to understand, especially when you’re new to the system.
Be patient. You will learn this information. We want to give you the tools to help you, whether it be through the recording, the transcript, or using both.
Let’s go ahead. We’ll log in. I set this up to be logged in automatically. Here we are at the TradeStops Home page. We are going to look at investment portfolio that we set up for these particular training sessions.
We call it our Blue-Chip Stock Portfolio. Let’s take a look at this. You can see we have a number of stocks. Everybody knows the names of these stocks, Apple, Caterpillar, Chevron, JP Morgan, Coca-Cola, etc.
The first thing that I want to do, Naresh, because I’m looking to find out. “How do I add stocks to this portfolio?” The very first thing I want to do is create a duplicate portfolio.
We’re going to go back to our Portfolio tab, and click on that. We’re at the Portfolio page itself. I’m going to click on Blue-Chip Stock. Now why do I want to create a duplicate portfolio?
During this presentation, we’re going to look at adding stocks, maybe taking stocks away, changing the allocation. I don’t want to do that within an investment portfolio. I want to do that within a watch portfolio.
Get the portfolio set up so it is manageable the way that I finally want it, then I can change my actual investment portfolio to the final investments that we’re going to have.
I click this box on the left. You can see the checkbox on the far left, and then I click on Duplicate.
We’re going to do a Blue-Chip Stock, a duplicate portfolio. I want to throw this into the watch category for now. Let’s go ahead and save this.
Now what you’ll see is under the Watch Only, you see the Blue-Chip Stock duplicated. Here’s where we’re going to start having some fun.
The first thing that I want to do is, this is my investment portfolio. I want to get a feel right now for where I currently am as far as the asset allocation and as far as the portfolio Volatility Quotient. We’ll look at adding some stocks shortly.
We go to our Research tab at the top. I want to go to Asset Allocation. We’re at the Blue-Chip Stock, the duplicate. Make sure that we’re looking at the duplicate one here.
You can see that we have 27 percent in Information Technology, 16 percent in Consumer Staples, 16 percent in Consumer Discretionary, and so forth. If we click on each of these colors that make up the pie chart, we can actually see what the investments are.
When we click on Information Technology, we can see that we have three positions, Apple, Microsoft, and Visa. If we go to our Health Care stocks, we have one stock, Pfizer. We’ll click on the Energy, and we have two, Chevron and Schlumberger.
We could also look at this from an industry perspective. Now you can see here that we are incredibly well diversified. Nothing is too large. Our largest industry is only 11 percent. That’s in Netflix. 9.88 percent is our next allocation, almost 10 percent in Caterpillar, and so forth.
Right away, we see that we’re nicely allocated by both sector and industry. Now, let’s get a feel for what the overall volatility is of this particular portfolio as it currently stands.
We have 31.5 percent low-risk stocks. Here are the low-risk stocks. Those are stocks with a VQ of under 15 — Walmart, VISA, Coca-Cola and Pfizer. Our medium-risk stocks which are 68.5 percent, medium-risk is 15 percent to 30 percent. We’re looking at Netflix, Caterpillar, Apple, J.P. Morgan, Microsoft, Chevron, Schlumberger and Target.
You’ll notice that we only have a portfolio VQ of 12.37 percent. This is a pretty low volatility quotient for an overall portfolio. Even though more than two-thirds of our allocation is a medium-risk stocks, stocks that have volatility of greater than 15 percent, the overall portfolio volatility is 12.37 percent.
Those are our baselines, Naresh. Let’s look at adding a stock to this portfolio. Why don’t you go ahead and give me a ticker that you’d like to look at, please.
Naresh: Sure. How about we look at the company Valeant, VRX.
Tom: VRX. We go to our Stock Analyzer. Let’s type in “VRX.” We’re certainly looking for these, at this from a long position. Here is our Stock Analyzer page. VRX is in the SSI red zone and has been in the SSI red zone for more than a year.
It has sky high risk volatility of over 50 percent. The stock was stopped out quite a while ago based on the Stock State Indicators. If you were to get into this stock based on yesterday’s closing price of 13.47, you would have a stop price of $6.57, which is 51.19 percent below yesterday’s closing price.
