TradeStops Strategies: Risk Rebalancer


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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: It is definitely summer. Naresh, we are very excited to have welcomed thousands of new TradeStops members in the past few weeks. We keep adding several hundred a week, and our customer success team has worked their way through thousands of calls and emails. They’ve been getting all caught up.
We appreciate everyone’s patience as we continue to answer these questions. Hopefully, today’s presentation will answer more of your questions and help you on your way to using the TradeStops site effectively and easily.
We are planning more training webinars next week and for the next several weeks. They are posted on our website, and you’ll receive the emails with registration links.
We are recording the presentation today and we’ll send you a link to the recording later today or tomorrow. If there’s something you don’t understand, you’ll be able to review the presentation at your convenience.
As we like to tell everyone, 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 have members of our customer success team answering your questions during this webinar. We’ll also answer some of your 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 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 this.
Also, we cannot help you with your computer issues. We are experts and can help you get set up using the TradeStops website. We can’t help you with other technology issues. Again, we appreciate your understanding.
The webinar today will be full of information. We encourage you to ask questions. There is a question box on your screen, and you can ask the questions there.
We have Gail, Heidi, Stephanie, and Brian answering them, so you’ve got a great team working for you, and Josh. Josh is joining us today as our technology expert. Thank You, Josh. Glad that you’re here with us.
Today, our focus is going to be on using the TradeStops’ Risk Rebalancer. This tool has a lot of moving parts. We’re going to go fairly quickly, so 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.
The Risk Rebalancer is a simple tool to understand, but it cannot be used the same way by everyone. We’ll go over some of these exceptions later in the presentation. All right. Let’s go ahead and get started, Naresh.
Naresh: Sounds like a plan, Tom. Looking forward to it.
Tom: Here’s what our outline is going to be for today. We’re going to discuss a little bit about risk parity. In other words, taking the same dollar risk per position in your portfolio.
We’ll go over the basics of the Risk Rebalancer, how to understand the results that the Rebalancer presents to us, customizing the Rebalancer for your situation.
We’ll talk a little bit about how often the Rebalancer should be used as well as taking the long-term approach of using the Risk Rebalancer and understanding what it’s going to give to you.
Now, the Risk Rebalancer is all about using equal dollar amount of risk per position. When most people set up their portfolios, they use the same dollar amount per investment and that’s all right. A lot of people do that, but that methodology…
If you’re going to invest $10,000 into every stock, that’s the way a lot of people do it and they think that they’re adjusting their risk accordingly that way. What it does not take into account is how a risky stock can affect your portfolio.
Let’s take a $10,000 investment in Johnson & Johnson. If you’re going to make that investment today, the normal risk in Johnson & Johnson on a $10,000 investment would be $1,184. $1,184 of your $10,000 investment would be at risk based on the normal volatility of Johnson & Johnson.
If you make a $10,000 investment in GDX, which is the ETF for the gold miners, all of a sudden you’ve got triple the risk. You’ve got $3,702 at risk for your $10,000 investment. A lot of people don’t even realize what normal risks they’re taking in the individual positions of their portfolio.
What TradeStops likes to show you is we believe — and we’re going to show you in just a moment some proof — that taking an equal dollar risk per position. We call this risk parity. An equal dollar risk per position is going to make you a more profitable investor over time.
Let’s take a look at here’s an investor that began in 2011 with a little bit more than $304,000 invested. Using the exact same stocks. The color is a little reversed here, but without the Risk Rebalancer, without using equal risk per position, they would have had an OK gain, a little bit more than $22,000.
But, by taking equal risk per position, they’re investing more of their money in lower risk stocks and less money in the highly volatile stocks. Using the exact same stocks, this investor could have had a gain of $136,000.
On invested capital of $113,000, it sure looks based on the year, but they really didn’t do a great job picking stocks back to 2001. It looks like they went really heavily into the gold stocks because, in 2011, their portfolio crashed because they were investing too much money in the risky stocks.
By investing just the right amount of money in the risky stocks and investing more money in the stocks that have less risk, this person, instead of losing $36,000, could have gained $64,000 over a long period of time.
One more example. Without using the Risk Rebalancer, on an over $400,000 portfolio, this person lost $100,000 by using taking the exact same stocks.
Naresh, this is with the exact same stocks. We’re not making any different investments. By using the correct size of the investment, by using risk parity, they could have gained almost $60,000 rather than losing a hundred.
We even show this to you with our billionaires. Using the exact same stocks that Warren Buffett invested in, but by using an equal amount of risk per position, even Warren Buffett’s results could have been improved over a long period of time.
