Wealth Starter Model - PRussell 3000

The Stitts Wealth Starter Model - PRussell 3000 is a Portfolio123 Ready-2-Go (R2G) that invests in approximately 10 highly liquid stocks from the Portfolio123 version of the Russell 3000.  

Models represent hypothetical or simulated performance, not actual trading. Since the trades have not actually been executed, the results may have under-or-over compensated for the impact of certain market factors, such as liquidity or historical bias. Remember that past returns are no guarantee of future returns. Please read the Disclaimer prior to browsing this site.

Russell 3000 (10 Stocks)

Overview

The Russell 3000 (10 Stocks)  is a Portfolio123 Smart Alpha model that invests in approximately 10 highly liquid stocks from the Portfolio123 version of the Russell 3000.  There is no hedging in this model, making the positions easier to manage. This model is for beginners and part time investors.  

Model Design

Stock Universe

The selected stock universe is the PRussell 3000,  Portfolio123's simulated version of the Russell 3000 consisting of 3000 liquid stocks registered on US stock exchanges.  Note that there are liquidity/price rules applied in the Buy Rules (see below).

Buy Rules

The following buy rules dictate whether any stocks are purchased and if so, which stocks:

  1. Average $-Volume (liquidity) greater than $10 Million
  2. Average price over the last 60 trading days is greater than $2
  3. Only stock from defensive sectors (Consumer Staples, Healthcare and Utiilities) are bought between mid-April and November.
  4. During the remainder of the year, stocks may be purchased from any sector but the Sector weight is limited to 36% of portfolio (diversification)
  5. The model stops buying stocks when $VIX is greater than 40 and the total equity is falling.

Sell Rules

The following sell rules determine which stocks held in the model are sold.  Note that the same stocks may be re-bought at the same time, resulting in no position change or a "buy-sell difference" to occur.

  1. Stock price drop of 10% or more from the recent high value (optimized)
  2. Stock has gained 40% or more (optimized)
  3. Stock Rank has dropped by 3% or more from the previous week  (optimized)  

Market Timing

There are no market timing rules other than the seasonal and total equity buy rules mentioned above.

Model Test


Market Timing Enabled/Disabled

The model was evaluated with no timing rules, individually applying the seasonal and total equity buy rules, and the released R2G model as is.  Performance is increased and risk is reduced with both timing rules enabled.  The results are shown here.

Testing Different Start Dates

A backtest was performed starting at 02/02/1999 then repeated eleven more times with the start date incremented by one week for each run.  As shown in the graph, there was consistency throughout with no major surprises..

Three year runs were performed, the first being 1999-2001 and then incrementing by one year, rerunning the backtest 11 more times for a total of 12 runs.   The results were consolidated into one graph showing the minimum, maximum and average over time.  This technique gives the investor an idea of what to expect over the initial investment period.  There was no three year period that showed a loss.

Degradation Testing

A simple method for degrading the model is by excluding stocks from previous runs.  Each run uses a new and fundamentally lower ranked set of stocks not seen in previous runs.  At the same time the stock universe becomes depleted.  This test was performed and resulted in models that performed really well in backtest through 5 runs.  

Trading Considerations

Cash or Margin Account?

This model does not use margin. However, cash can go slightly negative when buying/selling stocks or switching SHY in/out. Keep this in mind especially if trading in a cash account. i.e. make sure there is some extra cash in the account to cover such occurrences.

Model Compatibility

This model is meant to be traded stand alone or in conjunction with low correlation ETF models.   

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