As we can see here on the chart, the trend is down. If we look at the short term, the stock jumped up about a month ago, about six weeks ago, but it has a long way to go to move into the SSI green zone.
You can see the volatility has been rising dramatically. A year ago, we were still at over 50 percent. Now we’re over 51 percent. That’s three months ago. If we look at this on a three-year chart, this stock had a volatility of 23 percent. Now, it’s over 50.
This is one that’s had a very dramatic decline over the last few years. We’ve written about this stock. If people want to see what Dr. Smith has had to say about this, then you could go to the blog page. We’ll skip over there and show people where to go.
Just click on the blog page. It’ll open a new window. You could type in and do research where under the search, you could type in “Valeant.” Those editorials will come up. Let’s get back to looking at the stock itself.
Naresh: I was going to say, Tom, we’re getting a lot of request for energy, oil and gas stocks. We’ll start out with the Valeant, and then move forward with some of our favorite energy stocks.
Tom: For right now, let’s, because this is in the red zone, let’s not add this one to our portfolio. We’ll add a couple of more volatile stocks a little bit later on. Let’s not look at this one, OK?
Naresh: That sounds good.
Tom: Why don’t you give me one of the energy stocks. I know that those have been in the news a lot lately.
Naresh: Let’s start with Exxon Mobil, XOM.
Tom: Blue chip stock for a long period of time. We type this in. We can see that Exxon is in the SSI yellow zone. We’ll look at that in just a moment why it’s in the yellow zone. It has low risk, 14.91 percent. Almost up to medium-risk, but not quite there.
The 82.76 is where the stock closed yesterday. The stock is down almost six percent over a one year period of time and down almost 11 percent for three years.
Our Stock State Indicator shows that the stop price would be $78.18. If we were to use the volatility quotient of 14.91 based on yesterday’s closing price, we’d be looking at a stop price of $70.42.
Let’s go ahead and take a look at this. Let’s go back and see when we first got an entry signal in the week of April 1st, 2016 is when the stock generated its initial entry signal.
The high for the stock was in July of 2016, $91.77. It’s been working its way down since then. But as you can tell, it has not hit the SSI stop. It’s been in the yellow zone for quite a while, really since January.
Let’s see what would happen if we add Exxon to our portfolio, all right? Let’s go back to our portfolios. Remember, we’re going to add this to the duplicate portfolio just to see the effect that this stock is going to have. We’re not going to put it into the actual investment portfolio itself yet.
We click on the blue chip stock duplicate portfolio. It opens up the positions and alerts. Let’s go ahead and add the position. Let’s assume we’re going to add Exxon. We’ll just add at it as of yesterday’s close. We’ll just put 100 shares in there for the time being. We’ll get this set up with an SSI alert and we’ll close this.
Now, you can see that we’ve added this to the portfolio because the ticker begins with an X. It’s right down here. You can see our yellow zone, 14.9 percent VQ, etc. Let’s look at what this does now to the portfolio overall.
We’re going to go back to our research tab. We’re going to go to the asset allocation. We’re going to look again at the sector and industry. You notice the sector is now 20.7 percent energy. We have a 25 percent investment in information technology, almost 21 percent in energy.
If we go to the industries, you’ll see now that almost 15 percent of the portfolio is in the oil, gas and consumable fuels industry. That has replaced the Internet and catalog retail as our largest investment.
Let’s see what this does to our portfolio volatility. It actually lowered the portfolio volatility a little bit, 12.19 percent. We did have a lower risks stock. It was under 15 percent. Now, 36.4 percent of our portfolio is low risk, 63.6 percent is medium risk, but overall, the portfolio volatility remains low.
Naresh, now comes the fun stuff. Let’s go into our Risk Rebalancer.
Naresh: Yeah. This is inaudible 18:47 .
Tom: This is really important. We are now about to make large structural changes within the portfolio. Right now, we entered these positions with about seven or eight thousand per position. Now, let’s go ahead and we are going to rebalance this so that we are taking an equal amount of risk per position.
According to all of Dr. Smith’s research, having a portfolio that is allocated to risk parity, meaning we’re taking the same amount of risk in each position, is the most effective way to get the largest games over a long period of time.
We’re not going to include any additional case. We’ve got an 117,000 in our securities. We received some dividends. We’re not going to reinvest those at this point in time.
