The Sharpe Report: Issue No. 1 … Dan’s Portfolio

Posted on Dec 27 2014 - 8:46pm by Sharpe Trade

Welcome to the first entry that begins the path of “The Sharpe Report”.  Everything that will follow, in regards to imparting what it is that I know of investing, and trading for the purposes of this project … begins here. As we explained in the “Week in Review” podcast, we will be giving you a free look at the Sharpe Report for a short while. Usually the Sharpe Report will be sent out in an email update.  But since we are giving everyone a free look at first, I thought I would just post the first issue here at Sharpe Trade itself. 


Getting Organized with Records …  

Today, we have to start off with, well … what we have.  The portfolio itself.  Let’s first think about how we will think about our cash.  What is going to be our strategy?  

Well, to begin with we have $6,500.00.  There will be, as stated in that podcast, no capital contributions.  

So what do we do with that $6,500?

Do we just start purchasing assets to “fill it up” the account with a bunch of stocks?

Sharpe Report _ Dans PortfolioNo.  

We need a plan of attack.

In the past, I used a method called “Risk Parity”.  Some found this a bit difficult to follow along, as there may have been as many as 15 to 20 different pieces I was either passively or actively managing.  So  instead, we’re going to use a method called “Core and Satellite”, that’s a bit easier to follow along. And allow me to stress that this is not a “Dan” invention.  This is a portfolio management method that many professionals use.

So if we use “Core and Satellite”, then I have to decide how much of those funds I am going to use for the Core of Passively Managed assets, and how much of the funds I’m going to use for the active trades that will occur in the Satellite portion of the portfolio for active swing trades?

You will be able to see this in the attached PDF that is at the end of this entry, will be using $3,000.00 for the Core of Passively managed assets.  I will be using $3,500.00 to begin, in the section of active trades.  The funds, in total, will be held in one account.  I will keep track of them, as separate entities.  In other words, I will track the core of passively managed assets.  And I will trade the satellite ‘active’ trades.  And I will then track the entire “Core and Satellite” together. I will not begin trading, until January 1, 2015.  So all gains on the portfolio will be based on those initial amounts.  You will see this tracked, week after week.

I keep track of everything in a register.  Myself?  I use Quicken.  But really, anything will work as far as a register.  I know some that just check the online register in their actual brokerage account, and keep track of it that way.  For those that do use Quicken?  I create a brand new file that I will use for this project and I have simply save a new file as “The Sharpe Report Portfolio” in Quicken.  I then create, or “Add an Account” in Quicken.  Actually, I create two Brokerage accounts in Quicken under the “Investing” category.  When Quicken asks me to choose the name of the brokerage, I simply click on “Advanced Setup“, and then select the option for “I want to enter my transactions manually“, and then click on “Next”.  Both are then “Personal Transactions” and name the account “Sharpe Report – Core Passive”, with $3000.00 effective January 1, 2015.


No Tickers need to be filled in.  It will ask me:  “You have not entered any securities.  Are you sure you want to create this account without any security holdings?“.  I select “Yes”, and click “Done”  I then repeat the process and name the second account “Sharpe Report – Satellite Passive“, with $3,500.00 as the beginning cash amount, effective January 1, 2015.  In this way, I can track how my “Core” is doing, how the “Satellite” is doing, and then see how the total amount is performing.

But as we said, we could use anything for a register.  This is simply the way I do it.  I can enter a ticker symbol in Quicken and click on “Update” and it will go out on the Internet, and grab the most recent quote for that particular asset, and update the portfolio automatically. But any type of ‘register’ will work.  Some simply use the register that their broker provides online.  They either have each piece as two separate accounts, and then they compile the total.  Others keep track in a spreadsheet.  Really, anything will work, so long as you can track how each piece is doing.

Something else that will appear each and every week here on the Sharpe Report, is a document, summarizing the portfolio and it’s performance.  I save the Document as a PDF, and what we will accumulate over time is a series of PDF’s that show exactly how we have done, week by week.  

I have attached an OpenOffice (Not Word, and no, we do not translate the document from OpenOffice to Word.  OpenOffice is free) document as the raw document for portfolio records.  If you want to use that for your own personal records?  Feel free.  In addition, I have the PDF portfolio summary attached.

Record-keeping is vital.  Without it?   This simply is placing trades, willy-nilly, no different than many of the retail traders who fail at trading, time and time again.  Record-keeping allows us to track our progress, note problems, and if need be … quickly correct them.  Do not let it overwhelm you.  As I have stated previously, my record-keeping might take me 4 minutes, tops, per day.  As this portfolio will be a bit ‘easier’ to maintain?  It may not even take me that long.

Regardless, I will be discussing record-keeping to a greater degree as we progress, and demonstrating some short-cuts.

Now what about the markets?


Market Thoughts …  

My first task, as I stated in that podcast, is to build a solid foundation, and to slowly build that “core” portion of the portfolio.  These are positions that I would want to hold for a longer period of time.  And my first thought if I select a position?  Really the first thing to think about?  Is that of my risk.  How can I get hurt?  That’s my over-riding thought process.

Now I think of “Macro” or, in other words, the economic forces at work.  And one thought I’ve had, is that we are staring at a rise in the Fed Fund prime rate.

When will that happen?  

We don’t know.  I have thoughts.  Your uncle may have thoughts on it.  But the real truth of the matter is, that we don’t know.  I know that in the past (and using the past as a guide can be very, very tricky to do) every time the markets overall sense a rise in the Fed Fund prime rate?  Be it the summer of 2013?  The markets began to freak out.  Emerging Markets (other countries economies) and the Bond markets began to drop precipitously.

Bonds are usually a “safe place” to look to place long-term in a portfolio.  Look at TLT.  This is a Bond exposed ETF to the long end of the bond curve, or longer dated Bonds.  It’s already quite high, and quite extended.

So explaining sort of ‘where my mind is at’, I outline my thoughts on this, in the following brief video ….  

(I can’t believe after going through my own “pet-peeves” of people calling “TLT” as an ETF, ‘Bonds’, I did the very same thing in that video.  LOL.)

Now again, those are not necessarily instruments I am thinking of for use in a portfolio.  Those charts were used simply to illustrate my thought process. 

That’s what is on my mind as we move forward.  In future entries, I’ll discuss my thought process as I look to construct that “core” of assets.  Again, the PDF and OpenOffice Raw Document Files are below in the links …

This is the Raw Open Office Document File.

This is how this PDF will appear from that ODT document file, each week ….

(We continue the discussion in this next entry)

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