Hello everyone. For context, I am using more technical analysis and validating some of the more risky (higher beta/duration) securities validated by double checking the fundamentals. I have taken particular interest into "Smart beta" and CAPM (Capital asset pricing model).
My way of thinking is that there is no major difference in returns (IN THE LONG RUN) between a diversified portfolio that results in an average beta of, say 1.4, and has lots of risk that cannot be diversified away, compared to a portfolio that has that same average beta with little unsystematic risk. The assumption then leads to having a portfolio with higher betas to effectively capture the highs and short the lows have higher returns. My strategy is slightly dated- I am going to use higher betas to capture gains in a bull market.
I intend to have a substantial base of a mix of index funds and Short-term treasurys (70%) and the "Smart beta" strategy will consist of 25%. 5% will consist of TIPS savings bonds. I feel like I could potentially beat the market if I commit to these terms.
More specifically, my process is to search for more of those value securities (NASDAQ and NYSE only). To do this, I'm looking for decent companies that have a lower price earnings and price-to-book ratios. Furthermore, I intend to set a minimum beta at 1.75.
I've have decent and tested success with this, and I've successfully chose companies such as Transocean (RIG) and Cipher Mining (CIFR) and so far YoY my portfolio consisting of this portion of high-beta stocks has returned 206%, and overall my portfolio returned 26% YoY. It's been a great year, so I am oblivious to the long-term performance of this strategy, but I think in the long run I should be able to beat the market by a 100 bps or so.
One last important fundamental note is that for this to work effectively, these "Smart Beta" securities need to be issued by small-cap companies, which they are generally more affected by other forms of risk (such as inflation, idiosyncratic, over-leveraging, etc). So in theory, I need many more winners than losers, and I think will be hard to come by.
So what feedback do you have for me? Don't hold back, as I'm always looking for improvement.
Submitted July 09, 2023 at 01:47AM by MalleableBee1 https://ift.tt/jFw4f18