We just click rebalance and there are several things that are coming to the table here. Look at this, Naresh. We had a low volatility portfolio of 12.19 percent. We lowered it over one percent by using risk parity. We now have a rebalanced portfolio volatility of 11.15 percent.
Our risk per position, this is really important. We recommend to all of our TradeStops members when you get to this position, you’re going to want to write down the volatility risk per position. We are taking 1.24 percent of risk or $1,450.67. I’m going to write down the number 1,450. We are taking $1,450 of risk.
Now I know two things. I know that this is the amount of risk I’m taking in each position, the TradeStops tools who figured this out for me.
If I want to add more positions down the road, which we’re going to do shortly, I want to take $1,450 of risk. I don’t want to mess up my portfolio. I don’t want to mess up the way that the portfolio is already set up for risk parity.
You can see that we currently or set up for 36.4 percent in low-risk stocks. The rebalanced allocation is 46.8 percent, and our medium-risk stocks came down from 63.6 percent to 53.2 percent. This is on the first tab of the rebalanced results. We give you the overview.
The next tab shows you the actual results. For Apple, we currently have $10,243 invested. We’re going to want to lower that to $8,195. Our position size on Apple was 8.75 percent. We’re going to lower that to 7.04.
What that means is we’re going to move from 70 shares down to 56 shares. You can see the risk percent per position. Everything on the right-hand side adjusted is 1.24 percent and you can see how much risk is being taken right now, currently, before we make these adjustments.
We were only taking 0.7 percent of the portfolio risk in Coca-Cola and we’re going to up that from 170 shares to 302 so that we can have equalized risk and so forth.
If you just want to look at the steps that you’re going to take to arrive at this, we’re going to reduce 14 shares of Apple, reduce 30 shares of Caterpillar, and so forth.
What I want to do, Naresh, is I want to save this rebalanced portfolio as a new portfolio. I’m going to rename this blue chip risk rebalance. It gives me the date.
In the next couple of months, if I want to rebalance again, not so much to actually make the changes, but to see which stocks are outperforming the others percentage wise, I can go back to here.
It’s really easy to do. I just have to pull up this portfolio. We’re definitely saving this as a watch portfolio. Now, that’s going to open up in positions and alerts. Now, we’re going to work from this risk rebalanced portfolio because we know that we’re taking $1,450 of risk in each position. Naresh, let’s look at another stock.
Naresh: All right.
Tom: Let’s look at something that we don’t have anything invested in the basic materials. Is there something that you’ve been following that might be of interest in the basic materials?
Naresh: Yeah. How about we try AEM. Are you familiar with that one, Tom?
Tom: Yeah, sure am. That’s one of the gold mining stocks, Agnico Eagle?
Tom: It’s part of the GDX, the gold miners ETF. The stock closed yesterday at $46.32. Pretty high-risk stocks, 39.23 percent is the VQ. But even with gold having taken on the chin in the last couple of weeks, the SSI is still in the green zone. That stock has held up very, very nicely.
Our SSI results, we would stop at. If we use the SSI, the Stocks Stage Indicator, the stop is based on the most recent high back in August 2016 and that stop price would be 35.97. If we were to use a VQ and use the full volatility, that full 39.23 percent volatility, based on yesterday’s closing price, the stop would $28.15.
Now, we picked out a stock and let’s assume that we want to add this to our portfolio. How do we know how much to buy? We already figured that out, Naresh, when we did the Risk Rebalancer. Did I mention people write down $1,450 of risk?
Let’s go to our position size calculator. We’re going to type in this symbol AEM. This is yesterday’s closing price. I don’t need to change that. How much are we willing to risk? We could choose how much we want to invest. In this case, we know that our risk parameter is $1,450.
Let’s click on custom and we’re going add to $1,450. Now, do we want to use the VQ based on yesterday’s closing price or the SSI price based on 35.97, based on that high that occurred last August?
Right now, let’s go ahead and look at the SSI and we’ll compare it, the SSI to the VQ. We’re going to take $1,450 of risk based on the SSI stop of 35.97 which is about $16.5, a little bit less than $16.5 away, that I’m sorry, $10 away. We click on calculate. This tells us we could buy 140 shares.
