How to create a professionally managed investment portfolio for less than $10 per month

With so much else clamoring for their attention, many investors have a hard time making money in the markets. One way to better your chances (though it certainly doesn’t assure you win) is to lower the fees you pay for advice, trading commissions, management fees, and portfolio management.

Fees down, good for investors

Good news for investors on this front: fees for most types of investment services continue to drop and drop hard.

So, investing is definitely cheaper now for investors. But the next step — what to invest in — still needs to be answered.

Here are 4 ways to have a professionally managed portfolio for less than $10 a month

Continue reading “How to create a professionally managed investment portfolio for less than $10 per month”

How Michelle Obama added $5B in market cap to apparel stocks – with David Yermack

David Yermack, a professor at NYU’s Stern School of Business, studied the first lady’s impact on apparel stocks for companies associated with outfits she wore.

The results are impressive: she added over $5B in equity value to those firms in aggregate and stocks typically went up almost 2% in the week following her appearance.

What does this have to say about celebrity endorsement of stocks and companies? I ask David about this and more on this week’s episode of Tradestreaming Radio.

Continue reading “How Michelle Obama added $5B in market cap to apparel stocks – with David Yermack”

12 ways investors can profit via legal insider trading

Insider trading has been top of mind for the past few months with Galleon and Congressional insider trading blanketing the news. While illegal insider trading is being taken to the woodshed, there’s plenty to do with legal insider trading. By following the smart money, investors can follow the cookie crumbs back to the investing profits.

So, here are 12 ways investors can use insider trading data and information to make better, smarter, investment decisions.

Continue reading “12 ways investors can profit via legal insider trading”

Using Google to forecast an earnings pop (or plunk)

Google’s my friend.

Not only do I rely upon it for email, video, and of course, search, but I’m using it to invest  better and smarter (the Tradestreaming way, right?).

Let me explain:

One of my first podcasts on Tradestreaming Radio was with finance professor, Joey Engelberg. In How to use Google search data to invest, I asked Engelberg about a paper he had recently published that showed how useful Google could be in forecasting stock prices.

Using Google Search Data to Invest by tradestreaming

Specifically, Engelberg noticed:

  1. Google search volume likely measures the attention of retail investors
  2. and does so in a more timely fashion that existing proxies of investor attention

And of course, stock prices tend to follow attention.

So, an increase in Google search frequency (SVI) predicts higher prices in the next two weeks and also contributes to a large first-day return (and long-run underperformance) of IPO stocks.

Awesome stuff and after we spoke, Joey kind of went underground (he did leave UNC and headed for UCSD), using his research to make coin at a hedge fund. I spent a whole chapter in Tradestreaming (my book) describing co-lateral research — stuff that’s inherently non-financial in nature (Google search, Amazon ratings, etc) to help us make better investing choices.

Now a new paper shines light on how Google search reflects investor information demand and what that means for earnings news.

Continue reading “Using Google to forecast an earnings pop (or plunk)”

[free ebook] The Harvard Guide to Insider Trading

Insider trading (talking about legal insider trading, of course) typically beats the stock market by 10% — per year.

For those of you who’ve been following Tradestreaming for the past couple of years (and read my book), you know that I’m a fan of following the smart money.

By following the tradestream of hedge funds or the activity of corporate insiders, investors can create portfolios  and strategies that have at least been proven in the literature to make money.

Insider trading is a treasure-trove of potentially-profitable information. Top managers at their firms are in the best seats to determine the future prospects for their stocks. If they reach into their wallets and buy their firms’ stocks, well, that’s an incredible useful signal.

An insider trading blueprint

There’s been some amazing research into insider trading. Recent studies have found that investors can mimic the returns of insiders to beat the market by 7 – 10% a year.

I wrote the 20+ page, The Harvard Guide to Insider Trading to describe these strategies and provide a quick blueprint to create portfolios comprised of the most useful insider trading.

AND, to teach you how to use insider trading strategies for your own trading/investing.

You can download it freely here.

I hope you like it — let me know (via email or in the comments) what you think.

How to create a hedge fund portfolio that beats the market (checklist)

In Tradestream your Way to Profits, I wrote about how smart investors can use hedge fund filings to create a wining portfolio. By tracking the holding information of some of the most successful investors on the planet, individual investors can piggyback on hedge fund returns.

Many in the media — including some people I believe are smart, intelligent investors — poke holes in these replication strategies.  I’m not sure of their motivations, but the data are clear: By methodically creating a portfolio that seeks to mimic specific hedge funds (not all are good candidates for replication), individual investors get a big piece of the returns many of these funds have generated for years. Here’s a webinar I hosed last year on the subject of cloning hedge funds.