Finally, we’ll finish looking at Bill Gates. The same situation. If Bill Gates had been using risk parity in his investments, he got a good return, but he could have gotten a lot better return had he been using the risk parity.
That’s something that we talked about. Let’s go to the website and let’s start putting risk parity to work for us. Real quickly, want to show you where you can access the webinars on the page before you log in.
You just click on Webinars. Here’s today’s webinar. We’re going to be posting other webinars shortly. It’ll be coming up in the next week or two. You can see the recordings from the other webinars that we’ve done and the other presentations that we’ve done recently.
I’m not going to spend a whole lot more time there, but it’s really easy to access. We’ll be posting this presentation a little bit later today or first thing in the morning and you’ll be able to access it. If there’s something you don’t understand, you’ll be able to see it at your convenience. Let’s go ahead and log in.
Naresh: Tom, as you’re logging in, we had a question come in from Martin. Pretty simple question on what you just showed. He wanted to know in this hypothetical situation, how often did the investor rebalance or should the investor rebalance?
Tom: We’re getting a little ahead of ourselves, but let’s answer that. We believe in, for most investors, rebalancing on an annual basis makes a lot of sense if there are no changes to your portfolio.
We certainly recommend if you are making additions or subtractions to your portfolio, that you should consider rebalancing. Sometimes the rebalance results are add one or two shares here, subtract one or two shares there. That doesn’t make sense when you’re taking into account commissions.
The Risk Rebalancer does not take into account tax considerations. We’re going to go over those shortly, but as a general rule of thumb for a portfolio that’s not changed, we think that rebalancing on an annual basis is the best way that you should be managing your portfolio.
Naresh: Awesome. I want to encourage people, continue to write in your questions and we’ll try to answer them throughout the presentation, but we’ll definitely take questions at the end of the presentation.
We also have our customer service team online, answering all your questions in real time through the computer. Get those questions in. Don’t be shy. Back to you, Tom.
Tom: Thank you, Naresh. We’re going to go ahead and go to our portfolios. We’ve been working with this one portfolio that we set up for these training presentations, our blue-chip stock portfolio.
Now, this is a portfolio, if you’ll look here, you’ll notice the cost basis is all around $7,500 per share. That’s the way most people invest. I mean $7,500 per position. $7,500 per position investment, and that’s the way a lot of people do this, but is that the most effective way?
We’ve got blue-chip stocks that everybody knows, Apple, Caterpillar, JPMorgan, Netflix, etc. Netflix has the highest volatility quotient of 29.9 percent. Coca-Cola has the lowest at 10.6 percent. Yet, our original investment was about the same in each one.
Let’s take a look at a snapshot of this portfolio. For those who have attended previous presentations, you’ve seen this. We’re going to go to our Research tab. We’re going to look at the Asset Allocation. Here’s our Sector Allocation. We’re not going to take a lot of time on this.
Here’s our Industry Allocation. You can see that it’s very well diversified. Here’s our Portfolio Volatility Quotient. We’ve got a little bit more than 30 percent of low-risk stocks. About almost 70 percent of medium-risk stocks, but the portfolio VQ itself, the portfolio volatility, is pretty low, 12.33 percent.
Let’s go to the Risk Rebalancer. This is what we’re focusing on. Right now, I’m going to show you how this comes up. We can select our portfolio, Blue-Chip Stock. There’s $10,000 in cash, and almost $3,000 in dividends.
I don’t want to invest that money right now. We’re going to leave the cash off to the side. When you come to the Rebalancer home page, if you haven’t been here, there is a video that goes over the Risk Rebalancer. It’s a brief overview.
We have something here called the Show Advanced Options. What this allows you to do is remove your money from positions that are in the red SSI zone, so positions that have been stocked out according to the SSI, and reallocate those funds.
Right now, for the very beginning, we are not going to do that. We’re just going to take that portfolio and click Rebalance. Very quickly, what the algorithms are doing is we’re creating risk parity within this portfolio. We’re going to scroll down here. Now there are three tabs at the top, Rebalance Overview, Rebalance Results, Steps to Take.
We’re going to go over all of those right now, so that you get an overview and a good feel as to what the Risk Rebalancer is doing. Then we’ll show you where the moving parts are and some of the changes that you can make.
The very first thing that we see is the Portfolio Volatility Quotient. Now remember, Naresh, we were a little bit over 12 percent, about twelve-and-a-third percent portfolio volatility quotient?
By rebalancing so that you’re taking risk parities, so that you’re taking an equal amount of risk per position, we actually lower our portfolio volatility quotient from 12.33 percent to 11.11 percent. It’s down 1.22 percent.