We would invest almost 64.85, but we would buy 140 shares. Look how that would change if we use the volatility equation. We’re only looking at 79 shares. Why is that? The reason that we could only buy 79 shares is because the difference in the stock price is so much different.
We’re looking at 10 plus dollars per share difference. We can only take $1,450 worth of risk. Let’s go ahead and add this two to our portfolio as is using the VQ. We’re going to click on add.
Tom: We’re going to save this and close. Let’s go to our positions and alerts again so we can see it there. There we go. AEM is now in place. Let’s see how this changes the asset allocation and the portfolio volatility quotient.
We go back to our research. We’re going to go back to asset allocation. This is what we want, the blue chip risk rebalance. You’ll notice we added a small percentage here, basic materials.
We now have 3.05 percent in basic materials. We still have information technology and energy as our biggest positions. We go to industry and you can see, again, 3.05 percent is our smallest industry allocation. But we still have a tremendously well-diversified portfolio.
We look at this from the PVQ analyzer. Remember, we were at 11.15 percent, Naresh. We added a stock three percent of the total volatility, almost 40 percent VQ and we still dropped the portfolio VQ down to 11 percent.
This is a great way that you can start looking at what kind of stocks do you want to add to your portfolio? How do they affect your portfolio? You can know all of this before you actually make the investment.
When you have more information set up in front of you, your decisions can be better decisions and they can be smarter decisions for you based on your risk tolerance and based on your investment objectives.
Let’s do one more, Naresh. Let’s take a look at what if we were to go to something that’s crazy risky.
Naresh: I think I got a good one for you.
Naresh: One company that I’ve been following for a while, it’s an offshore oil driller, sea drill, SDRL. It’s in penny software inaudible 30:16 so we can actually see what TradeStops has to say about penny stocks.
Tom: Let’s look up SDRL. Naresh has been in the red zone for over three years. You’ve got sky high risk of 68.3 percent. You can’t use a stock state indicator with this because it’s been stopped out.
If you use the volatility quotient, yesterday it closed at 44 cents a share. If you apply the 68.3 percent VQ stock, you’re looking at 14 cents. You know what, though? I’ll bet this is a fun stock.
Everyone should have a story stock or a fun stock, something that they don’t put too much money in, and yet they can follow it. If it does well, great. If it doesn’t do well, it’s not going to crush you.
Let’s look at the three-year chart on this. This was at $40 a share, Naresh, pretty dang come to $40 a share three years.
Naresh: I know. That’s why I’ve been following it. Yeah, it was actually something given to me by a research analyst on Wall Street saying, this is the next big offshore oil driller. This was in…
Tom: …caveat enter, right? Let the buyer be aware on that. We went three years ago from a 20 percent VQ, which was medium risk, up to a 68 percent VQ, which is sky-high risk. You know what? Let’s add this to our portfolio. Let’s see how much we can actually buy of this and not take too much risk.
We’re going to go up to our position size calculator again. We’ll type in SDRL. We’re willing to risk. Now we’re equalizing our risk here. We’re only going to put $1,450 worth of risk into this. We have to use the VQ percent because there is no SSI possibility, and we calculate.
You can buy 4,818 shares, which sounds a lot, but you’re only putting $2,122. You’re only putting a couple thousand dollars into this. If this company were to go bankrupt, it would have an almost negligible effect on the overall portfolio. Yet, it’s a story stock. You can watch it. It’s fun to talk about. Let’s add this to the portfolio.
We’re going to go back to our Positions and Alerts page. There we go. OK, 4,818 shares, 68.3 percent volatility quotient. Let’s see what effect adding this stock has on the asset allocation and on the portfolio volatility quotient. We look at the asset allocation. The sector is basically the same.
We added a little bit more into the energy sector, still 22 percent, almost the same for information technology. If we look at the industry, again, this is almost a negligible amount. I don’t even see this in here, but it’s maybe energy equipment and services. There’s our Seadrill right there. Schlumberger and Seadrill.
All right, this is the fun one. PVQ analyzer. Let’s see what shows up. Look at that, Naresh, a 68 percent VQ dropped our overall portfolio VQ just a little bit, but we went from 11 percent to 10.96 percent. We’ve got…
Naresh: What lies in that? Is that because of diversification?
