Episode 1: Building a trend/momentum portfolio
Back at this Blogging Thing again!
Whelp! I am back at it again. Haha. I believe this is attempt number ten at starting a blog. I am the Thomas Edison of blogging. Fail enough until you succeed… right? At least in Edison’s case it took one thousand times before the light bulb succeeded in emitting light. So I have a few more tries to go before I get to his level.
Luckily each failed attempt teaches me something… make the blog for yourself, don’t pigeonhole yourself into one small category, create value for those taking the time out of their day to read your posts, and make it personal. Not only that, but I feel like this blog can also be an accountability partner for myself and my amazing and badass wife, Lizette.
About four months ago, I estimated that we could potentially hit a net worth that would allow us to retire comfortably in eight years (more on these calculations to come). Yeah, we were a bit surprised too. And therein lies the challenge we have set out for ourselves…retire in eight years or less.
But we have to make sure that we continue to have fun and live a rich life while we do it. She and I have worked to minimize our expenses and continue to push each other professionally in order to maximize our incoming revenue. And since any talks longer than 15 minutes with my wife on our finances/investing are not advised in our relationship, then the true test is on my shoulders.
The question I ask myself is simply, can I maximize the returns from our savings with different investment vehicles?
Our investment vehicles currently consist of the following:
- Our house -> Average housing prices rise 5% per year
- Index Fund Portfolio -> The total stock market index has risen 11% per year for 40 years.
- Trend/Momentum Portfolio -> 7.65% gains after starting it at the beginning of July.
- Dividend Portfolio -> Producing $651 per year in dividends as of 8/7/20.
- Growth Portfolio -> Outpacing the S&P 500 by 27% since November 2019
- High Interest Savings Account -> Earning 0.8% interest per year at the moment (was 2.1% prior to Covid)
By diversifying into different avenues, I am lowering our overall risk while still betting on the US economy over the long term. I heard you, Warren Buffett, loud and clear. Your billions don’t have to tell me twice. Thank you to JL Collins as well! And Peter Lynch!
The Trend/Momentum Portfolio is updated every week, the Dividend Portfolio every two weeks, and the Growth Portfolio every month, so I will share updates here. Our house, the Index Fund Portfolio, and the High Interest Savings Account are set-it-and-forget-it investment vehicles, so they will be included in a bi-monthly update on our net worth.
What is Trend/Momentum Investing?
The Trend/Momentum Portfolio is something I have pieced together over the last year and finally put into place at the beginning of July 2020. It gets rid of all of the noise of the stock market and focuses on some key indicators (will be explained in future posts) that identify an upward trajectory of a stock’s price. The indicators also work for my personality and investing temperament. In my research and reading, a trend/momentum stock is like lassoing a rocket that has just taken off. The price movements of the stock will let me know if it is doing well or if I need to sell the stock and move to another.
Keys to our Trend/Momentum Portfolio:
- The portfolio is housed in a tax advantaged retirement account, meaning that the capital gains (any profit we make on the sale of the stock) are not taxed year in and year out. This allows me to buy and sell stocks while not worrying about the potential tax implications.
- An initial screening system was created to identify the stocks to buy each week, along with a system to track how the stocks perform and if I need to sell any stocks.
- I stick to the system as best as I can. I have only deviated slightly as I get more experience working with the system and try to make small adjustments to manage the portfolio. I am looking to lock in all of my steps in the coming months and then continue that process moving forward.
- I recalculate everything on Friday, submit the stocks for sale and purchase on Monday morning, and then I have fun tracking their ups and downs on an excel sheet and with Finviz throughout the week.
- I have currently set the max number of stocks to purchase in the portfolio at 25.
Our current Trend/Momentum Portfolio
Stock sales this past week:
- Hitting a “sell indicator” (There are four: (1) ATR Trailing Stop, (2) 5wks/Less than 5% gain, (3) 10wks/Less than 10% gain, and (4) 20wks/Less than 20% gain)
- Under $1B or Over $100B in Market Capitalization (a tweak to the rules explained further down):
- TSLA – Tesla Inc
- TSM – Taiwan Semiconductor
- NFLX – Netflix Inc
- WRTC – Wrap Technologies
- ICLK – iClick Interactive
- RVP – Retractable Technologies
- Increased Over 100% in Value (when this occurs we sell half and let the rest continue until it hits a “sell indicator”)
- OSTK – Overstock.com – Currently up 111% since I purchased it on 7/13
- Biggest losers being replaced by new “buy indicator” stocks:
- OCFT – OneConnect Financial Technologies
- SOHU – Sohu.com
- NIO – Nio Inc.
Many of the stocks (ICLK, OCFT, SOHU, and NIO) being replaced this week hail from China. With the uncertainty over the China/US relations and the conflict brought about by Microsoft’s potential TikTok purchase, the Chinese stocks owned in this portfolio have seen a downward trend in their price. This is one of the reasons I like this style of portfolio. When the downward trend starts occurring, I start selling. If relations improve, then I will see those stock prices moving upward and begin to purchase them for the portfolio.
Purchases this past week:
- AES – AES Corp
- APPS – Digital Turbine Inc
- CELH – Celsius Holdings
- GSX – GSX Techedu
- HOME – At Home Group
- MOS – Mosaic Group
- PBI – Pitney Bowes Inc
- SRNE – Sorrento Therapeutics
- SYNA – Synaptics Inc
The portfolio was tweaked slightly this past week to accommodate for the stocks that passed the initial screen test to purchase. With nine companies passing, this more than maxed out the stock portfolio limit of 25 total stocks. So for our Trend/Momentum Portfolio, I will no longer purchase stocks of companies that have a market capitalization (the dollar value of all the stocks of the company) under $1B or above $100B. This will help me manage the portfolio better over the long run.
Overview of the Trend/Momentum Portfolio:
The ultimate goal of this portfolio is to out pace the S&P 500 year in and year out. Since inception (which by no means proves anything as of yet), the Trend/Momentum Portfolio has outperformed the S&P 500 by 2.31%.
Getting Started Investing:
With terms like trend/momentum, growth, dividend, market capitalization, portfolio, high interest savings account, tax advantaged retirement account, and more, I’m sure it is a lot to absorb if you are new to investing. My goal is to make these posts a 15-minute or less read (see the note about finance/investing conversations with my wife above). So these terms and more will be covered on future posts as I continue over the years, but if you have any initial questions, then leave them down below in the comments section and I will do my best to answer them for you.
At the least, you can get started by opening an investment or brokerage account. My favorite starter account is Robinhood. You can open up an account in minutes and they will give you a free stock. Plus, if you use my link below, then Robinhood will give me one free stock too.
And if you choose to get started investing right away, then take a moment to listen to the Motley Fools Investing Dos and Don’ts, or you can read the transcript. Building a Trend/Momentum Portfolio takes some time and understanding, so I would start with the simple initial steps of buying a stock or index fund.
Disclaimer: These are my own personal thoughts and opinions on investing and finance. I may own companies discussed in this post, and I may have recommendations for or against any stocks mentioned, so don’t buy or sell anything based solely on what you read here. Please make sure to do your own research prior to investing any of your money.