What does that mean? It means that the risk per position, in this portfolio, is 1.35 percent of the total portfolio. In other words, you’re risking 1.35 percent in each position, or about $1,500 per position on this invested capital of $110,000.
Right now, our current allocation, we are in 30 percent low-risk stocks, 70 percent medium-risk. The reallocation takes us up to 42 percent invested in low-risk stocks, and 58 percent in medium-risk.
This is your big-picture view of the new portfolio, after the rebalancing has taken place. Think of this as your ten thousand or twenty-thousand-foot view.
Now, let’s look at the actual positions. We’re going to click on the Rebalanced Results, and go through each of these columns. We have this sorted by symbol. We can sort it by other columns, but I don’t want to do that yet.
We have the VQ percent of the stock, the latest closing price, our current position size, and what the adjusted position size would be. Now, you notice our current position size in Apple is $10,200. If we do the rebalancing, if we take these steps, we’ll only have $8,460 invested in Apple.
Our position size, 9.24 percent, is currently invested in Apple. We’re going to be dropping that down to 7.7 percent. Why? It’s this column right here. Risk Percent Per Position. Our current risk is 1.61 percent of the overall portfolio.
By investing $10,200 in Apple, and Apple has a VQ of 17.45 percent, we have 1.61 percent of the overall portfolio at risk. By adjusting it down, we’ll only have 1.35 percent at risk.
I recommend that you look at each position in your portfolio closely, so you can get a feel for which stocks are going to be adjusted downwards in their risk percent per position, and which are going to be adjusted upwards.
Coca-Cola, a VQ of 10.57 percent. Right now, we have a position size of a little over $8,100. To have an equal risk per position, we’re looking at an adjusted size of over $14,000 invested in Coke. That moves our position size of the overall portfolio from 7.37 percent all the way up to 12.83 percent.
We have to do this because the risk that we’re taking currently in Coca-Cola is only 78 basis points, 0.78 percent. We want to be at 1.35 percent. We want to increase our risk so that it equalizes the risk of every position.
Then it shows you we would need to go from 180 shares to 312 shares. You can scroll on down and see all of those. You’ll notice that we’ve got two stocks that are in the red, Schlumberger and Target. We purposely did not remove those. We can get to that in just a moment.
Let’s look at our last step up at the tab, our last tabs has steps to take. This becomes really simple. This tells you, “Hey, what do you need to do to get completely into risk parity?”
We need to reduce 12 shares of Apple. We need to reduce 26 shares of Caterpillar, reduce nine of Chevron, reduce 13 of J.P. Morgan and so forth. Add the shares as necessary. Add in to Coke, add in to Pfizer, add in to Schlumberger, etc.
This is what the Risk Rebalancer is telling you. These steps would not make any change to the portfolio other than you would be equalizing the risk in all of your positions.
The Risk Rebalancer does not make the assumption upfront that you want to make any changes in the holdings in your portfolio. That’s the first assumption.
The second assumption that the Risk Rebalancer makes is that all of the positions in your portfolio are available to make changes. It doesn’t take into account tax considerations. It doesn’t take into account if you’re interested in income.
You own shares of a closed end fund or a real estate investment trust and you have large positions, it doesn’t take that into consideration. It just assumes that you want to take all of the positions that you own and create a risk parity portfolio.
That’s the starting point of the Risk Rebalancer. I’m going to click on this so that everything is cleared out again. Let’s make a couple of changes.
Here we are in our blue chips stock again. We’re starting over. We could have saved that portfolio by the way. Maybe we’ll save this next portfolio just so that you can see those results and what would happen.
Now, we go to our advanced options. I want to remove the stocks that are in the SSI red zone. I want to reallocate those funds into all of the other stocks. By checking the box, click on “Rebalance.” Very quickly, we’re able to get that done.
You’ll notice that we’re still lowering our PVQ but not quite as much. We’re taking about 1.6 percent of risk per position, almost $1,760. Why is that? Let’s go to our rebalance results.
We have here, you’ll notice that on our Schlumberger and Target, zero shares. Were we allocating the investments that we previously had in those two tickers, we are reallocating into the other tickers. Let’s see what that means.
That means we’d actually reduce Apple by one share. We go from 70 to 69. We’d reduce Caterpillar by 12 shares. Chevron, rather than reducing, we’re actually adding five shares. J.P. Morgan, we’re adding five shares. Coca-Cola, we’re adding a ton of shares and so forth. Netflix, we’re still lowering the amount of shares. That’s because Netflix has the highest VQ. It’s almost 30 percent on the VQ.