Tom: That’s exactly what it is. Seadrill is not correlated to any of the other stocks. The move in the Seadrill is almost based on its own company. Seadrill is not going to move in concert with Apple. It’s not going to move in concert with Pfizer.
Now, it might move a little bit with Schlumberger. It might move a little bit with Chevron or Exxon but not much. I mean, this is a penny stock. It’s obviously had its own problems.
Here we go. Check this out. We’ve got three percent of the portfolio, high risk, one-and-three-quarters percent sky-high risk. Almost 5 percent of our portfolio is super high risk.
We lowered the portfolio volatility quotient. This is how powerful risk parity is. This is how powerful it is to take an equal amount of risk in each of your positions.
We took a portfolio. We took a blue-chip portfolio. I’m going to go back to the original portfolio, Naresh. We took a portfolio of Apple, Caterpillar, Chevron, JP Morgan, Coca-Cola, Microsoft, Netflix. We added one boring stock on Exxon. We added an exciting gold stock in Agnico. Then we added a crazy penny stock in Seadrill.
With each of these additions, we’ve lowered the overall risk of the portfolio because we’re invested in so many high-quality stocks here. The stocks that we added to our portfolio, we didn’t have those sectors or industries represented in our overall portfolio.
Now, if we decide to make these changes, we could go back to our portfolios. We could take this risk-rebalanced one that we just did, and we just added the Seadrill. We could actually make a duplicate of this. We can call this “New blue chip” or whatever you want to call it. We’re going to save this as “Investments.” We’re going to save it, and here we go.
Now, we know that if we buy 56 shares of Apple, if we buy 79 of Agnico, 70 of Caterpillar, etc., etc., we’re going to be taking $1,450 of risk in each position. What a great way to be able to manage the portfolio, watch the portfolio. If you want to add stocks later on, just keep that $1,450 handy.
You go back in in a couple of months. You want to add one or two stocks. There are some things that are of interest to you. Great, $1,450 of risk, you know what you have to do to be a successful investor. We don’t know what’s going to happen with the markets. You’re going to have stops set on all of these.
We recommend setting SSI alerts on all of these. Right now, I don’t actually even have alerts on these. We can go to Alerts. Let’s go to our positions. Let’s do a bulk alert. Click this box at the top. We’re going to add an alert, our stock state indicator alert. There we go. We have SSI alerts in place now for everything.
Naresh, this is how our members can take all of the tools of TradeStops, use them for the first time to get rebalanced, to understand if you’re overweight or underweight in certain sectors or certain industries.
If you’ve got 60 percent of your portfolio in one sector, you know you’re taking a lot of risk. It’s going to show up in the pie chart. It’s going to show up in the PVQ analyzer.
If you decide that you’re going to build your portfolio, and you want to be sure that you’re going to have a really good asset allocation, a really good diversification, the TradeStops tools are here to help you. You can make that happen.
Now, look how easy it is to manage this portfolio going forward. I can just keep an eye on the Positions and Alerts tab for our new blue-chip stocks and really get a good view.
Now, I might have to go in and change the entry dates on some of these because I’ve owned them. We set this up, because it’s a new portfolio, we use today as the entry date. You’ll probably want to go in and make adjustments as to your cost bases, etc., etc. That’s really easy to do.
Click on Apple. Click on the little pencil icon. You can make your changes based on your old investments. You still have your old investments available because you’ve kept this original blue-chip stock portfolio. That’s why we wanted to create a duplicate in the very beginning so that you’re not messing up what you currently have and the information that you have set up.
Naresh, that’s a lot of information in 35 or 40 minutes. One more area that I’d like to show, and talk to folks about is our Help Center. We always end up our presentations talking about the Help Center.
Basically, everything that we did today is discussed in the Help Center. You just click on that Help Center link at the upper right. It opens a new window.
It’s organized exactly the way that the TradeStops website is organized, research, portfolios, Positions and Alerts, etc. 90 to 95 percent of the questions that our members have can be answered here in the TradeStops Center. If it’s not or you might be having difficulty finding it, you can certainly call our Customer Success team, 866-385-2076.