My ‘hedge fund’ portfolio

I’ve been developing a Tradestreaming.com Guru Portfolio this for the past couple of years (testing for 1 and using it with client funds for 2). While the S&P 500 was essentially flat last year, my Guru Portfolio generated close to 6% before fees. Even more impressive, it’s up close to 190.3% over the past 3 years with a 13.4% drawdown.

AlphaClone has been indispensable to building this portfolio (that image is from AlphaClone). I wrote about how AlphaClone is the cure to investor insanity in 2009 and I still believe it’s a very important tool for all investors to build tested, defined strategies that build on the research done at the world’s top hedge funds.

The point here though is that just buying a stock willynilly that Carl Icahn is targeting on a buyout or that Warren Buffett just put $1B into, isn’t really a strategy. For hedge fund replication to really work, you need to spend the time understanding how certain funds can best be piggybacked.

There needs to be a method to the strategy for this to really work — one that removes and individual’s decision making (ah, I like this stock OR, nah, I wouldn’t buy that — it’s a dog!) throughout the process. I found this to be the hardest part of implementing this quasi-quantitative strategy.

How to build a custom piggybacked hedge fund portfolio

There are simpler strategies on AlphaClone that are just plug-and-play, no research needed. You can see 6 different ways people are tracking hedge funds which don’t require a ton of work. Some of these work amazingly well, but I personally wanted something customized to some of the things I’m working on at Tradestreaming.

Here’s how I built my Tradestreaming Guru portfolio and how you can begin doing it in just under 1 hour with AlphaClone.

1. Understand how funds can be tracked: Some funds are hard to replicate. From what I’ve seen the best funds to piggyback hold positions for at least a few months at a time, have a value approach, and don’t have a problem taking big swings on individual stocks (meaning, have a sizeable % of their assets in individual names).

*Important point: Sometimes (and AC helps here, too), it’s not an individual fund’s picks that are the most exciting. Instead, it’s the most popular stocks held by a family of funds (say, the Tiger Cubs). Or, the most popular (that’s its technical name) stock in a certain industry or market cap held by all hedge funds (say, technology or transportation).

Here’s a list of the most tracked funds on AC to get you started (though AlphaClone literally tracks thousands of funds):

alphaclone

2. Determine what your ideal portfolio looks like:  If you look at the list above, these funds perform pretty damn well (at least at the 3Y mark), but their clones are portfolios comprised of the funds’ top 10 holdings. If you tracked a handful of these funds, you’ll end up with a pretty large portfolio of individual stocks.

Before you begin, it’s important to envision what type of portfolio you want:

  • Do you want to design a portfolio of 100 positions or 10? 
  • Are you comfortable following picks from just one hedge fund or do you want more diversity?

I personally didn’t want a portfolio larger than 10-15 stocks (read below).

3. Determine which strategy will get you to your ideal portfolio: When you play around on AC, you’ll see that certain funds are best replicated by a strategy that buys their top 10 holdings. Others work better by just following the top holding. Still, some follow the newest holding.

I wanted an easy-to-manage portfolio of  about 10 stocks (to get diversity and focus on different sectors) and I didn’t want a portfolio of 100 stocks (10*10). Instead, I targeted funds that worked well by just buying their top or newest holding. If I’m following 10 funds, that would leave me with a 10 stock portfolio (1 stock from each fund).

4. Screen, screen, screen

I used AC to screen for funds that:

  • performed well
  • had high Sharpe ratios
  • lower drawdowns
  • I looked for returns over 3 to 5 years
  • and that replicated well by using a single stock pick to represent their returns

I was also looking for funds that had focuses on different sectors (like biotech or tech or small caps, for example).

5. Add these funds to a Fund Group

As you find the funds that fit your strategy, add them to what AC calls a Fund Group.

Once you’re logged in to AlphaClone, go ahead and click the Create a Clone Group button under the Your Custom Groups tab. The feature can be used to combine and filter a group’s holdings by sector and/or market capitalization then backtest performance.

Before we checked how each individual clone performed over time. Now, with a group, you can see how the whole portfolio performs. You can add or subtract funds to get your portfolio right.

I settled on a strategy that tracked 9 different funds. I’d suggest a portfolio that has more holdings in it. Occasionally, the funds I’m tracking held the same stock (Apple $AAPL was everyone’s favorite in 2011) and that meant I had few positions and the portfolio fluctuated more than I would have liked.

6. Rebalance quarterly

AlphaClone updates every quarter, a month after hedge funds file. You’ll see what was bought and sold and you can make any changes in your real-money portfolios based on the new names in the portfolio.

Creating a piggybacked portfolio works — both in practice and in the research.

Will it continue to work? Who knows, but like tracking insider trading, it makes sense that it should and AlphaClone is essential to doing this the right way.

Was this helpful? Let me know in the comments.