Now, we’re in a risk parity situation. We have removed Schlumberger and Target. We continue to own those other stocks. Now, if I want to save this as a new portfolio, I’m going to put “Blue Chip Risk Rebalanced.” We’ll save it as a watch portfolio.
Now when we save it, here we go. It takes us right to that. You can see we own 9 or 10 positions, all of them are in the SSI green zone.
There could be some in the yellow zone, but none of them are in the red zone. All of these have been reallocated so that the same amount of risk is being taken per position. Now, you can then take this watch portfolio and start working with that as well.
Let’s go back to the “Research” tab, let’s go back to the Risk Rebalancer. Let’s go back to our blue chips stock. We’re not going to go to the risk rebalanced. Let’s go ahead and just run this one more time.
We’re going to keep everything as it originally was. We’ll keep Schlumberger and Target. You remember, here we go. We’re down to 11.11 percent on portfolio volatility quotient, etc., etc.
Looking at our rebalanced results. Let’s say that I want to own Schlumberger no matter what. I don’t care that it’s in the SSI red zone. Maybe I work for Schlumberger. Maybe I’ve owned this for a long period of time.
If I sell that even though Schlumberger is in the red zone, there could be some significant long-term capital gain tax ramifications that I don’t want to face. I don’t want to pay long-term capital gains.
I want to keep Schlumberger. What I’m going to do is I’m going to click on this lock icon. When you hover over the icons, there is information. Click this icon to lock or unlock the Schlumberger position. By having this locked, it will include the position, but will not make any adjustments to the number of shares.
Let’s click on the lock. Do we want to update the results now? Yes, we do. If we go to our rebalanced results, you’ll see that our locked position of Schlumberger, we have 110, and we’re still going to have 110.
Everything else has been adjusted accordingly. You’ll notice that 1.45 percent is our risk per position once we lock the Schlumberger. If we decide that we want to exclude a stock, and a lot of people will take penny stocks and just exclude them completely from the calculation, obviously Schlumberger is not a penny stock.
We roll over this icon. It says, “Clicking this icon to completely exclude from the rebalancing.” We’re going to go ahead and click on that. Now we have excluded Schlumberger. We’re going to rebalance 11 positions. We’re going to update the results.
Now, you’ll see that the changes here have been made as far as the proper number of shares, etc., etc. We can say this is a new portfolio if we’d like. Before we get to…go ahead, Naresh.
Naresh: I’m not sure what that was. You can continue, Tom.
Tom: OK.
Naresh: [inaudible 26:21] some kind of incorrect [inaudible 26:25] .
Tom: We’ve got [inaudible 26:26] .
Naresh: It was something like a ghost.
Tom: OK.
Naresh: They didn’t come from my end either.
Tom: I think that this is something that happens in the cloud, something that part of our technology.
Let’s restart the Risk Rebalancer. Let’s go ahead and just begin again. We’ll just click “Rebalance.” Let’s take that out and rebalance. Here we are back to our 11.11 percent, back to our $1,500 of risk per position.
What if I want to do a “What if?” Let’s say that I want to add a gold stock. I can click on “Add Another Ticker.” Remember that AEM that we looked at? I want to add AEM to this.
I’m not going to add any more cash to this. What I want to do is I want to add this ticker, and then sell enough shares as necessary to be able to buy AEM, a risk adjusted position of AEM.
If we click “Save and Rebalance,” we’re going to go to our rebalance overview here. Here we go. We get it from here, we get it from this page. You’ll see that we went from 1.11 percent to 1.31 percent is our new adjusted risk.
By doing it that way, we show that we’ve added AEM. The VQ is almost 40 percent. The latest close was $46.42. We did not have a position in AEM. We’re going to be adding a $3,667 position. Our position size is going to be 3.34 percent of the portfolio. We’ll be taking the same 1.31 percent in risk. We’ll be adding 79 shares.
Again, we could save this as a new portfolio if we want to continue working with this. Easy to save. Let’s do one more time, let’s add money to the AEM position.
Here we are, we’re going to go back into our blue chips stock. We’re going to rebalance. Go to our rebalance results. Add another ticker. We’ll do the AEM. Let’s say we’re going to add $5,000 into our portfolio.
This is going to be allocated through all of the holdings. We’ll hit “Save and Rebalance.” You’ll notice that we still have the same 1.31 percent as we did before. Now, with AEM, rather than 3,000 invested and rather than investing 79 shares, because we added money to the portfolio, we’re now going to be able to invest 90 shares.
That’ll be through $115,000 because we added $5,000. All of the adjustments have been made here on the last column. You can see what the final adjustments are.