We’re in Florida. We work 9:00 to 5:00 Eastern Time. You can always send an email to us, firstname.lastname@example.org. I’m going to take a breath here. What sort of questions, Naresh, are coming in? What information would people like to know?
Naresh: We got a lot of questions, Tom, which is good, very good, because it shows that you guys are interested and paying attention. First question, “How does the cash in your portfolio affect the PVQ calculation?”
Tom: Let’s go ahead and go there. You’ll notice that up at the top, we can choose to include cash or not include cash. Let’s go to the original blue-chip stock that has 10,000 in cash. If we click yes, it’s going to show you what’s your allocation of cash is. It’s not going to change the portfolio VQ.
The portfolio VQ is based on the stocks in which you’re investing. It does not include the cash. I prefer to use no when I look at this, but obviously, that’s a personal preference. Each of our members can choose to look at this anyway that they want.
When we go to the asset allocation, it’s also an option to add cash. Go back to our blue-chip stock. You can see that we’ve got cash up here, 8.42 percent. The rest of the stocks are allocated accordingly.
The same thing with the industry, cash is 8.42 percent. Then we can look at the rest of the industry allocations. Again, I prefer not to include the cash because I want to know how were the stocks themselves allocated. That’s a great question.
Naresh: All right, thank you for that question. Next question we have, “Why don’t you include dividends in the rebalancer?”
Tom: That was just a personal choice. This portfolio, this sample portfolio that we had constructed, let me get to the blue-chip stock portfolio. This was our original one that we started off with at the top.
You can see that we’ve received dividends per share over — we’re looking at entry dates back to 2015, all the way up to 2017. This was just a choice of just taking the stocks themselves and not allocating any additional cash to those. We could. We could go to the risk rebalancer.
Now, again, keep in mind, I’m looking at the blue-chip stock right now. We would go to the blue-chip duplicate.
If I wanted to be a hundred percent fully invested, I’d include the dividends, and I’d include the cash. Rather than re-balancing $120,000, we’re re-balancing $130,000. You can see that the construction is still the same. 11.15 percent is still the amount of portfolio volatility quotient, down from 12.19.
Look at our risk per position, still 1.24 percent, but because we’re investing $130,000 total into the same number of positions as opposed to $117,000, now we’re taking $1,611 of risk per position.
That’s just based on what you decide as an investor. Play around with it. You can’t hurt our programs. You play around with it and see what works best for you.
Naresh: Next question I can answer, somebody asked if we are expanding coverage outside of the United States, to Hong Kong exchanges and other foreign exchanges. I can tell you right now, we are not currently doing that. We cover US stocks, but we are looking to expand. Stay tuned…
Tom: …we cover Canada. We cover UK. We cover Germany. We covered Australia. We don’t have Hong Kong on the radar yet. It doesn’t mean that it won’t be at some point in time.
We’re working right now on giving you, as our TradeStops members, the ability to do more with the tool, as opposed to expanding coverage of different markets.
It’s one of these things where we only have a limited amount of resources, no matter how much we’re growing and how quickly we’re growing. We still have to focus on the deliverables that we can put together. Right now, internal upgrades are what we’re working on.
Naresh: Next question, “I already have a low-risk PVQ. Is it practical for me to rebalance?”
Tom: The answer to that is, here’s the way I would look at this. Even if you already have a low PVQ, running the risk rebalancer doesn’t force you to make any changes whatsoever. We’re going to cover this in more detail in Thursday’s presentation.
I believe that running the risk rebalancer is always a good thing because the more you know about which stocks are taking more risk in, which stocks are taking less risk in is worth knowing.
Let’s go to the risk rebalancer. Let’s just do our blue-chip stock again. We’re not going to add any cash or dividends. You’ll see the reason for that here in just a moment.
Let’s click on rebalance. OK, here are the rebalance results. Look at what this tells me. Even if I chose not to rebalance, I know that 1.64 percent of my portfolio is at risk with Apple, 1.9 percent of my portfolio is at risk with Caterpillar, 75 basis points with Coca-Cola. 3.38 percent of my portfolio is at risk with Netflix.
Do I want to have that much at risk? Even if you don’t make any changes, by running the risk rebalancer, it gives you a great view that you’re not going to be able to see anywhere else, as far as how much risk you’re actually taking per stock.
