You’ve been clickbaited.

I’m not answering the question. No recommendations will be given.

Rather than giving you a fish, I’ll teach you how to catch your own dinner.

The second most common question, and third in our FAQ series, is “What do I run to make money” and it’s not a simple answer. It depends on your risk tolerances, what “making money” means to you, and what kind of intestinal fortitude you’ve got.

Do you want to take the classic hedge fund route and just barely eke out gains, but potentially avert most of the drawdowns? Do you want to go full WallstreetBets, say “I’m going to Valhalla or the Wendy’s dumpster” and risk your entire portfolio on one ticker every day? We’ve got strategies for both, and answering that requires you to know yourself.

The 4 questions I now ask before I give advice.

1. Who do you think like more, Warren Buffet or Michael Burry?

2. Have you stomached 5%-10%-20% intraday swings or drawdowns before? How’d you like it?

3. Do you want to be "setting and forgetting" or constantly checking Composer?

4. How long are you willing to let the strategy work for?

You answer those 4 questions, and I can give you something I would run if I was in your shoes. As always, it’s not a recommendation, just my opinion, and we all know my job is losing money so take my opinion at your own risk!

Slow and steady vs big and risky

If you don’t already know who these folks are, hit up Wikipedia

So, do you prefer to take large, concentrated bets that have a very high risk to reward ratio? You’re a Michael Burry

If you want to be Michael Burry, you’re going to have to endure long and violent downturns to get to the promised Valhalla of early retirement, assuming your strategy even works that is.

You prefer to wait until you’ve found the opportune time to buy something, pile in, and wait 20 years for it to materialize? Congrats, your style favors the legendary Buffet’s endless search for undervalued companies.

If you want to be like Warren, you’re in for a long, slow road. Keep in mind that consistently beating the S&P500’s average of 10.15% CAGR is a remarkable feat that blessedly few investors or fund managers can manage to do over extended periods of time! Small, good decisions can compound to lead to a lifetime of fabulous wealth if you have the patience to see them through.

Can you handle the volatility my friend?

Second question is about your mental state. Can you handle seeing your portfolio down 20% in a week? Does the idea of watching 5% of your portfolio evaporate in a day scare you?

If the answer to either of these questions is yes, then tread carefully when leveraged ETF’s or Volatility ETF’s like VIXM, VIXY, and others are involved. They’ve been known to move upwards of 10% in a single day when conditions are right, or wrong!

If the answer is “Yes, I can take it” then congratulations on being a Zen Master.

Use whatever strategies your heart desires, just make sure the theory makes sense!

How much of a time investment do you want this to be?

A lot of community members started using Composer to get more time away from our computers and trading terminals, but we ended up finding a group of friends and a hobby that does the exact opposite. We run daily data collection stuff on portfolios and strategies, near constant discussion on the finer points of algorithmic design, and generally help new people get as sucked in as we are!

If that isn’t you, and you don’t want to be watching your portfolio like a hawk, you’d be best served holding off on your initial investments, or at least keeping them small, until you get your head fully wrapped around the strategies you’re going to be putting in your portfolio.

Understand the Theory.
Validate the Theory.
Implement the Theory.
Wait.

As proof that I practice what I preach (mostly)

On a strategic level, you’re going to want to avoid things that require updating (Dynamic Baskets like Pareto’s Portfolio, the Jesse Greider Screener, or the BioTech Rotator.) You’re also going to want to avoid literally everything that still requires validation, as making sure a complex strategy is sound requires daily, or at least weekly, observance to make sure it’s operating within its bounds.

In other words, Keep It Simple, Stupid.

How long you got?

Most strategies are not simply “Line goes up and to the right” money printers, although creating one is a daily effort and struggle. There will be drawdowns, there will be sideways markets. Preparing for these is a critical part of the process of determining what to invest in. I recommend the following article, where I detail how exactly to see just how those drawdowns have played out in the past.

The game of algorithmic investing is a game of patience. It tests your ability to stick to a system, to endure a set of rules in order to receive the promised payoff in the end. You cannot use one day, or even a couple of weeks, to determine the quality of a strategy. The exception to that rule being when that strategy strays well outside of a historic average or extreme. That absolutely warrants a re-examination of the premises the strategy was developed under. Any worthwhile investment strategy takes months, if not years, to truly pay off in a big way. That is something that both Michael and Warren would agree on.

So, if you’ve made it this far I feel like I owe you something for clickbaiting you as hard as I did in the beginning. I’ll leave you with two screener settings I use for the Community Database to find compelling strategies to dig in to, based on the two different types of investors we’ve laid out here today.

First, the Conservative Stuff

I’d like to think that if Warren were a Zoomer, he would focus on minimizing drawdown depth and length, and making sure the strategies he was examining were trending upwards over some period of time.

For those of you using the SQL input version of the Database, my personal layout;

select symphony_name, symphony_url, backtest_start_date, max_drawdown, [Worst Day], cumulative_return, annualized_return, oos_performance, Correlation, [Serenity Index], annualized_oos_performance, calmar_ratio, standard_deviation, [Ulcer Index], [Longest DD Days], [CAGR﹪], [Sortino/√2], [Smart Sortino], Skew, [Win Days], [Cumulative Return], Kurtosis, Sortino, [Profit Factor], Omega, [Tail Ratio], Sharpe, [Smart Sharpe], [CPC Index],[Gain/Pain Ratio], [Payoff Ratio], Beta, [Kelly Criterion], created_by, source from [2023-10-01_public] where "Avg. Drawdown Days" <= :p0  50 and "annualized_oos_performance" >= :p1 0 and "max_drawdown" <= :p2 .25 and "returns_3m" >= :p3 0 order by [Max Drawdown] desc limit 500

And now, the fun stuff

We want things that are profitable, and we don’t care about much else right now. Things that work, things that trend up, and things that make money.

select symphony_name, symphony_url, backtest_start_date, max_drawdown, [Worst Day], cumulative_return, annualized_return, oos_performance, Correlation, [Serenity Index], annualized_oos_performance, calmar_ratio, standard_deviation, [Ulcer Index], [Longest DD Days], [CAGR﹪], [Sortino/√2], [Smart Sortino], Skew, [Win Days], [Cumulative Return], Kurtosis, Sortino, [Profit Factor], Omega, [Tail Ratio], Sharpe, [Smart Sharpe], [CPC Index],[Gain/Pain Ratio], [Payoff Ratio], Beta, [Kelly Criterion], created_by, source from [2023-10-01_public] where "Payoff Ratio" >= :p0 1.1 and "Profit Factor" >= :p1 1.25 and "Serenity Index" >= :p2  50 and "annualized_oos_performance" >= :p3 0 and "returns_3m" >= :p4 0 order by [Max Drawdown] desc limit 500

Hopefully this has been an educational experience for you!

Take this knowledge and comb the database. Use the previous newsletters to verify strategies aren’t hot garbage. Once you’ve assembled a portfolio, come to the Discord Server and post some links in the Portfolio Review channel and we’ll get a discussion going about your picks!