That’s a good way, again, if we want to save this as a new portfolio, we can. There’s a lot of “What if” scenarios you’re able to create for yourself. You can see how it affects your overall portfolios.
One other thing that a lot of people have asked us about, what if you want to pull money out? Let’s click on the “Risk Rebalancer” again. We’ll go back to our blue chips stock, same starting point.
In this case, what if I want to pull out $50,000? I’m not going to add this cash. But if I want to pull out 50,000, I click on this pencil icon, and I’m going to put minus 50,000. Click OK.
Now you notice, Naresh, over here on the left-hand side, current securities, we have 110,000. If we want to pull out 50,000, we’re only going to have 60,000 invested. Let’s click on Rebalance.
Not surprising, we’re still going to be going down to 11.10 percent. You’ll notice our risk per position is now down to $817 because the amount that’s invested is a lot less.
Here are the steps to take. We’re going to be selling shares in every position to be able to raise the $50,000. This is a way that you, without messing up the risk parity that’s occurred in your portfolio, this way you can know exactly how much you need to take out and how many shares of each position you need to have left so that you can accomplish your goal of withdrawing, in this case, $50,000.
Let’s go up to the Help Center. There is a ton of information here when it comes to the Risk Rebalancer. Go to Research. Go to Risk Rebalancer. There’s a lot that you can scroll through here and look at.
I know we’ve gone through this really quickly, Naresh, because we are limited on the amount of time. People can go to the Help Center and see about everything that they want to know about the Risk Rebalancer.
I want to take a couple of moments and let people understand what some of the limitations are of the Risk Rebalancer. Now, as we mentioned earlier, the Rebalancer assumes you know what you want in your portfolio.
Unless you click that Remove Red SSI, it assumes that everything that you have in the portfolio, you want to continue to have in the portfolio. The only thing the Risk Rebalancer is doing is taking your current positions and creating a risk parity portfolio from those positions.
The Risk Rebalancer doesn’t know your income means. It doesn’t know if you own a large position of a closed-end fund that you’ve owned for a number of years for income, if you own REITs, or you own some high-dividend paying stocks. The Rebalancer doesn’t take that into consideration.
It does not take dividends or income at all into consideration. You’ll need to make the adjustments on the outcome, either through locking a position or excluding a position.
Another way, Naresh, that can be done is to take the stocks that you know you are not going to rebalance, create a watch portfolio with your other stocks, and then use the Risk Rebalancer. The Rebalancer does not take into account your potential tax issues.
We get emails almost on a daily basis from people saying, “Well, gosh, I’ve owned X, Y, Z stock for generations. My cost basis is next to nothing. It’s in the red zone. If I rebalance, I’m going to be selling an awful lot and incurring a large capital gains tax.” Rebalancer doesn’t know that.
You, as an individual investor, are the one responsible for making that decision. In many cases, it probably doesn’t make sense to rebalance those stocks. It does make sense for you to understand the amount of risk you’re taking in that portfolio.
Most people think that the stocks they own are never going to go to zero, but don’t talk to people that own Kmart, Enron, have owned Sears, or dot-com stocks. Stocks can go to zero.
We don’t take into account your potential tax consequences, but you are responsible for understanding the risk that you’re taking in your portfolio by holding onto these positions. Of course, the Rebalancer doesn’t take into account any trading or commission fees.
When it talks about making changes of two shares of this, of one share of that, unless your one share is Amazon or unless your one share is Berkshire Hathaway, you probably don’t want to make that trade. Why would you make a trade and have to pay a $5 or $10 commission when it really won’t have much an effect on the outcome of your portfolio?
Those are the limitations. Those are things that you need to take into account when you’re first using and continue to use the Risk Rebalancer. Now the question that we actually get asked most often with the Risk Rebalancer is, “How often should it be used?”
Initially, even if you don’t make any changes in your portfolio, the Risk Rebalancer is an incredible tool that you can use as a baseline to know where you are right now.
Remember when we looked at the position of Netflix and how much…? We were taking three points something percent risk of the entire portfolio. With Coca-Cola, we were only taking 78 basis points of risk.
Even if you choose not to make any changes, by looking at that, you’re going to have a much better understanding of the risk within your portfolio and how that risk will evolve over time.
If your situation is really simple, no tax ramifications, no stocks that you have to hold on for income needs, using the Rebalancer annually should be sufficient.
If your situation has more moving parts, use the Rebalancer as a way to move your portfolio towards the optimum. Here’s what I mean by that.