Investing in the NFL: Packers sell (some weird type of) stock

versus the Dow Jones Industrials

For those of you thinking about investing in an NFL franchise, you have your chance.  The Green Bay Packers are the only publicly traded team in the NFL and their current stock offering is off to a brisk start.

Packers fans can buy stock in the only publicly owned U.S. sports franchise at $250 a share until Feb. 29. The sale got under way two days ago and raised $400,000 in the first 11 minutes for the team, based in Green Bay, Wisconsin.

According to Bloomberg’s Dave Wilson

The current sale is the first since 1997, when the stock fetched $200 a share. Earlier sales were made in 1950 and 1935, as well as 1923. The prices depicted in the chart are adjusted for a 1,000-for-1 split, completed before the 1997 sale.

Owners of Packers shares can only transfer them to members of their immediate family, according to the sale’s prospectus. The team can buy back any shares that change hands improperly for 2.5 cents each, or 1/10,000th of the current sale price.

The Packers are organized as a non-profit company, so shareholders aren’t entitled to dividends on their investment or proceeds from a sale of the team. The prospectus adds this warning: “It is virtually impossible for anyone to realize a profit on a purchase of Common Stock.”

Sounds like a strange investment — investing in the Packers is like sinking money in a non-profit, rent-controlled apartment that you’re forced to let your friends stay in for free.

Insight into the Twitter hedge fund

This is interesting.  Here’s an interview with Paul Hawtin, founder of Derwent Capital Markets (the Twitter hedge fund).

the twitter hedge fundI find this compelling because it’s one of the first hedge funds that’s designed (so publicly, at least) to trade on changes in social media sentiment.

According to MoneyScience, you’ll learn:

  • How the Twitter hedge funds’s signals are computer
  • Operational set up and infrastructure of Derwent
  • Trade generation
  • The “Michael Jackson” Test: Is the Twitter hedge fund an automated black box?
  • Risk Management
  • Will large scale analysis of social media be part of quant trading and investing from now on?
  • Who is invested in the Twitter hedge fund?
  • Capacity, Target return

Following stock sentiment on your iPhone — with Eran Barak

crowdfunding

Tradestreaming is all about the value of social media to the investing process.

We’ve spoken a lot about sentiment analysis and there are so many interesting approaches to solving how to make sense of the reams and reams of unstructured investment data online.

One solution has emanated from the Israeli Defense Forces and found a home in Sentigo, the parent company of popular app, Wall St. Scanner.  Wall Street Scanner looks at tens of thousands of sources of information and over 7M webpages every 24 hours scouring for important chatter about stocks.

Soft launching just a month or two ago, Sentigo already has 70,000 downloads of its WSS app and with this momentum continues to build out functionality for its users.

Eran Barak, Sentigo’s VP of Strategy, shares his vision for his firm with us, bringing insights he gained as marketing head of Thomson Reuters’ messaging product. Continue reading “Following stock sentiment on your iPhone — with Eran Barak”

[Free Webinar]: From the ground up: Building a better money management business

This event was already held. Check out this event’s presentation, Building an investment advisory business from the ground up.

From the ground up: How to build a successful money management firm

Join us for a Webinar on May 16
Space is limited.
Reserve your Webinar seat now at:
https://www3.gotomeeting.com/register/545041518
Is your investment practice what you want it to be? 

Many professional investors have changed their business models over the past few years.  Wirehouse brokers are breaking out and going independent. Many are choosing to start or join existing RIAs.  Many others are creating their own hedge funds.

Everyone is looking for the right business model, the right structure for their investment business.

Cale Smith, founder of Islamorada Investment Management, believes he’s built a better investment business mousetrap.

Called Spoke Funds®, these structures solve some of the problems associated with mutual funds (underperformance, tax inefficiency) and hedge funds (compensation schemes masquerading as an asset class).

The Spoke Fund® structure aligns incentives by ensuring the investment manager invests most of his liquid net worth in the same portfolio he’s selling to investors.

In this webinar, you’ll learn:

  • why the existing vehicles for your business (mutual/hedge funds) are broken
  • How Spoke Funds solve these problems
  • Why Spoke Funds are perfect for managers who are value investors
  • How they lower start-up costs and get into business faster
  • How their transparency is attracting a new class of investor

Please join Zack Miller of Tradestreaming.com and Cale Smith of Islamorada Investment Management for a frank and open chat about the future of the investment management business.

Title: From the ground up: How to build a successful money management firm
Date: Monday, May 16, 2011
Time: 4:00 PM – 5:00 PM EDT
After registering you will receive a confirmation email containing information about joining the Webinar.
System Requirements
PC-based attendees
Required: Windows® 7, Vista, XP or 2003 Server
Macintosh®-based attendees
Required: Mac OS® X 10.4.11 (Tiger®) or newer