Naresh: Got you. We have a couple of more questions about…
Tom: Let’s do two more. Then we’ll get our recording started, so we can get this recording up as soon as possible.
Naresh: Let’s move on from the PVQ then. How do you avoid tax implications using TradeStops?
Tom: We get this question asked of us a lot. Honestly, that’s up to you as an individual investor to make that determination. You have to look at the output of the program and determine if it makes sense for you and your situation.
As an investor, you always have to take taxes into consideration. You have to determine, “Am I might better off holding this for the next couple of weeks? Maybe I turn into long-term. Am I better off holding on to this? Getting rid of it now? Is there a better opportunity?” and so forth.
That’s the risk of each individual investor. That’s the decision that each individual investor has to make.
Take it into consideration. Our TradeStops tools do not take taxes into consideration. The reason we don’t is because the tax code is always changing. If we looked at this 20 years ago and looked at the effective taxes, it would be totally different today.
We know that the Congress is looking at different tax changes, etc., etc. We’re essentially giving you the gross numbers. You need to figure out the net numbers on your own.
Naresh: All right. Let’s take one final question…
Tom: Thank you, Naresh. Thank very much to the TradeStops Customer Success team. We’ve got everyone answering questions today. They’re doing a great job. We had almost 2,000 people register for this, Naresh. The questions are just coming in nonstop. A real big thanks to Gale, Heidi, Mandy, Stephanie, and Bryan for stepping up and helping our TradeStops members.
Naresh: Those are my colleagues. They’re doing just a phenomenal job, as always.
One thing before we get to the final question, I want to reemphasize your answer to the tax question. We don’t give investment advice. If you want specialized personal advice, you can contact a tax adviser or a tax attorney or your personal financial planner. I just wanted to reemphasize that.
Finally, on that final watch list that you made, why didn’t you rebalance that before making it a portfolio?
Tom: The reason I didn’t rebalance it is because it was already rebalanced. In other words, we already had — let’s go and look at this. Here’s our final one right here, new blue chip stocks.
We rebalanced this, remember? We rebalanced this. We were taking $1,450 of risk in each position. Then the new positions we added, the Agnico Eagle, AEM, and the Seadrill, SDRL, we went and used our position size calculator to determine how many shares we should buy, based on our custom amount of $1,450 of risk.
Tom: Remember, this is how we determined how much we were going to buy, every position has $1,450 of risk. I don’t need to rebalance right now because I know that, that’s what the situation is.
If I want to add a stock two to three months down the road, I want to run the rebalancer not necessarily to make any changes but to understand where my risk has gone. What stocks have done a little bit better? Which stocks have done a little bit worst.
For most investors, Naresh, you’re actually using the risk rebalancer only on an annual basis. It gives the stocks that will do well. It gives them time to do well. For stocks that are doing poorly, if you get stepped out, you get stepped out. But it lets the stocks that are doing well it gives the ability to let them run.
If I were to look at this down the road and I know if I look at this in August or September and I know that I took $1,450 of risk in each position, then I’m probably going to add $1,450 of risk in
my next additions to the portfolio or close to it. I can make that decision at the time that it happens.
Naresh: Right. Also, one final comment before I turn it over to you, Tom, I want to let everybody know we know this is a very popular training session. We didn’t get to every single question, but we will have somebody from our customer success team follow with you answer those unanswered questions directly.
Thanks a lot, guys, for coming out. Tom, any finally comments?
Tom: Naresh, will that be done offline?
Naresh: It will be done offline. We’ll follow up with you offline after this inaudible 54:06 .
Tom: Thank you very much. All of the presentations are fun to put together but, Naresh, we could go on and on with this one. This is so much fun to use all of the TradeStops tools.
People can see how they can take their current portfolio, add positions, know exactly how much risk they’re taking, and build it up the TradeStops way so that you’re taking the exact right amount of risk in your highly speculative, high VQ stocks, and the proper amount of risk in your lower-risk stocks to do the best job for your overall portfolio.
We hope that you’ll join us for our upcoming training sessions this week as well as down the road. You will receive emails. Thank you very much for joining us, today. Bye, now.
Naresh: Thanks, guys.
Transcription by CastingWords