Naresh, for a number of our users who are relatively new to investing, and they don’t have any stocks with large capital gains that have been built up, they can take their entire portfolio, use the Risk Rebalancer, and put themselves in a really good position to take advantage of having a risk parity portfolio immediately.
A number of our TradeStops members do have situations that require extra thought in using the Risk Rebalancer.
The Risk Rebalancer could be the tool that you keep in mind that you use to understand, where are you today on your risk in the overall portfolio? You can see the breakdown in the individual stocks and understand what your risk is.
As time moves on, as you sell of positions, pay your capital gains taxes, and you decide to get into new positions, etc., etc., then you’ll be able to use the Risk Rebalancer as a portfolio management tool more effectively that way.
The Rebalancer tool isn’t a one size fits all, because investment is not a one size fits all. If every TradeStops member had the same risk tolerance, the same income needs, they were the same age and had the same knowledge about investing, then the Risk Rebalancer would be a one-size-fits-all tool, but it’s not.
We have people who are in their 80s who are listening to this presentation. We have people who are in their 30s. I would guess that those people have different risk tolerances and different goals with their monies.
Use the Risk Rebalancer in a manner that works best for you. Again, you’ll want to use the Risk Rebalancer over time to understand the flow of your risk without making any changes to the portfolio.
Lastly, as we always like to finish up with, we like Dr. Smith’s quote, “Successful investing is about staying in the game.”
Investing using risk parity is the best way that we know how for you to be able to stay in the investment game for a long time and give yourself the best chance to succeed over a long period of time.
Everyone is going to have questions. I’ll bet we’ve got a ton of questions lined up right now. You can certainly call our Customer Success Team in Brooksville, Florida where Naresh is hanging out today, 866-385-2076. That’s Monday to Friday, 9:00 to 5:00, Eastern Time.
Send an email to Recently we were able to reopen our chat. You can ask questions during the time that our Customer Success Team is there by going to, let’s go to the, here we go, online chat.
I can put my name, my email, and talk to my Customer Success Team in Florida. Certainly feel free to take advantage of that and use it.
Naresh: Awesome, Tom. We’ve got a ton of questions coming in. Thanks everyone for participating. Tom, you ready for this first question?
Tom: Absolutely.
Naresh: What is the difference between the lock and the exclude in the features that you showed?
Tom: Let’s go there. It’s in our rebalance results. Now, again, I’m going to read this from the actual icon itself.
When you click to lock, it takes the stock into consideration in the rebalancing, but it does not make any changes. If I click on Apple to lock this and I update the results, what we’re going to see is we started with 70 shares. We’re going to keep 70 shares, and all of the other adjustments will have been made accordingly.
We’ll continue to have 1.78 percent of our portfolio at risk in Apple, but the risk in the other positions will have increased because we’re holding onto Apple up to 1.47 percent. Let’s unlock Apple.
We’ll go ahead and redo the results here. See how we’re back to the 1.35 percent of risk where we originally started with the rebalanced portfolio where we’d be at 58 shares.
Now, let’s exclude Apple. We’re going to exclude this from the calculations altogether. Nothing is going to show up for Apple. Let’s go ahead here and click the update.
Apple is not showing up. Now everything is being adjusted based on Apple not even being included within the overall portfolio.
One locks it, but doesn’t remove it. The other actually removes it. I guess I was long winded when I could have said it in one sentence.
Naresh: We answered that question pretty well, even though it was long winded.
Next question, “Risk rebalancing obviously limits one’s downside, but at the same time, could it limit one’s upside as well?”
Tom: All of our work and all of our research has shown that it actually, in the long term, gives you the potential for greater upside. The reason is, because you’re going to stay in your stocks a longer period of time, you’re going to let the volatility quotient work in your favor.
See, this all goes back to the definition of risk. Naresh, you and I have talked about this. People think of risk as a negative. If you don’t have any risk, you’re not going to make any money in the stock market.
This allows you to use risk in a positive manner. It’s our belief that in the short term, yes, you could be limiting your gain in the overall portfolio. In the long run, within a well-diversified
portfolio, time and time, our efforts are showing that you actually increase the opportunity to make larger gains in the portfolio.
Naresh: Got you. Awesome, very awesome answer. Let’s get into some more questions, a lot of people who are participating today. Again, we want to thank you all.
Before we get to the next question, Tom, can you show people again It’s
Tom: Absolutely.
Naresh: This is the location where you can see all of our previous training sessions, webinars. If you have questions, we probably have answers through these webinars. The descriptions and titles are self-explanatory.
Tom: We’ll be adding more today, right? We’ll be adding next week’s today or tomorrow?
Naresh: Exactly.
[background conversation]
Tom: Somebody is, can you ask your friends in the background to…?
Naresh: Let me get…
Naresh: There we go. Sorry about that, folks. We are hard at work.
Tom: Sounds like lunch is coming up.
Naresh: Yeah, lunch is coming up. I ordered some Kung Pao.
Tom: I love life. Here on our we’ll be adding our upcoming presentations for next week, maybe the next couple of weeks in the next day or so. Then you can look at and view all of our past presentations.
We are in the process of getting the texts and letting you see transcripts. We have a few of these posted up here. I remember we have “Alerts 101.”
If you click on View Recording, you can actually scroll down and you’ll be able to see the transcript. What we’re working on is trying to get that in a PDF format so that you’re able to view the transcript at the same time that you watch the video.
That will be a real boon. The webinars are a big part of what we like to do. It’s important that you get as much information and learn to use TradeStops in a manner that helps you in the best way possible be the most successful investor possible.
Naresh: Absolutely. Tom, one thing to mention, if you can bring up our Customer Service phone number. I want to mention this because, this session we’re doing today, the Risk
Rebalancer is a feature that’s available in the Premium and Lifetime versions or our more upper-level versions of TradeStops.
Some of you are Basic and Plus subscribers don’t have access to this Rebalancer or some of you are on the call trying to learn more about TradeStops. You don’t have access to this feature.
I want to put this phone number up there because Tom showed you how the Rebalancer work, the benefits of it. If you’re interested, call that phone number. They can tell you more information about it if you would like to upgrade your account.
Tom: Dr. Smith believes this is the most significant upgrade he has made to the TradeStops website, including the pure quant, including the billionaires that we put together because this gives the average investor the ability to become more successful over a longer period of time by taking a small amount of risk in these highly-volatile stocks.
But taking the right amount, a large amount of risk in the stocks that are less volatile that have the potential, even though they are boring stocks.
No one is going to be able to sit out there and say, “Well, Coca-Cola’s a really exciting stock right now.” If you are Warren Buffet, it might be. Even Warren Buffet would probably be telling you it’s a boring stock.
It’s a stock that you can make money in. As a matter of fact, if we go back and look at this, the portfolio itself, on the Blue Chip Portfolio, Coca-Cola seven days ago triggered an SSI entry signal. Nobody knows how long it’s going to continue to move up, but we’ve seen times where boring stocks can move up for years at a time. That’s how you make money.
If you have an average return on 80 to 90 percent of your portfolio, but you position yourself so that you get 4 baggers, 8 baggers, 10 baggers on 10 percent of your portfolio, you’re going to do extremely well for yourself. None of us knows which of those stocks, but they tend not to be the high VQ stocks. They tend not to be the highly risky stocks. They tend to be the more boring stocks.
Dr. Smith believes that this tool, the Risk Rebalancer tool is the one tool that allows you the best opportunity to succeed.
Naresh: Housekeeping question from one viewer right now, he’s asking if the Q&As that we do at the end of these sessions are also in the webinar recordings. Yes, Mark, thank you for the question. These Q&As that we are doing right now are available on the recording, so, you’ll have the access to everything.
Tom: We’re going to be ending this presentation in a couple of moments. Naresh, maybe one or two more questions, your choice.
Many questions continue to come through. What we’ll do is, after we end the presentation. We end the presentation right on time so that we can begin the process of preparing the recording and getting it up on the website.
For those who have questions that they have asked, but they haven’t been answered, our Customer Success Team and Bryan, in particular, actually look through those. He’s able to pull up all of those. He looks at those, and then is able to answer each question individually.
He answers those to your email address. Bryan, that’s great work that you are doing for us, for our team, and for our TradeStops members. Thank you. Naresh, maybe one or two.
Naresh: Let’s talk a little bit about foreign versus domestic because we have several people asking questions about their portfolios. Some of that are in foreign exchanges which TradeStops does support.
Is there a way that these people can properly classify or rebalance based on the whole foreign versus domestic portfolio which [inaudible 51:52] or portfolios?
Tom: I believe that you’re going to add the foreign securities that we support. Here are some things that we don’t support. We do not support options. Options are not pulled into these investments. We do not support short positions. When you are using the Risk Rebalancer, it’s long positions only.
Obviously, we’re not going to support a breakdown of the underlying tickers within the ETFs. For those who have watched these presentations for awhile, you know that I have a watch portfolio set up of sector ETFs. If we go into rebalance these, it does not x-ray the actual stocks themselves.
I can go into research, I go into the Risk Rebalancer. We’ll do our sector ETFs, and we’ll hit the rebalance, and you’ll see the rebalance results. It just looks at the ETF itself and the VQ of the ETF itself, it does not do a breakdown.
ETFs can be difficult for a lot of the research because if we look at the PVQ of the ETFs, this is telling us that it’s just funds. We’re looking at 92-1/2-percent, low risk, medium risk. We can do the breakdown here and this shows us the funds, but it doesn’t tell us anything about what’s behind the fund.
The Risk Rebalancer and the other portfolio level tools look at each ticker as a separate ticker. We don’t have a way right now to X-Ray what’s in the ETFs when we’re using these portfolio level tools including the asset allocation, the PVQ analyzer and the Risk Rebalancer.
Naresh: Awesome. Good questions. Lots of great questions coming in. Tom, I think we have time for one more question, you’d say.
Tom: Absolutely.
Naresh: Let’s go with a question that’s a little, I mean it does tie in to the Risk Rebalancer. This is from Brent. He’s asking, “How do you find Sector ETFs and how do we tie this into the Risk Rebalancer?”
Tom: In one of our previous presentations, we actually…hang with me just a second here, Naresh. Let’s see if we can find this. I think it was in our presentation on researching stocks using…
Naresh: Yeah, we covered it last…
Tom: …TradeStops. Let’s go to our
Tom: Let’s look at this. In this recording, we did talk about Sector ETFs. To those people who registered for and watched this presentation, we actually sent out a spreadsheet that had some Sector ETFs in them. Heidi, I don’t know how we can make that available to everyone. I don’t know if we can actually add that to this particular webinar.
For the person who asked that, we’ll work on a solution and let you know. Heidi, are you there to be able to comment on that if we can?
Heidi: Yes, Tom, I’m here.
Tom: Good. What do you think?
Heidi: Absolutely. We can work something out. I’ll get a link posted up there so they can download directly from the webinar recording.
Tom: Good. It’ll be maybe at the bottom of this page or off to the side, whatever you decide works best. Cool.
Heidi: Thank you.
Tom: See, TradeStops upgrades in action. You ask for something that you’d like to see and we do our best to get it done for you. Naresh, any closing thoughts?
Naresh: One last follow up to that from someone else was, “Is it possible to drill down on the ETFs through the analyzed tool?” Then we’ll wrap things up, Tom.
Tom: It’s not possible to drill down through the analyzed tools themselves. Again, what I like to create, I created this Sector ETF watch portfolio. Then I added the individual ETFs themselves with the top 10 holdings in the ETF.
Heidi, when she post that link of the Sector ETFs, we’ll also post included in that will be the spreadsheets of the top 10 ETFs in each of these sectors so in the basic materials, energy, lot of red and yellow there, financials, etc., etc., technology.
Our member will get that when they go to the Let’s go back there one more time and I’ll show you where it is., you want to go down to the on-demand webinar, that is “How to Use TradeStops to Help You Research Stocks.” Clink on the “View Recording.”
Somewhere within this real estate underneath the recording, we’ll post that link that has the Sector ETFs, as well as the top 10 within each of those sectors, the top 10 holdings. I hope that does it for everyone.
Naresh: I think yup, that should do it for everyone, hopefully. We have a few more questions. As Tom mentioned, we’ve run out of time but you can get all those questions answered. Just put them in the question box and we’ll have our customer success agents respond to you.
You can also feel free to email us or call us at what phone number is it Tom? Can we show? It’s right there…
Tom: Sure.
Naresh: 1-866-385-2076. You see it on your screen. Call that phone number. They’re there to answer your questions.
If you want to upgrade your subscription to the premium subscription so that you can take full advantage of the Risk Rebalancer and all the other tools that TradeStops has to offer, call that number, 1-866-385-2076. 1-866-385-2076. They’ll take care of you.
Tom, it’s been good again. We have a couple of other training sessions coming up next week. Check out to find out what those sessions are and to register for those sessions. Any final words, Tom?
Tom: I think a week from today, we’re doing Options, Naresh. Everyone, get their seat belts ready. My final word is thank you to the Customer Success Team for all of the work that they done not only answering questions, but to be available to our TradeStops members and to help them out in any way possible.
You and I have the fortune to be able to work closely with our Customer Success Team. We’ve never seen people work as hard to do as much for our members. They’re a great bunch of people. I’m proud to be on the same team that they’re on.
Naresh, I’m going to go ahead and stop the recording. We’ll shut down the webinar shortly, but we’ll answer the questions that are remaining. Thank you, Naresh, appreciate it. Have a good rest of the day.
Naresh: Thanks, everybody. Have a good weekend.

Transcription by CastingWords